Raise your prices to sell more
binpress.com
binpress.com
The new tees were priced at £35 instead of £25, and I was expecting them to increase sales of the Classic tees, but actually the Premium tees sold waaaaaaay faster.
Not sure how many people play guitar here, but Gibson's quality has slipped a lot since then, yet they are still raising prices, and I imagine volume is still increasing because of it.
Personally, I build my own guitars :)
I think in many cases prices act as a signalling factor as to quality.
In any market where I sell a product and other people can sell an equivalent product, the market settles around a value that varies only as much as reputation allows. If company X has been around for 15 years and you've already bought several of their products (at your current company or a previous one) and found them reliable, that's worth a premium. Otherwise, not so much.
Software components are an even more challenging product to sell, because your customers are sometimes also your biggest competitors; if I see a vastly overpriced component that I know would take me two and a half days (max) to code and test, I'm not going to pay through the nose to buy from an unknown vendor. Add to that "not-invented-here" syndrome, misplaced management concerns about ownership and support, and you end up with components being a hard sell in some orgs.
So, like I say, I can only assume they were underpriced to begin with, and I'm glad to see they're doing research to find their correct price point.
For an article claiming to treat pricing like a science, this sentence stood out. If you raise your prices by 50% (to 1.50 of original) and hurt your sales by 50% (to 0.50 of original), you'll only have 0.75 of your original income.
I actually have a datapoint from one of my SaaS products showing the exact opposite conclusions from this article: Doubled prices, sales dropped to ~25% of their previous levels. Dropped prices back, sales came back.
But don't make any decisions based on that either. A few years earlier, I doubled prices for that same product and didn't see any sales change at all.
So go ahead and experiment with different pricing, but be sure to wrap it in an A/B test. Look at the actual numbers and let that make the final decision for you.
But I completely agree - each case should stand on its own and you should test different pricing.
One of the critical things in my current business is the upgrade path for customers. We have many customers who start with one license but quickly scale to 5, then 25, then 50 and beyond.
Having a lower price point to get people into your product can be a very effective strategy if there is a clear upgrade strategy for each customer.
The short term effect may seem that the customer is getting a good bargain but in the long term it can only hurt him.
To give a better context (software related), I often look at the price estimates certain software development shops are giving in Elance/Odesk/Freelancer.com to potential customers and their very low pricing can only make me wonder if they'll be able to deliver a quality product.
You should raise your prices in order to give a better product and a better service.
Consider these questions:
Node or Rails?
JavaScript or CoffeeScript?
LESS or Compass?
Foundation or Bootstrap?
PaaS or self-hosted?
That, compared to your pricing strategy, they are pretty close to irrelevant as predictors of your profitability.
And now for the obligatory link to a book review on my blog, where hopefully some of you will click through to Amazon and net me $2: http://chester.id.au/2012/09/12/review-the-strategy-and-tact...
You may also like Don't Just Roll The Dice [1], which is about software pricing. And it's worth reading. But to be honest, Nagle et al is better and much more complete; it's worth paying for.
[1] http://neildavidson.com/download/dont-just-roll-the-dice/
An obvious counterpoint: I doubt higher prices has any correlation with sales numbers in the iOS market. And while there are successful high-priced games (Minecraft at $6.99), that's because they are high quality games. I think Minecraft would undoubtedly sell more units if it were at $2.99.
Another thing to consider is the psychological "anchor effect"; Dan Kahneman (Nobel Prize in Economics) conducted a famous experiment in which college students were influenced by a number they knew to be completely random:
Amos and I once rigged a wheel of fortune. It was marked
from 0 to 100, but we had it built so that it would stop
only at 10 or 65. We recruited students of the
University of Oregon as participants in our experiment.
One of us would stand in front of a small group, spin
the wheel, and ask them to write down the number on
which the wheel stopped, which of course was either 10
or 65.
We then asked them 2 questions:
1. Is the percentage of African nations among UN members larger or smaller than the number you just wrote?
2. What is your best guess of the percentage of African nations in the UN?
The spin of a wheel of fortune – even one that is not
rigged – cannot possibly yield useful information about
anything, and the participants in our experiment should
simply have ignored it. But they did not ignore it. The
average estimates of those who saw 10 and 65 were
25% and 45%, respectively.
The summary: there is room in setting initial prices to convince people think they should be paying a higher price.
In an app store this is really simple. Pitch the app at a different price tier every week (ideally during a stable period with no major public holidays or obvious seasonal variations). One week will make more money than most. That's your price.
Real A/B testing would mean to simultaneously show to different users, different pricing for the same product and I believe in some jurisdiction this could get you into a trouble legally speaking.
I disagree, because Minecraft is already a strong, developed brand. The $6.99 price point is actually cheap when compared to the price point of the PC version ($26.95). Anchoring at work.
Step 2: have the luxury to raise prices