Tesla has streamlined its pricing on the Model S and Model X. And there's something to be said for that.
The car company on Tuesday removed the Standard Range versions of its Model S and Model X, effectively eliminating the two cheapest versions of its popular cars. The move means the base model Model S now jumps from $75,000 to $79,990 and the base model Model X now costs $84,990, up from $81,000.
Of course, Tesla critics are railing against the move, saying that it's a way for Tesla to increase prices for its customers. And one would be reasonable for thinking that. But it's also an attempt by Tesla to streamline what has become a maze of pricing concerns for shoppers.
Now, when you try to buy a Model S or Model X, you're only presented with two options -- Long Range and Performance. Previously, a Standard Range was also included, which only made trying to determine which range you needed even harder to determine.
The move is the latest in a string of major pricing changes Tesla has made in recent months. Earlier this year, the company decided to stop taking Model 3 pre-orders online -- a move some saw as a ploy to get online shoppers to buy the higher-priced models.
Whatever the case, the Tesla move is telling. It suggests that Tesla was having trouble with its pricing and confusing customers. And yes, it might also mean that its pricing scheme wasn't as profitable as the company -- and its investors -- hoped it would be.
An Opportunity for Business Owners
But it's also an opportunity for business owners to rethink their own pricing mechanisms.
Like it or not, Tesla's pricing is unique in the car industry. It's a space where consumers head to a dealership to find the car they want and then haggle to get the best price. Tesla has thrown that idea on its head and taken a decidedly retail bent. The company provides a price on a car and consumers can either take it or leave it.
But in so doing, Tesla also failed to see the complexity that goes with buying a car. And although one model might have something over the other, which dictates a higher price, consumers who lack the knowledge they might get at a dealership were lost.
It took Tesla a while to understand that. And perhaps it took the company even longer to realize that profitability in pricing can be achieved or lost by the way you price a product.
As a business owner, it's incumbent upon you to identify whether your pricing is doing more good than harm. Are you finding that customers are buying the cheaper versions of your products, even when your margins are thinner there? Are your Web analytics telling you that customers are analyzing your products, but turning away and not buying anything?
To its credit, Tesla analyzed its pricing and tried to find a solution. But too often, companies don't follow suit. And in some cases, especially in companies with brand recognition and popular products, not even thought is given to pricing after the "formula" has been worked out.
If there's any formula for product pricing on anything from cars to iPhones, it's that there is no formula for pricing. It's a constant battle of evaluating and maintaining costs, identifying pain points for the company and customers, and arriving at a price that makes the product more attractive to customers than those from competitors.
Does Tesla finally have it figured out? It's hard to say. But it's trying to figure it out. And now it's your turn as a business owner to ask yourself the same question -- and find a solution if your pricing model is broken.