http://www.sajim.co.za/vol1.nr1.01_06_99/peer4.asp?print=1


   
  Peer Reviewed Article Vol.1 No.1 June 1999

A framework for pricing the information 
products of self-funded corporate 
information services 
C.G. Smallman 
De Beers Diamand Research Laboratory, Johannesburg  
smallman@icon.co.za  

Contents  

Introduction 
Information products of corporate information services 
Value components of information products 
Pricing concepts and approaches 
Pricing framework of information services 
Conclusions 
References  

1. Introduction 

The pricing of information products is a central issue within the information economy paradigm. 
Information as a tradable commodity or resource is different in many respects from material 
goods and pricing approaches need to reflect both the differences and the commonalities. The 
objective of this article is to propose an approach to the pricing of information products by 
corporate information services that serve a number of business units within a single 
corporation.  

To avoid confusion and given that there are several definitions of key terms used in the 
literature, the terms 'information' and 'knowledge', as used in this article, need to be defined 
(the definitions are operational and are not intended to be unambiguous). 'Knowledge' 
comprises beliefs about the world (in the broadest sense) that are held implicitly and/or 
explicitly within the minds of people. 'Information' is knowledge that has been codified, 
represented on some physical medium, in some format such that it is ultimately communicable 
between people and/or automatons (for example, computers) and understood by them, in the 
appropriate sense. Information is not necessarily recorded or sustainable, and the spoken 
word is an example of information (assuming that it is understood by someone). Knowledge 
and information are not differentiated on the basis of any assumed implicit value and so 
knowledge is not of an intrinsically higher value than information. Some authors imply the 
following hierarchy in terms of value (in descending order): knowledge – information – data. 
This view is not shared and, depending on the context and the needs at hand, each can be 
valuable in its own right, with data, quantitative models and competitive intelligence being 
examples of information. Value is a separate concept altogether, one that can be applied to 
both knowledge and information.  

Du Toit (1995) defines information products as 'the products, services, systems and channels 
which carry information'. This article focuses on the pricing of information content, rather than 
on all the products on the market within the information sector as a whole (PCs and printers for 
example), and specifically on information that is likely to be purchased by business enterprises 
in order to support decision making, rather than on entertainment, advertising or training 
information, for example.  



The type of information services dealt with in this article does not create original content, and 
developments in information technology are making it increasingly feasible for end-users to 
acquire it directly from authors, publishers and other vendors. The role of the information 
service, or 'information proficiency' industry as some call it, is to increase the value of available 
information for its clients. Locating, retrieving and adding value to information can be very 
time-consuming and counter-productive if left to people who are not professionals in this area. 
Competitiveness depends on the efficiency with which these activities are carried out, and 
hence costs kept down, as well as on continually improving the value of the information 
products provided to clients. It is clear that this industry is likely to become highly competitive 
and rapidly changing, with only the most responsive and sophisticated businesses surviving.  

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2. Information products of corporate information services 

2.1 Nature of the enterprise  

Traditional company libraries are having to adapt to their new role as true information centres 
that are expected to occupy a key place within information value chains. Increasingly, they are 
expected to provide high value information at competitive prices, or else the service will be 
shut down and outsourced. The type of corporate information service discussed in this article 
is in just this position, serving the needs of several business units within a single corporation 
and having to function as a self-funding service. Furthermore, income needs to exceed 
expenditure in order to fund the development of new products and grow at a pace that 
marginally outstrips its parent company's information needs. At least until the service is able to 
achieve its optimal size (assuming that it starts off too small), product range and cost structure, 
and assuming that it is not allowed to compete in the open market, the short- to medium-term 
price objective of the information service must be that of profit maximisation, within the 
constraints on pricing and product quality. It is also assumed that it cannot use advertising or 
any other external source of revenue to subsidise its products and lower the prices.  

The product of such services tends to be custom-made for clients, with whom it is generally 
necessary to maintain a close relationship. In terms of intellectual capital, a major asset is the 
relationship capital acquired by the service as far as both its suppliers and clients are 
concerned, which represents a significant barrier to market entry by competitors. However, if 
their prices are significantly higher than those of competitors, and if this advantage is not well 
exploited, the client companies will almost certainly turn to another company for its information 
needs.  

The market is quite different from that of commodity products, such as software or books, and 
so products tend to be well differentiated by virtue of their being developed for specific 
individual clients. Economies of scale are likely to be less important than in the case of 
commodity products and many of the other economic characteristics unique to information 
products also do not apply strongly. Information services offer a range of products, from those 
that are generic and can be used by several client companies and many people within those 
companies, to those that are designed for specific purposes within a single client company. 
For this reason, products are generally bundled together according to options selected by 
clients and priced accordingly, allowing much scope for client-led customisation of product 
bundles.  

Owing to the fact that the information services in question are not competing in a commodity 
market, and focus on high-value, low-cost products and services, they can pursue a profit-
maximising pricing objective. One of the critical issues in setting prices is likely to be the 
correct mix of subscription versus 'pay-per-use' approaches. As discussed below, this mix 
depends on the nature, cost structure and mix of products within a bundle as well as the 
preferences of each individual client. The objective of this article is not to provide an algorithm 
for price-setting, since this depends on many factors related to the competitive environment 
and the market being served. Rather, it seeks to develop a framework that can be used to 
construct product bundles and use pricing approaches so that the needs of the client and the 
profit maximising objective of the information service are met.  

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2.2 Economic characteristics of the information products  

Information- and knowledge-intensive products have economically significant characteristics, 
some of which are different from those of physical goods and traditional services. Firstly, 
information/knowledge is an example of a 'public good' and not appropriable (Arrow 1985), 
meaning that it can be used without being consumed, that is, it does not depreciate in value 
with sharing and use. In fact, its quantity and value may increase with use (Cleveland 1982; 
Stewart 1998:170). A consequence of this is that whenever information is traded the buyer 
never really knows that he needs it (or what price its worth) until he sees it, but once he has 
seen it he may no longer need to buy it (Arrow 1995; Stewart 1998). Furthermore, the 
information might only become useful long after it has been acquired.  

Secondly, these products often have negligible marginal cost, with the bulk of the costs 
generally being the fixed costs of intellectual capital and resources needed to research, 
develop and produce the product (Shapiro and Varian 1998). Thereafter, its reproduction, 
distribution and other marginal costs contribute negligibly to the cost, regardless of the number 
of end-users. Furthermore, producers of information products tend to have few constraints in 
terms of production capacity. In Stewart's words (Stewart 1998:174), such products are 'front-
loaded' with respect to costs. According to Shapiro and Varian (1998), these fixed costs are 
usually dominated by sunk costs, which cannot be recovered if the product is unsuccessful or 
if its production is stopped (for example, there is no factory which can be sold to recoup costs). 
These factors mean that economies of scale are a dominant feature of the information 
industry, which strongly favours large producers over smaller ones. In the case of information 
services that have only a few major clients, the products of most value to the client are often 
customised and so there are few economies of scale to exploit. However, in the case of 
products that are generic and of use to many users within a client corporation (for example, 
news clippings) scale economies can be used to offset the costs of the more expensive 
custom products.  

Thirdly, information is not bound by space and can be distributed around the world almost 
instantly, which underlies the shift towards globalisation of the economy, although its value can 
be very sensitive to time. As a corollary to this, Cleveland (1982) notes that information is 
'diffusive' and is difficult to make secure since it tends to diffuse easily from its source.  

Stewart (1998:174) asserts that two fundamental principles of traditional economics break 
down to some extent in the information economy. Firstly, the law of supply and demand breaks 
down in the information economy to some extent because a) the distinction between buyer and 
seller is now blurred, with both parties contributing to the creation of knowledge/information-
intensive products (for example, the phenomenon of 'mass customisation', in which customer 
and supplier collaborate to create unique products); and b) supply can be controlled by the 
consumer to a large extent. One of the challenges of corporate information services is to 
establish a virtually integrated supply chain with their customers (Magretta 1998), integrating 
customers into their value chain rather than seeing them as passive recipients of information. 
As far as possible, users should be able to get the information they need on demand, easily 
and quickly customised by themselves by means of software via a friendly interface.  

Secondly, the law of diminishing returns breaks down to some extent as well. This law refers to 
the tendency for each further unit of investment to be less productive than the previous one 
(Stewart 1998:174). In the context of negligible marginal costs, a feature of some information-
intensive products, extreme economies of scale may apply, which allows market leaders to 
exponentially outpace smaller competitors by investing very large amounts in R&D. This is 
unlikely to be a major factor for the kind of information service discussed in this article, since 
extreme economies of scale seldom apply. 

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3. Value components of information products 

What value does an information service add to the information available from existing 
vendors? In other words, why would employees within the client corporation not simply access 
this information directly? Firstly, the information service staff should be experienced in carrying 



out the various activities involved in retrieving, processing and distributing high value 
information in the fastest and cheapest way. Secondly, it is likely to be cheaper to have a 
single gateway to information vendors than to give every staff member access to them, from 
both a search proficiency and a licensing point of view, the latter depending on the pricing 
approaches of the vendors. And thirdly, the products of the service should save time for the 
end users, for whom every minute spent sourcing and retrieving information is time not spent 
carrying out their own core functions. The products, if sufficiently relevant to individual users 
and timeously delivered, can therefore increase the productivity of the client company's staff.  

The ability of an enterprise to add value to information as well as minimise costs by 
maximising efficiency depends on the professional competencies of the staff. An information 
service should leverage the high competence level of its staff, its principal asset along with its 
relationship with the client, by using this as part of its marketing and pricing strategy. These 
competencies must be consistent with the kinds of products being offered, and will mean 
higher salary costs.  

The value of an information product depends entirely on the user's needs and his/her ability to 
use the product to achieve specific objectives. A list of 15 generic components of value to a 
user of content-based information products, excluding entertainment, is presented in Table 1 
together with a brief description of each. This list is not meant to be exhaustive. The supplier of 
the product may offer a version that maximises all of these components, at a price premium. 
Other versions, with various components downgraded in value, may be offered at lower prices. 

Table 1 List of 15 possible components of information product value, grouped into broader 
categories. (The elements marked with a # were taken from Shapiro and Varian 1998.)  

Value element Description
Content Accuracy The degree of precision of the 

information (for example, the 
number of decimal places to 
which numerical data is 
accurate). This could include the 
resolution of images

Reliability The degree to which the 
information is correct at the time 
of use, which depends on its 
source

Relevance The degree to which information 
matches the specific needs of a 
given client at a given time (for 
example, the minimum 
information requirements to make 
a specific decision)

Comprehensiveness 
# 

  

The degree to which information 
is presented the context and in 
depth of detail. 
Comprehensiveness may not 
always be desired and a premium 
is placed on the elimination of 
unnecessary detail (for example, 
an academic may require greater 
comprehensiveness than a busy 
executive)

Usablilty Support # The degree to which post-sale 
support and assistance is 
provided to the client

Manipulation 
#

The degree to which the client 
can modify, reproduce, store, 
print or otherwise manipulate the 
information to suit his/her needs

Supplementary The degree to which other 



  

The elements in Table 1 are simply examples, and others may be appropriate, depending on 
the nature of the product. The producer may tailor the product to maximise all of these, or 
purposely downgrade some of them and offer the product at a lower price.  

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4. Pricing concepts and approaches 

services and 
products

services and products are made 
available to the client in order to 
better utilise of an information 
product (for example, the supply 
of free software to analyse 
purchased data)

Convenience 
#

The degree to which the use of 
the product is restricted (for 
example, to a particular time or 
place, or to a limited amount of 
time)

Inquirability Interactivity # The degree to which a user can 
explore or browse in order to 
uncover the information he/she 
needs, at the appropriate level of 
detail (for example, by means of 
hyperlinks to other information)

Community 
access #

The degree to which purchase of 
a product entitles a client to 
access on-line communities, 
which may enrich the use of the 
product through discussions with 
other users

Meta-
information

The degree to which information 
about the information product is 
made available to the client (for 
example, information about the 
source and reliability of 
information)

Delivery Mode The format, style and medium by 
which the content is presented to 
the client (for example, a formal 
report on paper, or a personal e-
mail)

Timeliness The degree to which content is 
made available to the client so 
that its utility value is maximised 
(for example, before other users 
have access to the information)

Annoyance # The degree to which the delivery 
of the product is free from 
annoying factors (for example, 
advertisements, partial views, 
etc.)

User 
interface #

The way that the client accesses 
the product and the degree to 
which this allows him/her to 
customise the content and its 
delivery, and maximise other 
elements of value



Since the value of information depends on the specific needs of the customer and his/her 
ability to exploit it, a simple demand analysis approach is not suitable for determining its price 
(Shapiro and Varian 1998). According to Best (1988), an information product can be regarded 
as a resource in the usual sense and priced as such if it contributes to some specific purpose 
in a demonstrable, measurable way. However, Eaton and Bawdon (1991) note that informal, 
browsable and peripheral information is excluded from these conditions and is more difficult to 
price, even though such information may prove to be valuable.  

The pricing of information products should be done within an overall pricing objective, of which 
there are several generic types. Du Toit (1994) discusses two broad types of pricing objective, 
namely those that are sales-oriented, in which market penetration and turnover are 
emphasised, and those that are profit-oriented, in which prices are set with a specific profit 
margin in mind. In a market where there is minimal differentiation between information 
products with negligible marginal costs and high up-front costs, the profit maximisation 
objective will generally lead to ruin for all but the most dominant competitors (Shapiro and 
Varian 1998). This is why simple cost- or competitor-based pricing of information usually 
cannot be applied. In the case of a corporate information service, several basic principles must 
be satisfied by any pricing structure:  

The actual prices of products and services, the way they are bundled, and the methods 
of price measurement and calculation must be acceptable to clients.  
Information products that are 'mission critical' to clients must be of high quality and be 
sold at the lowest prices possible, even if the costs of providing these products are high. 
The consequence of high prices for these products may mean that the clients turn to 
competitors, who could cross-subsidise the high-cost, high-value products by charging 
extra for the more profitable products.  
Prices must generally reflect the value of the product/service to the client, and not the 
time or cost taken to produce it. In other words, if the market value does not exceed the 
costs incurred in producing the product (for example, the man-hours times the average 
hourly wages) then a) production must become more efficient, through training or 
automation; b) the product cannot be offered; c) the product must be bundled with more 
profitable products to offset the loss; or d) the product is only offered as a bonus to 
heavy users of the service. 

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4.1 Versioning  

If an objective of profit maximisation is to be pursued, a way must be found to differentiate 
information products on the basis of their value to groups of users. Shapiro and Varian (1998) 
suggest that the best approach is to base price on versions of the product and allowing the 
customer to choose which version to purchase. Each version will have a different value 
structure from the point of view of a given user and is offered at a different price, which often 
means reducing the value of a high-value product in specific sets of value components and 
charging less for it. The goal is to get each user to pay the highest possible price for the 
product, and they suggest that full advantage be taken of the phenomenon of extremity 
aversion by generally offering more than two versions of a product. This phenomenon refers to 
a tendency for most buyers not to opt for the top or bottom of the range product, but an 
intermediate one. These authors note that versioning and the associated product 
differentiation and positioning are good defenses against the commoditisation of information 
products and the consequent downward spiral of prices. Corporate information services could 
offer product versions that are tailor-made for their clients so that the users within the client 
corporations can select which versions they would like to purchase, given their individual 
needs and budget restrictions. The ability for users to create their own versions could be 
offered. Versioning can help these services defend their businesses from competitors, and 
facilitates bringing the users into their value chains.  

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4.2 Discounts for value-adding  

Another way of causing the users themselves to participate in the value chain of the 
information service is by offering incentives. Credits and discounts could be offered to end-
users if they add value to the information base, especially digital databases, used by others. 



For example, meta-information (that is, information about information) could be added by users 
on the basis of their own knowledge and experience in using the information (for example, a 
statement about its reliability or accuracy), and links to other sources could be added. Users 
who contribute in such ways could be awarded 'credits', allowing a certain amount of free use 
of products for each contribution. Since their identities would be recorded in order for this 
approach to work, there would be a strong disincentive to abuse the system!  

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5. Pricing framework of information services 

5.1 Cost versus added value for a client  

The total cost of producing and supplying a single unit of a product incorporates both fixed and 
variable costs, including raw materials consumed (for example, paper) and man-hours. For 
example, the total cost of a manual search of Dialog includes both the direct searching costs 
and the wage rate of the person searching times the period of time required for the search. 
This equation will determine the 'wage-cost'. If the wage-cost is not taken into account in the 
price of a product, high demand for the product could result in the need for additional staff, 
thereby pushing up costs, or in the quality of other products being undermined due to a 
shortage of staff.  

Certain information products are critical to the competitiveness of the client enterprise and are, 
in a sense, almost priceless. Value above the 'mission critical' level corresponds to 'must have' 
products, that while those below it corresponds to 'nice-to-have' ones. The total cost is the sum 
of the up-front and marginal costs, and it is the lowest cost for which a product can be made 
available to a user within a given client corporation. (See Table 2 for a brief description of each 
zone.)  

In contrast to these 'must-haves' are products which are 'nice-to-have', but which could be 
sacrificed without competitiveness being significantly compromised.  

Table 2 Meanings of the five zones, which represent the total cost of information products 
versus the value of the products to the client enterprise.  

Zone Description
A Products are both profitable and mission-critical 

for the client ('must-haves'). High profits can be 
realised if these products are highly customised 
for the client, based on a high degree of 
relationship with the client (which serves as a 
barrier to competition)

B Products are potentially profitable, but not mission-
critical ('nice-to-haves'). If these products are 
offered on their own (that is, not part of a bundle), 
and especially if they are generic, profit margins 
will be forced downward by competition unless 
versioning is used to increase customisation and 
product differentiation

C The total cost of the product exceeds its value to 
the client, and the products are not mission-
critical. These products should only be offered as 
part of a high-value bundle, if at all

D The products are mission-critical, but their total 
costs are so high that the client cannot afford to 
pay for them and would seek cheaper options from 
competitors unless they are subsidised

E Products are mission-critical and can be afforded 
by the client, but are so expensive that it would be 
wise to cross-subsidised them to prevent the client 



The term 'profitable' refers to the fact that a product's total cost is lower than the price the 
client is prepared to pay for it, even if only a single unit is sold.  

5.2 Level of personalisation versus marginal costs  

Another useful matrix could be one which characterises products in terms of the level of 
personalisation of products versus their marginal cost, which is 'the addition to the total cost 
resulting from the addition of one unit to total output' (Baumol and Blinder 1982:401). In the 
case of a product, such as information, that can be re-used and/or used by multiple customers, 
it refers to the additional cost incurred when one additional customer makes use of the 
product. The levels of personalisation vary from 'generic', which means that the same product 
is available to any user (for example, anything on an intranet site), to 'customised', which 
means that the product has been designed with a particular user in mind. An example of the 
latter would be a specific search of Dialog or the Web on behalf of a user. This search could 
be conducted by an information professional, and then have a high marginal cost due to the 
wage-cost involved, or by an automated search agent and have a lower marginal cost. Any 
customisation of information delivery, for example, carried out by the user by means of tools 
made available to him/her would incur minimal marginal costs. The marginal costs are divided 
into 'high', 'medium' and 'low'. Low marginal costs may allow minor economies of scale to be 
used if the product in question has some value to users from various client corporations.  

The use of versioning allows products that are generic to be shifted towards customisation with 
no necessary increase in marginal cost if versions are set by the supplier or designed by the 
client by means of the tools provided. As discussed in section 5.2 above, versioning can have 
a significant impact on product differentiation, value to the client and pricing of the product. In 
particular, it can be used to defend the more generic products within a bundle against clients 
choosing to obtain these products from a competitor at lower prices. Products that are generic 
but have intermediate to high marginal costs, and are not offered as differentiated versions, 
are not likely to offer high profit margins due to competition and may even be unprofitable 
unless they are of high value to users within at least one client corporation.  

5.3 Bundling and cross-subsidisation  

Table 2 summarises some of the various possible scenarios based on the zones of the total 
cost-value and marginal cost-personalisation matrices. A pricing approach is suggested for 
each scenario. Whether or not a 'high' value rating means that the corresponding product is 
mission critical must be determined in consultation with the client. It is important to note that 
these are simply examples of scenarios and that the cost structure and total cost, for example, 
depend very much on copyright licensing agreements with content vendors.  

Table 3 Examples of pricing approaches suggested on the basis of the total cost-added value 
and marginal cost-personalisation matrices  

from seeking cheaper options elsewhere

Total 
Cost / 
Value 

Marginal Cost / 
Personalisation Pricing Approach 

High / High 
(zone D or 

E)

High / Custom Subsidise if necessary and charge per-use (for 
example, online Dialog or Internet searches 
conducted by experts, articles in the news and 
business media etc.). These are flagship 
products offered by the information service to 
its major clients. Internet searching and 
browsing may offer somewhat less added value 
than a Dialog search since the latter arguably 
requires more expertise and has limited access

Low / Generic Highly profitable if economies of scale are 
exploited. Offer on subscription basis with 
significant mark-up. Examples include 
automated searching of databases and Web by 



Where marginal costs are low or negligible, there is little justification for charging the client on 
a per-use basis. For example, a client would find it irritating to have to pay for each hit on 
generic content published on the Web page. Such products should be bundled together and 
priced on a subscription basis. On the other hand, high marginal cost products, such as 
manual Dialog searches should be priced according to the number of distinct search requests 
made by a user. As pointed out previously, if this not done, the wage costs for this product 
could become very high and prices would have to be increased significantly in the subsequent 
subscription period in order to cover the high costs of searching. This is likely to meet 
resistance from clients, especially if the excessive demand is driven by only a few employees 
or business units, who would pay no penalty for placing much greater demand on the 
information service's staff than anyone else. On the other hand, pricing should not be based 
on the time taken to carry out each search, a factor over which the user has no control and 
which must be optimised by the information professionals at the information service. The ability 
of clients to budget for their information needs on the basis of known prices that can be 
estimated in advance is essential.  

The costs relating to the bundled products listed in Table 2 should be covered by an annual 
subscription fee, because they are mostly incurred in providing these products and because 
they are, in general, not amenable to being covered on a per-use basis. Information products 
and services that are very highly valued by the client, especially those that are mission critical 
to their businesses (zones D and E), must be offered at prices that are as low as possible, 
even below cost. Such products can be subsidised by the more profitable ones, namely those 
that are also highly valued, but associated with lower costs. For example, the subscription 
prices for bundled products can be structured so that income from these bundles significantly 
exceeds their total costs, assuming that there is at least one highly-valued product in the 

means of agents, with possible advanced 
information processing and reporting capability, 
as well as managing the high-value documents 
(for example, research reports) of the client 
corporation

High / Low
(zone C)

High / Custom or 
Generic

Unprofitable and probably not worth the effort. 
No such product offered

Low / Generic May be included within a subscription-based 
product bundle if the client expects it. 
Examples of such products include placing 
press clippings of general interest, but not 
importance, or other such information on the 
intranet

Low / High
(zone A)

High / Custom Charge per use (for example, photocopying of 
articles which themselves can be acquired 
relatively cheaply, and distributing them non-
digitally). Only applies when it is difficult or 
impossible for end-users to acquire documents 
directly from suppliers

Low / Generic Very profitable, with the added advantage that 
economies of scale apply. Offer on subscription 
basis with significant mark-up

Low / Custom For example, an inter-library loan service or a 
personalised current awareness service 
according to user interest profile (assumed to 
be automated). Offer on subscription basis with 
significant mark-up

Low / Low
(zone B or 

C)

High / Custom Unprofitable and probably not worth the effort. 
No such product offered

Low / Generic May be included within a subscription-based 
product bundle if the client expects it



bundle. Furthermore, custom products that are highly valued, but for which the marginal costs 
have been significantly reduced by automation, could also be offered on a higher-than-cost 
subscription basis. Indeed, any situation where there is a way of reducing the costs of highly 
valued products could be exploited to cross-subsidise the more expensive highly valued 
products. There would not be a tendency for clients to turn to competitors since they would 
then lose access to the subsidy on the very high value products.  

Some sort of economy of scale may apply in the case of a single client comprising many users 
of a generic product for which marginal costs are low. For example, labour-intensive products 
such as a press-clipping service may be profitable only if it can be demonstrated, probably on 
the basis of the Web page hit-rate, that it is heavily used and believed to be important by many 
users. In this case it would be an attractive part of a high-value, profitable product bundle. On 
the other hand, if such a service is not well-used it becomes a liability and should be 
discontinued.  

After the information service's products have been on the market for some time, the pricing 
structure should be reconsidered in terms of a) the clients' satisfaction with both the prices and 
the bundling arrangements; and b) the competitors' responses. The value that the client 
attributes to each product once they actually have to pay for it should be assessed regularly by 
means of questionnaires, Web page hit counts and the number of requests or orders for 
products and services. The simple framework outlined above should be reviewed and possibly 
made more sophisticated, and the assumptions made in applying it need to be tested. The 
advantage of constructing and using such a framework is that the seller is forced to address 
the unique economic nature of its information products, to construct product bundles and adopt 
pricing approaches that maximise profits and added value for clients in ways that are 
acceptable to them. The client may be willing to sanction a pilot programme, during which 
these activities are carried out, so that realistic costs, demand and prices can be developed by 
the end of the programme. In this way, minimum adjustments to prices will be required after 
the first full subscription period.  

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6. Conclusions 

As 'company libraries' become corporate information centres that must be self-funding and 
compete with external services, the pricing of their products becomes a critical issue. The 
pricing approach used should take into consideration the unique economic characteristics of 
information-intensive products, as well as the needs and preferences of the client corporations. 
It should reflect the unique nature of competition in that industry, avoiding a situation where 
price becomes the dominant basis of competition by manipulating the value components of 
product, for example. The basis of competition then becomes more focused on optimally 
meeting the needs of the end-users. Integrating the users into the value chain of the 
information service as much as possible ensures this and builds the customer capital of the 
service, making it more undesirable for the customer to switch to alternative information 
suppliers.  

These general principles can be built into a framework for developing pricing strategies, as 
demonstrated in this article. Critical issues that such a framework should address are: a) the 
price structure of the products and how to exploit this; b) the value of the product to the 
customer; c) whether the product is customised or generic; and d) which products should be 
offered within bundles, priced on the basis of subscription, and which should be offered on a 
pay-per-use basis. Unless corporate information services confront these issues and adopt 
business principles to their service, they are likely to be closed down in favour of external 
services that operate more efficiently, incur lower costs and supply products of greater value to 
the customer.  

7. References 

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Arrow, Vol. 4. Cambridge MA: Harvard University Press.  

Baumol, W.J. and Blinder, A.S. 1982. Economics: principles and policy, second edition. New 
York: Harcourt Brace Jovanovich Inc.  

 



Best, D.P. 1988. The future of information management. International Journal of Information 
Management, 8(1):13-24.  

Cleveland, H. 1982. Information as a resource. The Futurist, December:34-39.  

Du Toit, A.S.A. 1994. Developing a pricing strategy for information products. South African 
Journal of Library and Information Science, 62(4):62-167.  

Du Toit, A.S.A. 1995. Estimating the costs and selecting a price method for information 
products. Paper presented at the Doing it for Money seminar, Cape Town, 18 Sept. 1995. 
Stellenbosch: Infobank.  

Eaton, J.J. and Bawden, D. 1991. What kind of resource is information? International Journal 
of Information Management, 11:156-165.  

Magretta, J. 1998. The power of virtual integration: an interview with Dell Computer's Michael 
Dell. Harvard Business Review, March-April:73-84.  

Shapiro, C. and Varian, H.R. 1998. Versioning: the smart way to sell information. Harvard 
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Stewart, T.A. 1998. Intellectual capital: the new wealth of organisations. London: Nicholas 
Brealey Publishing Limited.  

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CG Smallman  
De Beers Diamand Research Laboratory, Johannesburg  
smallman@icon.co.za  

Obtained a PhD in Physics from the University of the  
Witwatersrand in 1997. He is currently working as a principal researcher at  
the De Beers Diamond Research Laboratory in Johannesburg, and has developed  
a keen interest in the fields of Knowledge Management and Competitive  
Intelligence.  

   

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