What's the point of zero-profit pricing?

We’re living in times where market trends and business innovations are becoming a daily occurrence. Most recently we have seen moves towards ecommerce integration in TikTok, B2B partnerships across various industries (namely gaming organisations and luxury fashion brands) and the rampant growth of cryptocurrency.

We have also seen the concept of zero-profit pricing emerge from the esports industry, with Immortals esports offering fans the opportunity to purchase merchandise at a low cost, with free shipping. The bottom line being that Immortals make no profit from the sale of products due to the low pricing strategy. But what does this mean?

In short, it means that esports organisations can still benefit from the sale of merchandise even when not making a profit. For Immortals, it is a great way for the organisation to generate brand awareness and to build up a fan base that may dedicate more time to watching Immortals compete in esports tournaments. Streaming numbers equate to more partnerships, brand opportunities and the chance that viewers may commit to paid subscriptions. We have already seen large esports organisations partner with technology, fast food and luxury fashion brands- as other industries realise the potential to reach younger demographics (that are often harder to reach). The difference in merchandise pricing when adopting the zero-profit pricing strategy is pretty significant, with the example below highlighting a 32.2% decrease in cost compared to another well-known esports organisation (TSM: Team SoloMid).

Arguments can be made for the quality/design of product, but when an organisation is competing against the likes of 100 Thieves and FaZe, it’s not a bad trade off.

Obviously, the Immortals pricing strategy is geared towards newer esports consumers, but the intent to attract a fan base and put the spectator at the forefront of its future plans is an innovative approach.

So, is the concept of zero-profit pricing here to stay?

From an esports perspective, it is understandable why organisations might look to the pricing strategy to achieve growth and to build a sustainable franchise with a loyal fan base.

Zero-profit pricing could also be a strategy for tech giants to get ahead of their competitors. An example of this in action was back in 2012, when Google released a new tablet to rival the Amazon kindle at a significantly lower price than their normal products, with arguably better specifications.

Since then, not many businesses have looked to the strategy as a means to get ahead of the competition. However, as we see the technology industry gather continual growth, it might be a feasible strategy for businesses to utilise in order to position themselves in front of niche consumer target groups.

A potential side effect?

It should also be considered that this approach of pricing undercut branches off from predatory pricing, where the aim is to eliminate the competition completely (for example- Amazon across every imaginable industry or Primark with their approach to fast, cheap fashion).

From an esports perspective (but may apply across multiple industries), this could potentially be fatal. It would only take a mass producer of clothing/merchandise to partner up with an esports organisation and adopt this zero-profit pricing approach to significantly weaken other organisations/creators.

And don’t even get me started on greenhouse-gas emissions and the implications of fast fashion on the climate.

With the way the esports industry is heading (mass commercialisation, digital branding activations and mainstream attention), we could see the esports scene dominated by a handful of mega esports franchises. This might be the opportunity for zero-profit pricing to be the saviour for a lot of smaller businesses/organisations looking to get a foothold in the industry.