I initially sold my app for $39.95. Trying this trick about 4 years ago, I doubled the price to $79.95. Sales went down. Way down. I backed it off to a 50% increase - $59.95 and sales came back up. The volume was lower than at $39.95, but the revenues were higher.
I also sell site licenses for the product at $995, and I bumped that up 50% to $1495. The sales cycle is typically longer, so I let that price stand for a few months. There were no sales. Dropping it back down to $995, sales resumed as they were before.
Bottom line: There is no magic formula. You need to test the price elasticity to maximize your revenues.
I am guessing that at $9.99, prospective customers assume that prior customer purchases don't reflect much due diligence -- that people would buy it for $10 "just to see", and just throw it away if bad. Prospectives might then assume that $20 is enough to get priors to research it, or to think twice before recommending it, and that sales at that price thus do reflect quality.
But prospectives don't know anything about priors purchases, right? Maybe prospectives are assuming that the stuff is selling at that price. After all, the seller knows the market best, right? And there is some truth to that assumption: If it hadn't sold at $20, it wouldn't have been around for long.
If that theory makes sense, it may be that your customers felt that $40 was high enough to suggest the consumer validation they needed. Validation was only one component of their decision, "value" was another, and at 80 they didn't feel the value was there. The theory suggests that if you had cut price below 40, your total sales would have fallen.
I imagine that buyers often treat prices like poker bets, and try to extract information about the underlying hand from the value assigned by the holder.
That's different from what the OP is talking about. You raised prices and volume went down. He raised prices and volume went UP.
At a glance the simple explanation, having some experience in marketing myself, is that $19.99 is a magic price point- 9/10 times you will not see any price point on an infomercial that isn't $19.99 or $19.95. And it's because it's a magic price point. Hard to explain but it works.
If he had gone from $19.99 to 39.99 or from 4.99 to 9.99 it would not ave had this effect- his volumes would have gone down. But if you want to sell something at $14.99, 9.99 or 24.99, don't do it- just sell it at 19.99.
Thanks for the mention, but it's independent of me :)
One aspect I didn't mention in my blog post is that I have a hard-core following of four people that email me once every few months complaining about the price. They complain that $9.99/month is too much, $19.99/YEAR is too much, and that I can't be making any sales at $19.99/month. In short: don't take pricing advice people who aren't giving you money :)
I think there's more at play here than just the old 'higher price = higher quality' thing.
When I see '$9.99' I think 'bargain bin software'. That's because every computer retailer has an entire rack of really crappy software and each one of them is $9.99.
Oddly enough, $10 doesn't have the same stigma. It's probably the lack of marketing BS.
Also, people expect a product to be priced according to value. If it's underpriced, they're going to assume it's less useful than they require and may not even waste time on a trial.
Am I the only one that cannot stomach the idea ( doctrine ) that one should sell his product as pricier as he can get away with or so that one maximizes revenue?
I can understand that when I don't have a clue about how much is my product value, I can probe the market for an optimal price setting, but...
but then again I should not be clueless about my niche and my product costs, should I? If I have a concrete plan saying that I need to make 40% profit, why should I take 60%, even if someone is willing to give it to me?
Why can't I say "Well, thank you for your kind offer, but I value my work at this price, this is enough for me to make a decent living, with the extra money please go buy cookies for your kids or give it to charity or whatever."
I mean, I look at myself, making everyday choices about what I can afford and what not, I would like to buy a good quality thing if I can afford it, and the list is usually longer than my affordance... well, my customers are in the same situation like me, they definitely have one more thing they would love to buy with their budget if they can afford it, so why should I take advantage of the fact that they would pay more for mine, if I already make enough?
Like someone before said, does the author know why he was able to sell it at double price? Knowing who his target customers are, should he?
One doesn't have to spend income wastefully or with a focus on improving one's lifestyle.
You can hire another developer to bring more software into the world, you can donate it to charity, etc. Income is merely a "money option", it doesn't mean you have to exercise that option in any particular way.
If you can get away with unreasonably high sounding prices, it's only because there's a demand for your service and not enough suppliers with your level of quality. As such, it's only a matter of time before someone comes by and undersells you with a similar service.
So it's not just "more fair" to set reasonable prices -- like your gut suggests -- but they also discourage competitors from appearing.
I guess the real question is whether or not you're willing to risk future competition for the short term benefits of increased profits.
If I have a concrete plan saying that I need to make 40% profit, why should I take 60%, even if someone is willing to give it to me?
Because you might think you can invest the money more wisely than other people in terms of its net benefit. You might invest it into charities you believe in, into research on topics you think is important, employ people you think need jobs, and so on.
"Am I the only one that cannot stomach the idea ( doctrine ) that one should sell his product as pricier as he can get away with or so that one maximizes revenue?"
There is a fine line here. In my mind a product should be priced relative to the value it creates for people. If this price point provides more money than one needs to sustain daily life then I think its a perk. Besides that if I make a product that is making more money than I need, that gives me more of an opportunity to do a lot of things. Anything from building better more awesome products to donating my time or money to charity.
I can see your point and I think "the value it creates for people" ( including both developer and customer ) is a good metric for how much it should be priced. The problem is, why should we assume that the price is the only ( or the most relevant ) proxy for "value it creates for people"...
Sure, that's what's neat about a market. The customers wouldn't pay this price if they thought it was unfair. It's not like he has a monopoly, or there's any other pressure for the customers to buy his product. If the customers are getting more than $20 of value, then charging $20 is a fair price.
Also, over the long term, it could allow him to cash out or retire or whatever sooner, so the total amount of money he takes from other people over his lifetime might not go up as much as you'd think.
By not maximizing profit you are leaving money on the table that you earned. It's like going to your boss and saying hey why not give me a pay cut. I really deserve less. But I think what is worse is in the corporate world your job may or may not really add value to the product or service but just add cost. When you are pricing your own good and service in essence your capturing the value you created for your consumer.
A funny thing happens to me and not by choice - whenever I'm searching for something on Android's Marketplace, I tend to look at paid apps first whenever I have a specific need and know what I want, even though I'm a cheap bastard. Unfortunately many paid apps that I tried to buy are not available in my country and I don't know why devs feel the need to limit their apps to a certain geographic area, while keeping free apps unlimited.
The reason being that most free apps on Android's Marketplace (and even on iTunes) are weekend hacks - unusable interface, breaking on updates / unmaintained or filled with spam or limitations. It's the return of shareware - and whenever I can't find something suitable I tend to say "fuck it, I'll just do something by myself", instead of waisting time with all the crap out there. And I did - I created my own phone calls / SMS blocker.
> whenever I'm searching for something on Android's Marketplace, I tend to look at paid apps first whenever I have a specific need and know what I want, even though I'm a cheap bastard.
I do the same in the Apple App Store. I rarely ever browse through free apps.
Prior to the App Store, I also very rarely bought any software. Since iPhones and iPads and all that stuff came out, I'm buying a good 1-3 apps per month on average, every single month. I'm kind of amazed at that.
This reminds me of my wedding photographer. She was just starting out and priced her services much lower than what she was worth. A few months later she bumped up her prices significantly and her business exploded. People viewed her lower prices as an indication of low quality despite a quality resume on file.
The situation is unique. Most of her clients have next to no experience with hiring or evaluating a Wedding Photographer, so price acts as a greater indication of quality than usual.
IF AT&T doubled their pricing for SMS (for example), they would likely lose customers, because we all have a better way of evaluating quality than just price.
I am really curious to look at this beautifully designed Windows app. I am in the middle of running my own experiment trying to see if a truly high design polish in Windows app can translate to the higher revenues, and it'd be interesting to compare the visuals. If anyone has any pointers as to what the OP app might be, please share.
This works in many markets. Look at clothing labels for instance. Take a fairly plain shirt or something, put a tiny logo on it, double the price. It works.
My personal example is that I have several music recordings downloadable for free from my website. No one ever listens to them as far as I know. At least I've never randomly received feedback from my music website. I got a record label to carry a track once, sold as MP3 for a low price, and all of a sudden the track hits some top-10s, etc. People pay more attention when you attach a price tag.
In all honesty, I actually think this would be a good approach for open-source software funding: open the source, but package it up nicely and sell binaries. I suspect that people would buy, even if someone else comes along with their own binary; include a trademark clause perhaps to stop them from naming it the same thing.
I think you could do this with open source, but it would only last so long. I tried this a few years ago (I found some open source software, fixed bugs and added some features) and sold it.
In the beginning I got sales. But over time, I got less and less because people would just re-package it and give it out for free (they are allowed to do this under the GNU).
I suppose it depends on your demographic of users too. More tech savvy users will figure this out quickly
Ask yourself this question? Would you hire a lawyer that charges $9.99/hr or one that charges $299/hour? The higher the price the more "Perceived" value it holds. Pricing strategy is an important part of bringing a product to market. Then there is pricing optimization that needs to take place to find the perfect mix of profits and revenue. Luckily for us techies we can iterate as much as possible to find the right mix.
Hmmm. Although increasing the price in his view increased the perceived quality of the products and sales in the consumers eyers, I'm wondering whether the pretty common tactic of showing a higher price and OTO'ing at his lower price would result in a a larger revenue? Like writing the price is 19.99 but for this week only you can get it for 9.99.
The ghost developer is losing sales by going unmentioned in t he linked article. After reading the article, I thought "wow, maybe I should give this software a try- it sounds like its worth the money."
But, with no link to his site nor any info on the product, there goes another lost sale.
Does anyone have any thoughts or experience with testing the "bargain-bin" hypothesis with subscription based payments?
I can see a one time purchase of $10 for a piece of software as appearing cheap, and therefore low quality. But what about a $10/year charge, or $10/quarter.
They strongly emphasize that "usually" you cannot focus on price and quality at the same time, in business school. When analyzing different aspects of a business, you usually sacrifice one for the other. Not positioning your product to be the cheapest alternative is also emphasized, because to the majority of people, it does give the illusion of a subpar product.
The actual price doesn't matter - it's all about how it's positioned relative to your competitors. Very smart companies will price low with a completely different pricing model, that makes customers feel like they're getting a better price, not because it's cheap, but because of the unique way their own business is structured.
It has been a long time since I read the book, but "Predictably Irrational" (among other things) talks about the same principle - how pricing impacts the perception of quality.
It is a great book that I'd recommend to all entrepreneurs and students of economics
Last year I upped the price of my B2B app from $399 to $699 (to coincide with a major new release). The end result is my revenue remained fairly stable, but I stopped getting Indian customers. This is a good thing because they required much more tech support than their US or European counterparts.
Could be, but the end result is that I have fewer customers who happen to pay more, and the time I spend responding to customer support emails has dropped =)
Can someone who has experimented with re-pricing their product explain the legality of it? I mean can you offer different prices to different customers at the same time? Or do you have to globally shift your pricing? Also, where would you look up the laws for stuff like this?
Price discrimination is usually perfectly legal, at least in the US. Haven't you ever heard of senior discounts? This doesn't mean there aren't cases where it IS illegal, for example there are no "white people discounts".
As for how to find out, call a lawyer. You really don't want to trust the legality of your business to a Google search.
There's nothing legally wrong with changing your product's price. If it were a subscription product, you may run into trouble. Also if you were advertising the old price, you might run into bait-and-switch laws.
That is a good point. But FWIW I personally know several "shareware" developers that told me the same story with their own products. The bottom line is always: $9.99 = bargain bin pricing. Good converting prices start at $29.95 and up for productivity software.
I also sell site licenses for the product at $995, and I bumped that up 50% to $1495. The sales cycle is typically longer, so I let that price stand for a few months. There were no sales. Dropping it back down to $995, sales resumed as they were before.
Bottom line: There is no magic formula. You need to test the price elasticity to maximize your revenues.