Pricing thoughts (14 day challenge)

Ah, pricing. It is a hard issue. I seem to have hit the mark on Wrtiting for Software Developers, people called it underpriced (which you want, your customers should feel like they are getting good value for their money) even though $36 was a decent premium over the 25-to-30 dollar average price of similar books. I also had a single, simple tier, a 100-dollar extra charge for a corporate license. Fifteen sales at this tier netted fifteen hundred dollars of bonus revenue.

For this product, I have to start from scratch. There are a few different pricing models to consider: fixed price, fixed price increasing, variable price minimum, and variable price no minimum. Each pricing model could be further complicated with tiers. The product I'm creating has three components, meaning I could have one, two, or three tiers, depending on how fancy I want to get. Here is the breakdown:

• Fixed Price: The simplest model. I charge $X for the product. With tiers, I charge $X, $Y, and possibly $Z for various components of the product.
  • Pros: Easy for the customer to understand, lots of control
  • Cons: Have to pick a price
• Fixed Price Increasing: Similar to fixed price, but I start the price low and raise it after every N sales until I reach some final price.
  • Pros: Reward early supporters, give a sense of urgency
  • Cons: Extra work, still have to pick a price
• Variable Price Minimum: Let customers pay what they want with a minimum price. For tiers, the minimum price per tier can vary.
  • Pros: Price discrimination, guaranteed minimum value per sale
  • Cons: Suggested and minimum prices anchor customers, negating some flexible pricing benefits
• Variable Price No Minimum: Let customers pay what they want or download for free. With tiers, some tiers could have a minimum price.
  • Pros: Simple, perfect price discrimination, market discovery
  • Cons: People might just download for free, makes tiers complicated (as having min price tiers puts price anchoring and decision making back in the mix)

For this product, because it is relatively small, even with the multiple components I don't think it is a good fit for tiers. After a lot of thought, I've decided on variable price no minimum without tiers. If I was spending 6 months on this project, I'd do fixed price with tiers, which if done right is the best pricing strategy, but I'm willing to take a risk with this product because of the relatively small time investment behind it. Besides, I can always change the pricing strategy later.

Let's go through the pros and cons of the strategy that I've selected. First, pay-what-you-want is simple, both for me and the customer. More importantly, it leads to perfect price discrimination. Rather than trying to use tiers to estimate each customer's willingness to pay, they let me know exactly what that number is. Finally, rather than having to guess what price the market might support, I'll get valuable data from people telling me what they think the product is worth.

Addressing the cons, they actually aren't a big deal. Sure, people can get the product for free, but they can do that with WfSD too (either through the refund policy or the free copy upon request policy). Plus, free distribution will increase my audience size and reach. The product is too small to really benefit from tiers, all three components work together to complete the experience. Again, with more time I'd do tiers, but its ok to launch things that aren't optimized.

This pricing strategy is a big risk. But, I have a key insight that makes me more willing to try the experiment. Gumroad used the pay what you want feature to launch this 14 day challenge. Despite it being offered by Gumroad, not an independent creator, and the product page explicitly saying the product was free, almost ten percent of participants chose to pay for it. (I offered those people refunds and we will be giving the remaining funds away.) This gives me confidence that if I ask people to pay, they will, and generously.

While I've spent a few hundred words talking about how I'll avoid price anchoring, I do plan to include some suggested prices buried deep in the FAQ to help indecisive customers make a purchase, any purchase.

Full Update: https://philipkiely.com/notes/14_day_product.html