
Pricing Experiments You Can Learn From (2011) - tekkk
https://conversionxl.com/blog/pricing-experiments-you-might-not-know-but-can-learn-from/
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aelhaji
"Asking people what they’d pay for and how much rarely works."

Yes, asking a person about what he or she is willing to pay _hypothetically_
doesn't work. But there are numerous scientific studies that show that using a
Vickrey auction, similar to Google's ad auction mechanism, can elicit a
person's maximum willingness-to-pay. In fact, it's one of the reasons why
William Vickrey won the Nobel Prize in Economic Sciences. The primary reason
why you would reveal your maximum willingness-to-pay in a Vickrey auction is
because you know beforehand that if you win the auction, you won't have to pay
your own bid——you always pay less than your own bid as a winner. How much less
is up to the auctioneer but in all cases it's less than your own bid. The pay-
what-you-want mechanism cannot reveal how much a person values a product or
service because there's such a strong financial incentive to simply state a
low amount.

Disclaimer: I'm the co-founder of Veylinx, a platform to measure maximum
willingness-to-pay of users using Vickrey auctions.

~~~
jasode
_> But there are numerous scientific studies that show that using a Vickrey
auction, [...], can elicit a person's maximum willingness-to-pay._

Yes, but participating in an auction is a _concrete_ action to "commit to pay"
\-- and therefore not what the author is talking about.

The context of the author's quote you extracted ( _" asking people what they'd
pay"_†) is about _abstract_ notions of what consumers _think_ they would pay;
e.g. gathering hypotheticals of prices from marketing efforts like customer
surveys or focus groups.

Surveys and focus groups have no _real money_ payment commitments. Auctions
do.

† author also wrote a few sentences later: _" When it comes to money, people
are unable to predict accurately whether they’d pay or not. It’s much easier
to spend hypothetical dollars than real ones."_

~~~
aelhaji
I agree that skin in the game matters. But my point is a bit more subtle.
Imagine the following situation: I present you a new product and I'm going to
ask you how much you're willing to pay for it. Let's agree that you'll pay the
amount you mention dependent on the flip of a coin. Even though you clearly
have have committed to potentially paying real money, this method won't reveal
what I really want to know: your true perceived value of the product (maximum
willingness-to-pay). The Vickrey auction solves this problem.

~~~
jakelazaroff
I'm not familiar with Vickrey auctions; can you explain how they solve the
problem the author is referring to?

~~~
rahimnathwani
With eBay proxy bidding, you tell eBay what the maximum is you are willing to
pay. Then, if you win the auction, you don't pay your maximum. You pay just
above the maximum amount of the bidder you beat (i.e. the person who would
have won if you hadn't participated).

So, how should you bid if you are a rational person? You should bid the
maximum you are willing to pay. As there is zero chance that you will pay more
than you needed: you will always pay just enough to beat the second place
bidder.

So, the incentive is such that you reveal your maximum price to eBay.

~~~
aelhaji
The eBay application isn't really appropriate because eBay always reveals the
highest bid, which removes the incentive to reveal if you have a lower
willingness-to-pay. A pure application of the Vickrey auction gives all
participants an incentive to reveal their maximum willingness-to-pay.

~~~
rahimnathwani
"eBay always reveals the highest bid, which removes the incentive to reveal if
you have a lower willingness-to-pay"

I don't understand how it removes the incentive? Would you mind going into
more detail?

(I ask because I believe I am rational when I place eBay bids, and I always
choose the actual maximum I'm willing to pay.)

~~~
aelhaji
Let's say that the first bidder placed as a proxy bid $100 but eBay only shows
$1. This will already exclude everyone who has a maximum-willingness-to-pay
lower than or equal to $1. A second bidder might put as a proxy bid $120. This
wil result in eBay setting the highest bid at $101. At that price nobody with
a maximum willingness-to-pay lower than or equal to $101 will reveal their
max. The Vickrey auction doesn't reveal anyone's bid and, thus, you collect a
lot more bids (demand curve data). I agree with you, however, that the eBay
mechanism results in the same person winning the auction.

------
Townley
I sense an upcoming reckoning against these techniques.

Big "SALE!" signs and prices ending in 9 aren't benign: they're malevolent
attempts at psychological manipulation, and they degrade consumer trust the
minute customers recognize them as such. While it's likely impossible to fully
counter the bias, I've started clutching my purse strings more tightly since
those big glowing signs became less of a declaration of value, and more of a
warning that "We don't have your best interests at heart"

These techniques work, but only because people view this manipulation as
acceptable and commonplace. It would do wonders for consumer confidence (and
therefore sales) if stores could give a credible and transparent promise that
they make every attempt to inform consumers about the value of their products.
Shoppers like myself (busy, uninformed about most categories of things they
buy, and unconfident that they can navigate the "DEALS" landscape and come out
ahead) would not only shop there: they'd pay a premium to do so.

~~~
Nadya
_> Big "SALE!" signs and prices ending in 9 aren't benign: they're malevolent
attempts at psychological manipulation, and they degrade consumer trust the
minute customers recognize them as such. While it's likely impossible to fully
counter the bias, I've started clutching my purse strings more tightly since
those big glowing signs became less of a declaration of value, and more of a
warning that "We don't have your best interests at heart"_

You won't see this - someone has already tried before it and it nearly
financially ruined the company.

The sad thing is it works and people are easily manipulated. Ron Johnson
(former CEO of JC Penney) nearly bankrupted JC Penney with his "fair and
square" pricing. Consumers are so used to being manipulated by fake sales and
xx.99 pricing that having merchandise advertised without any gimmicks actually
results in _worse_ sales. [0]

I'm hoping one day people will turn around and be against being
psychologically manipulated, but I don't see it happening anytime soon. After
all, many people still defend advertisements. A socially accepted form of
psychological manipulation that is intended to make you feel worse about
yourself and your life unless you buy <product> because <product> will make
you happier.

The fact people are okay with ads in _any_ context completely baffles me.
There are people who are totally fine with being emotionally and
psychologically manipulated in return for something being "free". To the point
where people in western cultures associate the colors red and yellow with food
and don't question why.

[0] [https://www.cbc.ca/radio/undertheinfluence/the-real-
reason-m...](https://www.cbc.ca/radio/undertheinfluence/the-real-reason-most-
prices-end-in-99-cents-1.4731238)

~~~
komali2
He failed because sales for JC Penney fell, but in a sense perhaps he
succeeded in preventing people from purchasing clothes they didn't necessarily
need?

~~~
setr
It would have been a success if he had gotten people to pay a premium for the
clothing they did need.

------
gambler
The notion that you must be good at selling shit is reinforced in most
companies, colleges and probably schools.

The idea that choosing products and making correct economic decisions is a
skill - this idea is formally taught almost nowhere.

Is there any surprise that manipulative techniques work so well?

If you think this is driven purely by self-interest of companies, you're
probably wrong. Employees in most big corps waste immeasurable amounts of
resources on "internal marketing" (from resumes during hire, to presentations,
to emails sent to their bosses). Most big companies still believe it's better
train 100 workers to sell their shit, than to train 1 VP to use basic math and
critical thinking. Similar situation with resumes. HR bemoans people lying on
their resumes, and then do absolutely everything possible to incentivize
applicant to lie as much as possible.

Heck, even here. Where are the articles titled "here is how I rationalized my
shopping"?

~~~
gambler
As far as pricing, I think one way to combat the manipulation is to put prices
on your shopping list and never buy anything just because it's cheap, unless
it's already on your list.

Another strategy is to ignore prices altogether and just skip items that are
too expensive before the final checkout.

------
baby
I remember reading that article about having three variants of a product. I
think it was something like that:

1\. one really cheap but bad

2\. one better but much more expensive

3\. one even better, and more expensive

Since for most people, the middle option (2) made more sense than the cheap
one (1), they would all buy the last option (3) because for a bit more money
you had something better than 2.

Apple seems to be using a similar strategy with very limited capacities for
their first option, which makes most people buy the more expensive option to
have more capacity. From there it's easy to jump to more expensive stuff, or
to add options and accessories.

~~~
gav
This is price bracketing, which is a form of anchoring.

The idea is that if you had two items, one for $10 and one for $40, adding a
$200 item is going to increase sales of the $40 because it makes it seem more
reasonable in comparison. It's not going to push a lot of people to the
higher-priced item.

The Apple example I like is the iPad. It's priced against both the 512gb
version (+$350) and the Wifi+Cellular (+$130) so you think that the $649
version is a bargain against $1129 and you don't compare it against the Amazon
Fire at $49.99.

~~~
lotsofpulp
An iPad wouldn’t be compared to an Amazon Fire because they aren’t comparable
products. If you value iOS, Facetime, iMessage, and Apple’s general product
experience, then others would also have to provide a similar experience to be
comparable.

~~~
k__
Most people I know watch videos and read books on their tablets, which works
equally well on an iPad as on a Fire HD.

~~~
lotsofpulp
Most people I know FaceTime...every single older person in my extended family.
It would be useless without them being able to Facetime with their grandkids.

~~~
mdorazio
That should be most _older_ people you know, then. Older people often choose
Apple products due to the comparative simplicity of the operating system and
UX. However, Android is far more popular in terms of total units sold on both
phones and tablets, so the parent comment is broadly true.

~~~
k__
True.

I don't know anyone who uses Facetime and I know a bunch of people with iPads.

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superasn
This is the worst most distracting website to ever exist. As soon as I start
reading a line something pops up (first a man, then another popup at bottom
then sharing buttons covering up more screen). Why do you do this :(

~~~
QuantumGood
[https://outline.com/4AgPdu](https://outline.com/4AgPdu)

------
polysaturate
I feel like this is the same general pricing experiments/info we have seen
synthesized for the past few years in giant articles. I was hoping there were
some new juicy SaaS pricing experiences to be shared.

 _Not that the information in this article is bad if you haven 't seen it
before or haven't fiddled with pricing in a while_

------
dang
2012:
[https://news.ycombinator.com/item?id=4370904](https://news.ycombinator.com/item?id=4370904)

2013:
[https://news.ycombinator.com/item?id=5435862](https://news.ycombinator.com/item?id=5435862)

------
willart4food
TIL: People are weird and irrational, and there’s much we don’t understand.
Like why do shoppers moving in a counterclockwise direction spend on average
$2.00 more at the supermarket?

~~~
Lordarminius
Counterclockwise is an anti-pattern (at least for me), my guess is that it
makes shoppers move more slowly, pay more attention to displayed items and
spend more time at the shop.

~~~
gowld
Right-handed people, with their bias toward turning right, tend to walk anti-
clockwise when entering a loop from the outside (such as grocery stores), and
clockwise when entering from the inside.

[https://science.howstuffworks.com/life/inside-the-
mind/human...](https://science.howstuffworks.com/life/inside-the-mind/human-
brain/predictable-walking-patterns-counter-clockwise.htm)

People who travel anti-clockwise see more stuff, because if they travel
clockwise, then they'll turn right and toward the front/exit before they
finish a complete loop around the store.

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lscotte
Forced pricing is exactly why theaters sell 3 sizes of popcorn, with large
"only being 25 cents more than medium. The goal isn't to get you to buy the
large, it's to get you not to buy the small. There was a book I read years ago
about this sort of psychology and food, but I can't recall the title.

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tapland
He lets a lot of weird behavior slide. Like this one:

"Under the simple pay-what-you-wish variation, 8.39% of people purchased a
photo (almost 17 times more than before), but customers paid only $.92 on
average.

The final option — pay what you wish, with half the purchase price going to
charity — generated big results: purchase rates of 4.49% and an average
purchase price of $5.33, resulting in significant profits for the theme park.
This is a substantial result, especially since it came from a real setting."

Why does pay what you wish with half going to charity slash sales in half
compared to standard pay as you wish?

~~~
daxterspeed
A simple guess would be that people feel comfortable low balling the theme
park but not the charity, even if any amount would help.

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elchief
Data Scientist / MBA Marketing here

There's a difference between "how much would you pay for X?" versus "would you
pay N for X? How about M for X?"

You can also conduct a Discrete Choice experiment, asking respondents to
choose between priced bundles (repetitively) to estimate the value of each
component

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JackPoach
I really dislike this type of articles, because for any such statements to be
true, they have to be replicated by different vendors on multiple occasions.
When one vendor does one thing and gets a result once, it does not mean that
this is a pattern than can be exploited.

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hcal
I would love to see recommendations for articles like this but for b2b
pricing. I suspect there are better ways to price professional buyers.

