There is also a danger to trying to extract an amount of money as close as possible to the value from each customer. The difference between the value the customer receives and the amount they pay usually turns into good will towards the product, and in turn how likely they will be to recommend it.<p>If you're going to have different pricing tiers, the higher tiers need to ostensibly have more work put into them. You can't just say that if you fit into one bucket of people we know you have more money, so we're going to charge you more (e.g. DVD regions). You need to give them something more for it, so that your customers don't hate you (e.g. HD movie downloads).<p>Nobody likes to feel like every possible penny is being wrung out of them, or that they're being unfairly targeted to pay more. Measuring happiness of customers or how likely they will refer others is more difficult than measuring which product each customer bought, but just because it's harder to measure doesn't mean it's less important.
I hate this title. I understand that it is designed to draw attention and curiosity (coming from a site called THINKTRAFFIC, it's probably expected), but the title and other titles from the "popular articles" section just scream "headline tricks to draw clicks".<p>An informed title would probably be "Useful pricing techniques" or "Have multiple price points", although it really is a balance between headline accuracy and user interest. I suppose what I hate the most is that this less accurate title works better, and that's our fault.
This is pretty good advice.<p>Pricing is a big topic in itself and I think it's worth taking the time to look at it more closely. As I always say when pricing is raised on HN, no decision you make will have more impact on your profitability.<p>(I also usually link to my review of an <i>entire book devoted to pricing</i>, here it is: <a href="http://chester.id.au/2012/09/12/review-the-strategy-and-tactics-of-pricing/" rel="nofollow">http://chester.id.au/2012/09/12/review-the-strategy-and-tact...</a>)<p>Just think about it. Pricing is a decision that gets made infrequently. It sets the upper bound on potential profitability; whereas costs have in theory no upper bound.<p>People think about costs more because those are hidden from the customer and can be constantly twiddled. But it's meaningless without a smart price structure.<p>Right now I'm working on a little niche web application. What will I be doing in the new year? Well, coding on it, sure.<p>But I will also be getting a new, well-fitted business suit, going out to my customers, and finding how much Problem X is costing them. I'll adjust my pricing scheme to match, because my intention is to capture a fraction of value, not to pluck a number out of the thin air.<p>Seriously. Buy that book if you have a business, <i>any</i> business. Use my Amazon referral link or the non-referral link, I don't care. Just get the book.
About 3 years ago, Dan Ariely presented "Are we in control of our actions" [1] which demonstrated, among other things, that when offering 3 graduated choices the middle choice has a strong orienting effect on the decider. That is, the middle choice points the way towards which pair should be considered - the bottom two or the top two.<p>The prices of the author's packages are $39, $79, and $169. The differences are $40 and $90, respectively. According to Ariely, in this situation more people will consider the $39/$79 pair (because they are more similar, in this case based on price) rather than the $79/$169 pair, and, in fact, this is what the author reports.<p>[1] <a href="http://www.youtube.com/watch?v=9X68dm92HVI" rel="nofollow">http://www.youtube.com/watch?v=9X68dm92HVI</a>
>So far we’ve been adding price points with more and more success, so where does it stop? It stops at three. Adding too many is just going to cause confusion.<p>That's funny. As soon as I saw this, I knew I was going to ask about the Jam study... which after reading further was already mentioned.<p>Three seems to the magic number. For a project where users are presented with several options (unrelated to price) I had already made the decision to use three. But is there any objective reason three works better than say four? All I have is a gut feeling right now.
* But if I tell you the book is $39, but for $79 you can buy the book plus all these great videos and code samples, then you are comparing the two packages to each other. All of a sudden $39 sounds reasonable, and you are trying to decide if the extra value in the $79 package justifies the price increase.*<p>This is a sophism called "False dilemma". Survey callers use it all the time.. it's so annoying. For instance:<p><pre><code> <caller> Hi Mr X, I'm working for blabla. This survey will take 1 minute, shall we start?
(Note: They make it explicitly rude for me to say "No"; I.e. they don't open any door such as "Are you interested in continuing, etc.").
<me> No thanks, I'm busy! Have a nice day.
<caller> Sure! Should we call you Tuesday or Wednesday?
(Note: Bang, the false dilemma sophism. The caller tries to limit the option to *only those two!*. But obviously, there are hundreds of other choices.. such as:)
<me> No thanks, don't call me back I'm not interested.
<caller> (Try another annoying tactic)
<me> (Being really tired of being manipulated decide to let the phone open but not listen to it anymore. After 15 minutes, I check back to see if the caller is still here (he's not)).
</code></pre>
Meh. It's a good marketing tactic, but it's very annoying.
This seems like the <i>second</i> most common pricing mistake. The most common, at least among developers: setting pricing based on cost-plus rather than value.
Shades of Joel Spolskys classic post 'camels and rubber duckies' which explores pricing discrimination as well.<p>The joelonsoftware article and this one are both good reading. And both underline the concept that pricing, like software, is never 'done'. You always need to be working on it.
I guess his "most common pricing mistake" is price discrimination. But price discrimination is one of those things that sellers love and customers hate. "Why was I charged more than someone else?" is a sure way to piss off a customer. Tread carefully.
I liked this post and the title. As a PPC manager, I see all kinds of business models and can attest to the 3 tier method working best. The most interesting thing is how you arrive at these through bracketing. Nice work.
very informative post, but I'm afraid it leaves us with incorrect conclusions. In all examples, no one tested just one high price point for the item.<p>The story starts out talking about how value is relative to each purchaser, so with different price points you can draw out the more valuable customers with tiered pricing and get more than your original pricing from those who opt in for the higher price point.<p>The glaring omission is not testing just the highest price point. The author explains he didnt want to price out interested readers at lower price points. I don't understand why though. The people who appreciate your value will pay a premium, and others who are not willing to pay a premium, or not really worth having as customers for many reasons, if not for the simple reason that if your goal is to create value, why wouldnt you focus on the areas you can create the most value? There are other reasons I would be glad to share...<p>The strategy of "comparing apples to oranges" so you can sell an ebook for $39 instead of $10 is a sound one, but the same strategy could work with only one price point at $179 or even $1700 if the value is there for your audience. In this case, the best comparison would be, "you can pay $10,000 or more to learn how to develop apps at college, or you can pay a developer $100k a year to develop for you, or you can buy a proven strategy on how to develop apps from me for only $1799."<p>Would everyone pay? of course not. Would some people pay? All you need is less than 20 for it to be a bigger blockbuster than his original sales.<p>I would personally be shocked if he only had the highest priced point bundle as the only option if he didnt generate much more revenue. Arguably, atleast a few of the people who bought at other price points would come around and spend more.<p>So, this article is absolutely right, draw your customers away from being able to compare your product to other products in the same category, and focus on the value proposition to them... But, dont take his tiered pricing proof as set in stone, odds are it cost him more revenue by doing it than if he didn;t.
I'm surprised noone's drawn a comparison between this and Kickstarter's reward models.<p>Packages / price points are built into kickstarter, and seem to work pretty we..