

Raise your prices to sell more - pytrin
http://www.binpress.com/blog/2013/02/06/raise-your-prices-to-sell-more/

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3stripe
Back in the real world of things, I ran an experiment recently with t-shirts,
and created a 'Premium' design to sit alongside my existing design which I
renamed 'Classic'.

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.

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erock
This isn't just related to software. I remember reading a few years ago an
interview with Henry Juszkiewicz, the CEO of Gibson guitar (here
[http://usatoday30.usatoday.com/money/companies/management/20...](http://usatoday30.usatoday.com/money/companies/management/2006-02-20-forum-
gibson_x.htm)) The quote is "I said we are going to increase prices. Prices
were ridiculously low. And people said, the price has been decreasing 20% a
year, how can you reverse that? I said I'm just going to double the prices on
a lot of models. I actually tested it and got an inverse price curve.
Basically it showed that every time I raised prices a certain amount, volume
would go up."

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 :)

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true_religion
Well anecdotal story, one of my side businesses is in selling direct-downloads
to zipped content (ala megauploads). We doubled our prices so we're now twice
as expensive as any direct competitor and sales went _up_ , not down.

I think in many cases prices act as a signalling factor as to quality.

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jeremysmyth
All that this tells me is that they were underpriced to start with.

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.

~~~
pytrin
OP here - the main point is that most indie software is underpriced, mostly
because the developer fears not making sales. We have thousands of publishers
on our platform, and 99% of them underprice their software. I was giving an
overview of why they shouldn't

~~~
orangethirty
You also have to consider another point altogether, because it applies to your
platform. Developers might underprice their software because they do not want
to spend time supporting it, but still want to make money off of it. It sounds
crazy, but I have yet to meet a developer who is crazy about customer service.
By increasing prices, they are also increasing the amount of customer service
they might be obligated to provide.

~~~
rwallace
The consensus seems to be that this strategy backfires: often the most
cheapskate customers are also the most demanding when it comes to support. The
only real way to reduce your support burden is to make your money from fewer
customers, which means raising prices (whether by a flat increase or by
charging for support - the latter works well in some markets where you can
release the code for free and make support the thing you charge for).

~~~
adambenayoun
Couldn't agree more with what you said.

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MereInterest
"Do you think that raising your prices by 50% will hurt your sales by 50% or
more?"

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.

------
jasonkester
Obligitory Disclaimer: Test and verify.

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.

~~~
pytrin
The article discusses products and not services, which are a bit of a
different animal in more ways than one (especially in the one-time purchase vs
subscription). On the other hand, a recent HN submission concerning a service
showed similar results - [http://www.extendslogic.com/business/what-i-learned-
from-inc...](http://www.extendslogic.com/business/what-i-learned-from-
increasing-my-prices/)

But I completely agree - each case should stand on its own and you should test
different pricing.

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dmgrow
When considering pricing for software, it's important to consider more than
just the initial sale. It needs to be a comprehensive view of customer
lifetime value.

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.

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c2prods
Very interesting article. I think it can even be extended to other kinds of
software. I've faced this question on the App Store, which is, of course, a
totally different market My experience is that pricing an in-app purchase at
0.99$ or 1.99$ does not change anything as long as it brings a significant
added value to the app. It clearly is important not to lower our prices too
much. I think the TV industry (Panasonic, Sony...) should be a reminder that
we can not indefinitely lower prices.

~~~
adambenayoun
My biggest concern with reducing prices is that it in turn pushes retailers to
find a way to reduce the quality of the products they are offering (they don't
want to operate at a loss and when they can't achieve the massive scale they
need to justify the price cuts they need to do something about it).

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.

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jebblue
I guess it can work but don't go too high. We love cable TV but dropped it
because it was too expensive. Why pay extra for HD when it's free over the
air? Paying for the features they can provide that you can't get with free
over the air, ok makes sense. Paying for something that's already free? We
grew tired of that. That and all the charges getting added in recent years
that made no sense whatsoever.

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jacques_chester
Pricing is a big topic. It's time for my obligatory remark about how those of
us who sell software or services should give it more attention.

Consider these questions:

    
    
        Node or Rails?
        JavaScript or CoffeeScript?
        LESS or Compass?
        Foundation or Bootstrap?
        PaaS or self-hosted?
    

What do all these questions have in common?

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...](http://chester.id.au/2012/09/12/review-the-strategy-and-tactics-of-
pricing/)

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/>

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fduran
[http://www.joelonsoftware.com/articles/CamelsandRubberDuckie...](http://www.joelonsoftware.com/articles/CamelsandRubberDuckies.html)

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danso
I don't think we know enough about the OP's market and competition to be able
to agree with the title's conclusion...as others have pointed out, the OP may
have just been underpriced to begin with.

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.
    

From "Thinking Fast, and Slow"
[http://www.amazon.com/gp/product/B00555X8OA/ref=as_li_ss_tl?...](http://www.amazon.com/gp/product/B00555X8OA/ref=as_li_ss_tl?ie=UTF8&camp=1789&creative=390957&creativeASIN=B00555X8OA&linkCode=as2&tag=danwincom-20)

The summary: there is room in setting initial prices to convince people think
they _should_ be paying a higher price.

~~~
pytrin
I'm the OP - I specifically mention the App Store as a counter example - my
article is focused on business and developer oriented software - a completely
different audience.

~~~
drd
Higher price is justifiable from a developer point of view as long as the
support is included. There are gazillions lines of crappy code out there. A
general rule in software management is “try to reduce your dependency as much
as possible.” Not because of the price of dependency, but, because of the
maintenance costs that the dependency will create for you later on.

------
adventured
Step 1: build a good product

Step 2: have the luxury to raise prices

