This just leads to them creating some ridiculous pricing schemes that will never prove to be sustainable. They think this is some sort of loss-leader strategy, but its not. Loss-leaders must actually turn a profit to be considered as such. Add in the highly used but seldomnly tested freemium model, and what you get is a bunch of people who are great at writing code, but are pretty bad at selling.
And how can you improve your selling skills if you don't even know who you are selling to?
Now, Sacha does make a good point. Cheap people are a pain in the behind to deal with. They have an overgrown sense of entitlement, most of the time they are rude, and will nickel and dime you till death. But you know whose fault is that? Yours. You did not do your homework. Cheap people are a market, and they are profitable if you know how to work them. The minute you offer them support, the minute they will treat you like their personal punching bag. Pricing yourself out of the "cheap zone" is the best strategy you can have if your product is not aimed at them.
I would not call these people dummies either. They are smart. In fact, they will argue and nitpick every little technical detail so much that it will leave you thinking if you are the dummy. These people know their stuff. For them this is not only a game but a way of life. You cannot educate them. They will not listen. Anything you do will seem like an attempt to raise your prices. How do they react? They double their complaining. Trying to model their behaviour will drive you crazy.
One company that went through this is Pep Boys. They had an offer for a free oil change with any other service. Cheap people started taking their busted old cars to them. The cheap-o's would buy the lowest priced service that would give them the free oil change. Then come back to complain about unrelated problems. They would even go as far as suing Pep Boys for damages not related to the services performed. But small claims courts always sided with the poor abused customer. Cheap-o's actually made money on this. Go figure. After years of this, Pep Boys finally saw the light and discontinued the practice. But it doesn't stop there. What did cheap-o's do? They complained to corporate HQ about the change.
Another point Sacha makes is that people who pay more ask for less support. Do you know why? Because they are your target customer. They ask for less support because they need the product, and trust you. They know that if something goes wrong you will be there to fix it. They show their trust in you by paying more. Its so simple. They also use your product as intended. And because your prodcut worked, no complaints arised.
When people give you money they are not only buying the product, but they are placing their trust on you. Cheap-o's don't trust anybody. So they complain until they get their moneys worth (in the mind). Your target customer will be glad everything worked out, and will just be silently happy.
I'm going to copy and paste part of the conclusion to make a point.
No matter which strategy you choose, remember to consider the impact pricing will have on your customer base and your support costs. For example, a good strategy might be to start off with high prices, and then only lower them once you’re ready to scale your support infrastructure.
I'm sorry Sacha, but you cannot start with high prices and then lower them. You start with fair prices and then raise them. If your support infrastructure requires higher costs, but your target customer cannot afford it, then the problem began when you chose to build your product. You need to figure out the costs of scaling before even starting. No need to be precise either, you can just make an estimate. Just make sure to err on the high side.
I would also say that pricing does not impact the customer base. It is the other way around. The customer base (or your average customer) is the key metric to set the price. Not your costs, but the customers. Companies in the make-up industry know this. Most of the makeup out there is made by the same companies. The big difference is the customer they target. You can pick the same basic product from two different brands, and the prices will be very different. In some cases even downright insulting. What does a $200 lipstick have that a $10 one does not? A customer that will pay the price.
Sacha, good call on getting this point out in the open. This stuff needs to be discussed more by startups and hackers.