Google is very smart in the Google Adwords pricing process. However, it makes a lot more sense to understand how we can price our product & services.
if IT systems instead were focused on giving incentives so that people were actually willing to tell the ﬁrm what they were willing to pay. This is what Google has been able to do with its automated auctions for advertising search terms ‘Adwords’ system. By doing this, Google has transformed itself into the market leader in the provision of advertising.
A quick description of the Google search term auction mechanism:
• Firms enroll in Adwords
• They pick the particular keywords that they want their ads to display in search results.
• They then place a bid for each of these keywords.
• (Roughly) the ﬁrm that bids the highest amount has their ad displayed ﬁrst, and pays the price bid by the second highest bidder.
Google also adjusts the price bidders pay based on their ‘Quality Score,’ that is, how many customers click through on the ad. The second highest bidder’s ad displays second, and they pay the price bid by the third highest bidder, and so on.
Lessons to learn from Google for the pricing your services:
# Auctions can help you for better pricing.
# Identifying the right type of network interaction to price can be crucial. Example: Pay-per-click big success compared to pay-per-impression & Pay-per-action.
# Pricing on the most micro scale possible is essential for proﬁtability.