
Double your price (and no, I'm not kidding) - jacquesm
http://jacquesmattheij.com/Double+your+price+%28and+no%2C+I%27m+not+kidding%29
======
sunir
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
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...](http://conversionvoodoo.com/blog/2010/06/one-simple-secret-from-
an-1890-economist-nearly-doubles-website-profits/)

------
ErrantX
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 :)

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shalmanese
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.

~~~
jacquesm
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 :(

~~~
StavrosK
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!

~~~
jacquesm
I misjudged the depth of their pockets.

~~~
StavrosK
That's what I'm saying, if you had gone with a price that would make it worth
your time instead of a price you thought they'd decline, it would be
worthwhile. I see how you can fall into that trap, though.

~~~
jacquesm
Trust me, it was enough that I _should_ have been happy and it still wasn't
enough.

~~~
StavrosK
Then it wasn't enough :p We'll never stop arguing, but consider this: Wouldn't
you be happy doing it for a billion dollars? Somewhere between that and what
you got is your "happiness threshold", it's just that it's more than what you
got now.

Unless you wouldn't have been happy with any amount of money, in which case I
assume your client was the third Reich!

~~~
jacquesm
> Unless you wouldn't have been happy with any amount of money, in which case
> I assume your client was the third Reich!

Not quite, but close :)

~~~
StavrosK
Ah, I see now :P

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

------
kingkilr
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.

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

Large companies do silly things.

~~~
Pahalial
I've seen multi-$100k investments go unused for so long as to become
worthless, most notably in the form of enterprise-scale battery backups which
needed to be used within X months and were still on the original shipping
pallets 2 years later.

I think the point of this article can only really be taken as applying to the
consumer web; while its point might ring true for enterprise customers,
they're a much more murky environment in general.

------
nlavezzo
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.

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

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nck4222
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.

------
acangiano
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.

~~~
callmeed
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?

~~~
thibaut_barrere
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.

~~~
jdietrich
Do you have any idea as to why it would be illegal? In my country it's not at
all unusual to see a product in a supermarket being sold at a discount price
in a display at the front of the store, but at the usual price on the usual
shelf.

~~~
thibaut_barrere
In France if two prices appear somewhere, you'd pay the lowest on request I
believe.

My gut feeling is that A/B pricing would be illegal because it's unfair: a
part of the buyers have a discount the others don't even know about.

IANAL though :)

~~~
jacquesm
How about gas stations? They routinely charge different prices for the same
product from the same store?

~~~
thibaut_barrere
Do you mean same brand or same physical store ?

I believe as long as it's a different physical store, it's probably possible
to set a different price.

My impression (that would need more research) is that having two different
prices for the same product at the same time inside the same physical store or
on a website would be problematic; otherwise it's probably ok.

I think I really need to make more research - A/B pricing would definitely be
interesting.

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vaksel
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.

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

~~~
josefresco
Exactly. There's a price point always where people will stop and say to
themselves; "maybe I should shop around" in which case they'll find a
competitor of yours and complicate things.

------
harscoat
Illustration by a prostitute/economist
<http://news.ycombinator.com/item?id=1631975> 3 days ago
[http://entertainment.timesonline.co.uk/tol/arts_and_entertai...](http://entertainment.timesonline.co.uk/tol/arts_and_entertainment/books/book_extracts/article6879237.ece)

------
jules
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?

~~~
JangoSteve
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.

~~~
josefresco
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.

------
whyleym
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.

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

~~~
whyleym
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 ?

~~~
jacquesm
Agreed, but I would feel even more lousy continuing to charge them the higher
rate while charging less to others.

You don't lower and raise your prices all the time, you do it once to
determine the sweet spot and then you stick with that for a much longer time.

For me it was exactly as described: _2, evaluate,_ 2, evaluate, *2 evaluate ->
go back one step.

At each step we had at most a few hundred signups processed before we made the
decision.

The fact that it took as long as it did is only because I was skeptical, I
should have realized much earlier that it can't cost too much to try, after
all your signup rate would have to halve before you start to lose money.

~~~
whyleym
Makes sense. Did you refund all users or just those that raised an issue ?

~~~
jacquesm
All of the ones that were paying the higher rate.

It seemed to be the most fair way to deal with it.

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

~~~
jacquesm
<http://ww.com/>

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

~~~
farmerbuzz
Btw, this is awesome: <http://ww.com/dilliecam>

~~~
jacquesm
Yes, it is. That's my favorite cam actually, the guy that set it up is super
friendly.

ww.com is a huge grab bag of both the good, the bad and unfortunately the
ugly. People got married there, it has caused divorces, I've seen babies be
born and I've seen people die... It's been the project of a lifetime.

------
ryanhuff
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?

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

Not that I'm aware of!

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

~~~
jacquesm
Maybe it's those sexy semicolons...

Best not use them here; or HN might get banned too... oops!

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cmelbye
What about for iPad apps?

~~~
jacquesm
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
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.

