Question

3.Yahoo said people who subscribe to the download service on a monthly basis will see their memberships increase from $6.99 per month to $11.99 per month. Portal company Yahoo Inc. ( Nasdaq: YHOO - news) informed customers of its subscription music download service that it will increase pricing for users who transfer their tunes onto portable devices or CDs. Explain yahoo’s pricing strategy

Answer 1

Answer: this is lock-in pricing strategy.

This is the strategy where price are kept very low initially (cheaper than market price, $6.99). Such low price attracts customers. Customers are locked in. Once the business gets lots of customers who are used to with the product, the business increases the price suddenly at very high rate (may be just double, $11.99). The business hopes that the existing customers should not leave because they become almost addicted using the product; therefore, rising price increases business profit.