

Dynamic Pricing: Let your prices rise or fall until you maximize revenue - david
http://informationarchitects.jp/dynamic-pricing-for-digital-goods/ 
I think this idea has potential.&#60;p&#62;Most freelancers/consultants know the prevailing advice for pricing you're work is to start your hourly rate off with an educated guess, based on the minimum income you need to maintain your standard of living, and how much value you think you can provide. Then, whenever you feel like you're not getting enough work, lower your rates, and when you start getting more work than you can handle, raise your rates until you're comfortable again.&#60;p&#62;This way, you can utilize the constant feedback of the market to ensure you're always maximizing you're revenue, given you're current abilities, marketing, and market/economic climate.&#60;p&#62;Doing the same for you're web service/digital products is simple enough it could even be automated. What do you think, would you price your services this way?
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chaosmachine
_"Apparently, the rule of thumb for online sales is that 5% of your online
visitors can be turned over if you have a really sweet offer. Given that we
have roughly 5,000 visitors on our site per day, and we put the sales button
on every page, the maximum we’d sell is 250 packages a day."_

I think they're in for a shock. 5% sales conversion on random traffic to your
blog? That's probably off by an order of magnitude. Random visitors aren't in
shopping mode. Ask anyone who's ever got a bunch of traffic from Digg or
Reddit.

You're lucky if 5% click the link to go to your sales page.

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flooha
No doubt. I've heard the 1% rule, which mirrors my own experience, but I've
never heard the "5% rule of thumb". Also, what defines a "really sweet offer"?

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david
I think he may have been saying something like "If you pull everything off
just right, there's a maximum of 5% of your visitors that can turn into
sales".

Of course, if the majority of your traffic are coming over to read something
interesting, you'll probably be a ways from meeting that 5% mark.

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RiderOfGiraffes
Related: <http://news.ycombinator.com/item?id=488663>

If you do use dynamic pricing and you measure things carefully you can
compute/deduce the price-demand function. It's not a straight line, as most
people would intuit and that article assumes for simplicity, but the analysis
in that article can be applied to non-linear systems. Dynamic pricing allows
you to start that analysis.

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megaduck
A word of caution: a potential problem with this strategy is that pricing
sends a signal to potential buyers. Higher price generally implies higher
value.

If you switch to fully dynamic pricing, then you lose control of the marketing
message that's encoded in your prices.

You also risk irritating people who feel 'gamed', but that's probably not as
big of a worry. People have been complaining about airline dynamic pricing
since forever, but it hasn't seemed to stop people from flying.

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david
Maybe if you were running a service, you'd be better off evaluating how well
your prices are doing by selling multiple plans and paying attention to their
relative sales behind the scenes. If only your cheapest plan is selling,
you're probably priced to high, and if your cheapest plan is ignored, you
might be priced to low.

I don't know if the higher price sending a signal is all that relevant, since
you would basically just be changing the price in whatever direction will
maximize revenue. If the high-value signals end up producing more or less
sales, you would just see that in the results.

You would definitely mix up the whole perception of your prices though.

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dejan
I've written an article before on this topic: [http://aleveo.com/ideas/real-
time-variable-pricing-for-the-w...](http://aleveo.com/ideas/real-time-
variable-pricing-for-the-web)

Surely I think it is a good step forward, but there are two sides of the
equation, maximizing profits and providing fair value for the price.

If the company wants to maximize profits they might just as well start with
highest possible price as tybris suggested. However, price has always been
related to scarcity, and if there is no control of the same, the offer gets
commoditized , hence the real and perceived value is not appropriate. The book
Experience Economy talks a lot about this.

EDIT: In any case, the one that is concerned with fair value has a sustainable
advantage over the one that is looking for ripping off customers. Dynamic
pricing should involve many variables, such as time since marketed, total
sales, stock, discounting, revisions etc, but I would keep all of this
information out of the sight of customers as it may appear very confusing and
irritating for the conservative ones.

I am not sure whether they are doing it right here, but I have great respect
for experimenting. Behind every great invention there is an exploded lab :D

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quellhorst
Google uses dynamic pricing with AdWords to make billions of dollars.

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xiaoma
There's still the possibility of getting stuck at a local maxima.

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simurai
On the iPhone app store you see constantly dynamic prices.

Most apps start with an introductory price to boost their ranking. Then it
goes up to normal and if they see that it doesn't sell anymore, they lower the
price again. Or they do weekend/Holliday sales too.

I think for a user it's not just the fact to save a buck or two, it's more the
satisfaction you get when you feel you got a good deal.

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messel
I like the idea, but I suggest publicizing and making transparent the model.
Let potential buyers know that price s will be going up and they may buy in
sooner. Or let them know it's going down, they'll wait, and then pounce on
your product at the bottom driving it back up.

Fun read, although I wasn't excited by the template. I prefer messy with more
information.

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david
I think that's the biggest challenge with this approach: figuring out how
users will react to the price changes. Someone who goes to a site and sees an
ebook listed for $8.95 is going to perceive that price a lot differently than
someone who sees an ebook for $8.95 and knows that it's been going up from
$5.25 for the past couple weeks.

I've actually been a fan of IA's template for a while, even though they keep
updating it. It's one of the best examples I know of a well-executed
minimalist design, the overall grid layout, and the attention to detail makes
everything work.

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tybris
Bad idea, you will influence you revenue (negatively) by doing so. Just start
high and slide down. Or start low and add "premium" services.

