Pricing innovation

Not everyone loves Ruslan Kogan, the head of online technology designer, manufacturer and retailer Kogan Technologies.

Gerry Harvey has sparred with the young entrepreneur for the better part of two years, famously calling him a “con man” and suggesting his products were rubbish.

Of course, Ruslan treats the spat with a great sense of fun. He knows there’s no such thing as bad publicity, and he has a happy knack for self promotion shared by many entrepreneurs.

But whatever your opinion of Kogan, he does deserve some credit for demonstrating a level of innovation rarely seen in the retail space.

His basic model is built around the idea of eliminating the traditional manufacturer-wholesaler-retailer chain. He has a group of manufacturers making components in China that are then assembled according to his designs, and sold directly to the public via his websites.

The model relies on technology, logistics and the ability to the great factory of China. A decade ago, this sort of model probably couldn’t have existed. Today, Kogan boasts a fortune estimated at $29 million by BRW magazine.

He’s also tried to do something innovative in the area of pricing with a pricing mechanism he’s called LivePrice.

It works by offering customers cheaper prices the earlier they buy in the manufacturing process. Under the example used by Kogan, a customer could by a TV at the start of its product cycle for $330, and wait until March to get the product. Or they could buy the product in March and get it immediately – although the price will have increased to $399.

The customer gets the opportunity to get a hefty discount while Kogan gets cash up front to meet his manufacturing costs.

It’s a very different way of looking at retail pricing, and one which relies heavily on the fact he is based totally online.

However, it seems to have struck a chord with Australian customers. Kogan announced yesterday it had already sold $329,965 worth of products via the mechanism after launching it on February 2.

Will it work long-term? Will it force other retailers to follow? I have no idea, although I bet the increased level of transparency it brings around supply chain processes and margins might make some competitors squirm.

However it works out, Kogan deserves some credit for having a go at something different. It should also make entrepreneurs look at their pricing models and consider what they could do differently.

The idea of giving discounts where customers essentially help meet working capital requirements by paying in advance is one that could apply to a lot of industries and businesses.

Could it work in yours?