Double your price (and no, I'm not kidding)

http://jacquesmattheij.com/Double+your+price+%28and+no%2C+I%27m+not+kidding%29

by jacquesm • 16 years ago

180 97 16 years ago

acangiano2• 16 years ago

A/B testing prices would be ideal when trying to find out how much people are willing to pay for your product. Unfortunately it's a rather risky practice, so doing it over time as suggested by Jacques may be a better approach.

jacquesm24• 16 years ago

If it works as well for any of you as it did for me you will not regret trying this.

It's amazing how much you can be 'off' about what your product is worth to your visitors if you do not do drastic experiments like this to figure out the range of prices that are acceptable.

I think we all subconsciously price based on 'cost+', we price based on what it costs us to provide a service, tack on a profit margin and then we round that to the nearest reasonable sounding figure.

But you should be pricing based on perceived value. Not on your costs...

And the perceived value may be a lot higher than is apparent to you as the creator of the product.

mikemol5• 16 years ago

Wouldn't that only work until a competitor with a sufficient product crops up with a cost+ price?

callmeed• 16 years ago

What do you mean by "risky"?

Concurrently testing 2 pricing schemes for the exact same service feels sketchy or unfair (to the customer) to me–especially if its a 2:1 ratio ($5 vs. $4.99 I can understand).

I'm sure it doesn't fall under "price discrimination" but it still doesn't feel right ... should I not feel that way?

ryanwanger• 16 years ago

It's understandable that you feel that way. But really, it isn't sketchy. Think of the lower price as a discount that wasn't offered to everyone. The people who paid the higher price thought the value of your service was worth it...no one twisted their arm.

If you're really against it, don't test two at the same time. Just double the price for new customers and see how that affects signups.

jacquesm24• 16 years ago

That's not the risk. The risk is your users comparing notes and getting mad at you.

acangiano2• 16 years ago

There is risk because users may find out and be less than impressed by it.

thibaut_barrere3• 16 years ago

It would certainly be considered illegal in some countries (France, I'm pretty sure) to have two prices at the very same moment, based on random, for the exact same product.

philwelch2• 16 years ago

Proposal for an ethical A/B testing process for price hikes:

A: The existing, lower rate. B: Advertise a higher rate. After signup is completed and the customer is fully expecting to pay a higher rate, inform them that the newer rates haven't "taken effect yet" and they will instead be billed at the previous, lower rate. This preserves both experimental validity and ethical pricing.

jacquesm24• 16 years ago

That won't work because you can't test retention at the higher rate of payment, and that's a very big factor in the subscription business.

1 months @ $40 vs 3 months at $20 ...

ryanhuff• 16 years ago

I tried to read your story, but the firewall over here thinks your site has pornography, thus is blocking your site. Anybody else seeing this?

jacquesm24• 16 years ago

> I tried to read your story, but the firewall over here thinks your site has pornography

Not that I'm aware of!

mcantor• 16 years ago

In that case, you can merely bask in the notion that perhaps your content is so good, filters consider it to be pornographic!

nlavezzo• 16 years ago

This relates to an economic principle called Price Elasticity. The Wikipedia article is pretty informative on the subject http://en.wikipedia.org/wiki/Price_elasticity_of_demand

What you've done is some basic "elasticity testing", which, in the "real world" can often be difficult or impractical, but lends itself particularly well to online transactions of relatively small dollar amounts. More people selling small services online should be doing this - traditional businesses would love the luxury of doing it so easily.

jacquesm24• 16 years ago

Yes, that's exactly what it is about. And about your own 'perceived value' versus what your customer thinks it's worth.

nck4222• 16 years ago

I've read some anecdotal evidence supporting this as well (atleast for goods). A store owner can't sell a line of jewelery, so they write a note to an employee to cut the price in half. The employee misreads the note and doubles the price of the jewelery instead. All of a sudden the line sells out.

Part of the reason is that if people notice something's cheap, they'll think the quality is cheap as well. And vice versa.

vaksel• 16 years ago

another mistake a lot of people make is try to base their price on competitors.

sure you can undercut their $3/mo...or you can bump your price up to $15/mo and use the difference on advertising.

Chances are that 99% of your customers will never even see your competitor...so you won't hurt your business by charging more...and you can use the extra revenue to promote your product in places where your competitor just can't afford to promote in.

jacquesm24• 16 years ago

> Chances are that 99% of your customers will never even see your competitor...

That seems to be the hardest thing to convince people of. 'But my competition'... Yes, you are aware of your competition but your users are most likely not. They found you instead.

yxhuvud• 16 years ago

This will stop working fast if you charge enough so that people start looking for alternatives though.

whyleym3• 16 years ago

Very interesting.

The concern I could see with this would be that you raise your price for a few days - you get a few takers but not as many as you hoped, so you lower the price back down to the original levels. I'd be a little concerned that those who subscribed at the higher levels would not be happy paying a higher recurring monthly fee when they could now subscribe to the product at a cheaper rate.

Would you / did you just manage those users back down to the original payment levels for the future months payments ? Or leave them at the higher payment levels and manage on an adhoc basis should they raise issue with pricing levels.

jacquesm24• 16 years ago

I refunded them the difference and apologized for the 'mistake'.

whyleym3• 16 years ago

It doesn't sit 100% comfortable suggesting this was a 'mistake' - not saying this doesn't work - just that I don't feel entirely comfortable with it.

To follow up on this - with A/B price testing how does this work when you are lowering and raising your prices all the time - what's the general approach - to admit 'mistakes' or refund the difference or just manage on an adhoc per issue raised basis ?

iaskwhy• 16 years ago

It's also interesting to note how different the iOS AppStore is from most of other stores. Some apps keep changing the price from 0.79 eur to something higher and then back again.

This is easier to see with one of those apps that keep track of apps that lowered their price, some of them keep appearing on that list.

barmstrong• 16 years ago

So what was the website/product in question for this post?

jacquesm24• 16 years ago

http://ww.com/

Fair warning, not always safe for work, though we do our best to get people to label their cams properly.

farmerbuzz• 16 years ago

Btw, this is awesome: http://ww.com/dilliecam

sunir• 16 years ago

From my experience doing price testing, there are certain natural grooves for prices. Generally the fit the 1,2,5 model: $1, $2, $5, $10, $20, $50, $100, $200, $500, $1000.

These prices have a Goldilocks structure where there is a natural market price bounded by a high and low price point.

For instance, for small business software as a service, cheap end is $10/mo, high end is $50/mo, and just right is $20/mo.

In another case, price per user tends to be $5/mo./user at the low end, $10/mo./user is the fat middle, and $20/mo./user is the high end.

You can see how the OP fit this model as he went from $5/mo. to $10/mo. to $20/mo. Without knowing his product very well, I would surmise that each price increase signaled a higher level of quality to the market while still remaining within the reasonable and expected bounds.

aresant• 16 years ago

You're picking good range pricing, I'd add to that in our experience odd numbered pricing - eg 79, 95, & 99 - outperform even numbers.

This seems to fit accross the board - meaning if you selected a price group to test of $10 / $20 / $50 as your first test, run a secondary test with your winner and even derivatives.

EG if you sell the most @ $20, try $19.95 / 19.97 / etc - you can squeeze suprisingly large gains out from that fine tooth testing.

We covered some of this a while back in our blog post on price elasticity testing w/some of our results too -

http://conversionvoodoo.com/blog/2010/06/one-simple-secret-f...

ErrantX• 16 years ago

Exactly the same applies for the amount you charge in consultancy fees. A couple of years back I charged X per month in web development (spare time work) but have slowly increased to where I am now charging 4.5X; and still getting more offers than I can handle.

Always try upping your prices, that should be the first rule of business :)

cmelbye• 16 years ago

What about for iPad apps?

jacquesm24• 16 years ago

No idea. The only way to find out is to try. I do not develop for the iphone/ipad, if I did I would try it myself.

I think that the app store makes it so easy to compare stuff side by side that I would expect the difference to be smaller, but that's just a gut feeling.

hajrice• 16 years ago

Here's an example. Draft from 37signals. As soon as they launched there was noise about their pricing, after a week or so, it got quit even though sales were still going up. Not sure what they're up now with the pricing.

kingkilr• 16 years ago

Reminds me of Roller Coaster Tycoon, the customers say stuff like "This park is a really good value" and you bump your entrance fee until they stop saying it. Except in the real world people rarely tell you your your product is too cheap.

JangoSteve3• 16 years ago

I only somewhat agree. There are ways your users tell you your product is too cheap, without actually having to tell you. One good indicator is when you have a lot of people signing up, and then not using it, in which case your product is so underpriced that it attracts indifference.

btilly• 16 years ago

I've seen companies sign up for a $3K/month product, then not use it for 6 months.

Large companies do silly things.

zepolen• 16 years ago

In the real world people will rarely tell you that they are going to a competitor if you don't stop raising your prices.

jules• 16 years ago

Is this kind of experimentation feasible for expensive products targeted at businesses? A product that costs $300 a month. It would seem dangerous to try this and get bad press and angry customers. The problem is (1) people know how much it cost before, it's not impulse buying (2) one business might decide to buy a second license and notice that the price has doubled.

So, is there a way out?

jacquesm24• 16 years ago

Create a premium product with a number of features that you can defend as costing lots of $ to develop, see if you can interest people in the premium package.

If enough people do drop the original one and make the premium package the 'normal' one, offer a discount to your old users.

ori_b• 16 years ago

I don't think that will work. If you have a choice between "cheap but does what I need" and "expensive and does what I need", which will you pick?

People aren't going to spend more for the hell of it. I don't think this is a useful technique for determining the minimum viable cost for a service.

derefr• 16 years ago

Start (too) high, go down. When you stop getting more-than-double the users for half the price, stop.

JangoSteve3• 16 years ago

The best way to do this experimentation (based on my experience when I started selling RateMyStudentRental to colleges and universities), is to start directly selling to businesses before posting official prices. Put up a general "Call for pricing" information page (no, this doesn't necessarily mean anyone will actually call you), and hit the streets.

One thing we found early on selling to universities was that if we priced ourselves to low, some schools wouldn't give us the time of day, other schools would start comparing us to "competitors" who weren't our competitors at all and did nothing like we did, but who shared a similarly low price.

I still remember when we sold our first (small 3000 student) school for $6000/yr. When they gave us the check they said, "Eh, that's a drop in the bucket." Talk about leaving money on the table.

josefresco2• 16 years ago

Anyone who does custom proposal/sales work has had those moments. The moment after they say yes when you suddenly realize you charged drastically too little. Live and learn.

jonknee2• 16 years ago

I don't think you piss off too many existing customers if they find out it's more expensive later on. They will feel like they got a deal. Now if it was half the price you could easily deal with some anger.

shalmanese• 16 years ago

One really excellent price hack if you're doing consultancy is to use price increases as a way to get rid of problem customers. Once you decide a customer is not worth your time & energy to maintain, every month or so, send them an email saying "Unfortunately, due to high demands on my time, I have to raise my rates by 20%. I'd be happy to refer you to my colleague <your biggest enemy> if this increase puts you over your allocated budget".

This is an essentially 0 risk way of doing price discovery and you will usually be surprised at how high you can go before people finally quit.

jacquesm24• 16 years ago

That's really true, but it can backfire spectacularly.

I once had a customer that was really in the 'nothing but headaches' category. They came with a new job and I really should have said 'no', but instead I figured I'd just quote a very high price and they'd go away.

They accepted :(

StavrosK4• 16 years ago

The problem isn't that they accepted, it's that you didn't quote a price high enough to offset the headaches they caused. If you had, you would have been happy!

RyanMcGreal• 16 years ago

The trick is to quote a price high enough that even if they accepted, you would consider the compensation worth the aggravation. You win either way!

techiferous• 16 years ago

There are not problem customers, just problems.

I think it's best to avoid beginning working with a client if you don't think you'll have an enjoyable, productive relationship. If you start having problems with an existing client, the best thing is to communicate openly and clearly about the problems and try to solve them together. It's important not to write them off as a "problem customer" but to give them a chance to know what isn't working and to solve it. If you're not able to work things out together, then it's time to part ways.

jodrellblank2• 16 years ago

I had a phonecall from my broadband provider this week, saying "Since we took over this company, we've been reviewing accounts and you've had this for a long time - we can offer you the same service for less money".

I nosed around their site, and found I can regrade my account with a "just a price cut" button.

I'm mystified by why they would pay someone to seek out and cut their profit from previously happy customers. If they'd told me they had taken over the company and needed to increase the price by that amount, I would have agreed. Is this a sign that the new owners aren't very good?

lionhearted• 16 years ago

> Is this a sign that the new owners aren't very good?

Upvoted you, but the answer is no, this might be a very smart move by them depending on their strategy.

If they want to lock down market share, this is a great play to build loyalty, especially if there's new competitors directly in the space (other broadband) or substitution products (3G, whatever). They might have run some numbers and figured X% of their customers would get poached if they remained at high prices, and it was better to preemptively lower prices and get a lot of goodwill in the process. Market share + loyalty. Max short term cash isn't always the best goal.

Edit: Especially in a business that's high capital intensive with low marginal costs. Furthermore, doing this might dissuade other companies from coming into the space to compete. Strategy can get complex, especially when you've got millions/billions already invested infrastructure.

tptacek• 16 years ago

Turnover is also a metric most service providers pay close attention to.

mcyger• 16 years ago

Simplicity is a sign of a well-run organization. You ever heard the line, "I don't lie because I have a terrible memory"? If you have 15 different price plans, you now need to maintain documentation, train customer service reps, detail tiered specs in a computer system, update all of the information, etc. You get the idea. Complexity leads to higher costs.

If they offer one (or a few) options with consistent service and pricing, they will do them better with higher consistency and quality.

Makes me think of In 'N Out Burger...getting hungry. :)

jonknee2• 16 years ago

Churn rates and cost per new customer are two very highly watched metrics in telcos. Keeping you happy keeps up their numbers. That said, I wish they also bought my provider.

harscoat• 16 years ago

Illustration by a prostitute/economist http://news.ycombinator.com/item?id=1631975 3 days ago http://entertainment.timesonline.co.uk/tol/arts_and_entertai...

Double your price (and no, I'm not kidding)

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