Posted by
Eric Yu on Wed, May 15, 2013 @ 06:00 AM
We’ve told you until we’re blue in the face that pricing has a huge impact on your business. After all, a 1% improvement in price optimization results in an average boost in profit of 11%. Yet, how do you create that 1% change? One method is through your actual revenue model, or how you charge for your product. Although many package structures exist, one of our favorite is the SaaS pricing razor-razorblade model that’s been around for years in retail and creeping up into the software world.
The razor-razorblade model started in the early 1900’s when King Gillette (yes that's his real name) invented the disposable safety razor and revolutionized the shaving industry. He lured people in with sturdy, low-price razors, and then made his fortune by selling his patented high-margin razor blades. (Coincidentally, they were the only ones that would work with his razors.)
This model can be very effective if used correctly (think about the printer/print cartridge industry), but it’s not for everyone. To see which insights will work with your pricing strategy, let’s explore the model’s pros and cons, before drawing some implications about how you can increase revenue by just changing how you charge.
Why people utilize this model
It drives increased market share by being more psychologically appealing
Offering your full product at its full price right up front can be exceptionally expensive to a consumer, especially if there’s no guarantee that they’re coming back to buy more. Fortunately though, the average consumer doesn’t think too far into the future about those future costs, even when buying expensive items like a car. As such, with a razor-razor blade pricing structure you can utilize your “razor” as a loss leader or low margin product to get consumers over that initial price sensitivity hump, all knowing that they’ll be back for more “razors.”
A corollary to this in the SaaS world means making sure you offer a low priced tier that provides value, but ensures the consumer will want more of the product through proper throttling. Pricing along a value metric ensures that happens automatically, as well.
It generates customer loyalty and creates steady revenue streams
The Razor-Razorblade model forces customers to make repeated purchases of the “razorblade” which creates a continuous source of revenue for the companies.This implicitly engenders customer loyalty and creates high psychological switching costs. If you’ve been shaving with Gillette razors for 20 years, it would probably take something more than an extra blade (or 10) on a Schick razor for you to switch over.
In the SaaS world, subscription models offer the exact same advantages. Even if something is being automatically charged to a credit card or an invoice, building the relationship through interaction month after month allows a business to push the switching costs to the max.
It gives your customers freedom
A bit counterintuitive to getting a customer in the door and under some high psychological switching cost, but by allowing a customer the opportunity to keep coming back, you can up and down sell them accordingly. Extra add-ons, premium razors, or even different levels of additional products allow you to serve numerous customers, all with different, but increasing lifetime value.
As long as the “base” is uniform enough, you can give customers the flexibility to choose their own adventure, attracting a larger market...and larger amounts of revenue.
Why some don't use this model
There are two main drawbacks to the Razor-Razorblade model:
It can be risky depending on your business and industry
Companies often sell the “razors” at a loss to gain market share, which means if they don’t sell enough “razorblades” the loss impacts their bottom line directly. This is a huge possibility because there are companies out there that specialize in undercutting the pricing on the “razorblades,” which effectively destroys the entire point of the model. Just think about the businesses and products that popped up to refill your print cartridges, so you don’t have to buy new ones; they’re eating the cartridge manufacturer’s lunch right now.
The consequences of competition may not be as severe in your business, but there will always be people competing with you for the same target market. The way to combat this through pricing is not to engage in a race to the bottom through discounting. Rather, you should keep prices the same but really emphasize your core competencies in your pricing model, add more to your value proposition, or even boost the value of your premium product. This allows you to simultaneously improve your customer experience while differentiating yourself from your competition.
Customers can feel tricked, nickeled, and dimed
This strategy can also destroy customer relationships and loyalty, especially when people don’t understand what they’re signing up for. You see this all the time with magazine subscriptions when people sign up for the free trial and then get upset when the publisher charges them for a year’s subscription after their trial expires.
This demonstrates another important tenet of pricing: be transparent about your pricing structure. Nothing destroys customer loyalty faster than hidden or unexpected expenses so make sure you’re clear about the charges. Plus, this honesty improves your company’s reputation, which will attract referrals and return business.
What you should do with your pricing strategy
Like we mentioned in the beginning, the razor-razorblade model is only effective when done correctly. However, we do have a few general pricing lessons that everyone can take away from this strategy:
1. Focus on Loyalty: Figure out ways to develop customer relationships in your business in order to create customer loyalty and keep people coming back for what you’re offering. This is one of the most effective ways to differentiate yourself from competitors and keep your competitive advantage in the market.
2. Be Accommodating and Flexible: Keep your pricing model as accommodating as possible. Try your best to be flexible with the features of your product do and also try to give customers the option to buy as little or as much of your product as they want. A customer who might not be interested in buying Snuggies in batches of 20, for example, might be interested in buying two of them. Keeping your model flexible allows you to target a much wider audience with your product.
3. Be transparent with pricing and changes: Finally, be honest with your customers. Make sure your pricing model is clear and that customers know exactly what they’re paying for. This not only improves your company’s reputation but also, circling back to our first point, improves customer relationships and develops customer loyalty towards your firm.
To learn more about pricing in general, check out our Pricing Strategy ebook, our Pricing Page Bootcamp (it’s free!), or learn more about our price optimization software and solutions. We're here to help!
NOTE: We try to keep this blog all about pricing education, minimizing as many, "hey, look at us!" type of posts, but after months of hard work by our development team, we're excited to launch, so pardon this break for us to tell you about us a bit more. We promise to keep it quick.
Pricing is one of the most important aspects of your business. Prices represent everything you’ve created, and everything you stand for, quite literally. After all, a price is a reflection of the creativity, efficiency, and value you’ve created through marketing, sales, product, and the like.
Yet, even though proper pricing has the highest impact on revenue, few of us are experts while many of us view pricing as an impermeable art.
We founded Price Intelligently, because we realize there’s a better, data driven way that makes pricing easy, scientific, and a core competency for any company. You shouldn’t have to wait until you can afford an expensive expert, because oftentimes poor pricing means you’ll never get there anyway.
Here’s some help - Our new Value Management System
That’s why today we’re happy to announce the launch of our value management system that puts the tools we’ve developed to help dozens of businesses increase their revenue directly in your hands. Positioning, packaging, and pricing optimization no longer needs to be an insurmountable process. Instead, the process can be smooth, ongoing, and something your product and marketing teams can continually perfect alongside your product and marketing development.
Pricing has too much power over your bottom line to be neglected. The stakes are too high. We’re excited to help you get the most important aspect of your business in check, because nothing has a greater impact on the only cell in the spreadsheet that matters every month.
Positioning and Packaging - Determining the Most and Least Valuable Features and Value Propositions amongst each customer persona
Each of your packages should be constructed with data on exactly what each of your customer personas want and need in your product. When each segment has a package you optimally set up the multi-price mindset with differential pricing and ensure you're capturing all the cash your'e leaving on the table.
Price Sensitivity - Determining the price sensitivity and willingness to pay for each package and persona
Packages are great, but they'd be nothing without knowing exactly what your customer is willing to pay for your package, including where their price senstivity falls on the spectrum. In fact, you may find that you have customer opportunities that you didn't even realize when you see some are willing to pay much more for what you've created.
Ready to jump in? Sign up for a free trial below:
To learn more about pricing in general, check out our Pricing Strategy ebook, our Pricing Page Bootcamp (it’s free!), or learn more about our price optimization software and solutions. We're here to help!
An unfortunate misconception that we hear almost every single day is that there’s some mythical holy grail of pricing out there. Somehow your extraordinarily differential product and numerous customer personas will magically boil down to one silver bullet of a price that makes the entire C-team happy and your P&L statements bleed black.
Well, with over 100,000 pricing studies completed we’ve definitely learned one thing: there is no, one perfect price. We’ll give you a second to let that sink in for a moment, especially given the irony that we’re a price optimization company.
The good news is that this mythical perfect price wouldn’t maximize profits anyway. So how will your business generate more profit from your customer base if you charge different prices for the same core product? The answer is using what’s known as a multi-price mindset, which when used effectively, helps your business profit from every customer’s perception of value. Let’s discuss what exactly this mindset is and break it down into three main strategies that your business can use to grow and increase profits.
What is the multi-price mindset? More prices = more revenue.
The multi-price mindset is an adaptable approach to pricing that generates more profit from your customers by appealing to their different perceptions of value. Rather than selling a product at a fixed price, a system of strategies is used to match prices and promotions with the diverse needs of your customers. With a multi-price mindset you’ll be able to capitalize on those who are willing to pay more for your product while widening your customer base. Essentially in terms of implementation, different packages and prices appeal to different customers, and using a range of optimum, value-based prices culled from customer data can help your business take advantage of different valuations and increase revenue.
So what are the strategies? The three most important methods of the multi-price mindset are differential pricing, bundling, and segment-based pricing. We’ll define all three and show how you can reap the rewards for your own business.
1. Differential Pricing: Price your product to match value
Price differentiation is the art of selling the same product for different prices to different customer personas. Prime examples would be student discounts for admission to a museum, or coupons that customers clip and redeem at the local grocery store. These discounts are meant to identify customers with different valuations, including those who are willing to pay more (those consumers, like me, who are too lazy to clip coupons).
The use of time in price differentiation is a great way to capitalize on customers who are willing to pay higher prices. If part of your customer base is willing to pay premiums on the latest version of your product just to be the first ones to have it, then your price should reflect that higher valuation. A product’s initial release is a great time to maximize profits, and prices can be discounted later to appeal to thriftier customers who were willing to wait (for example: every Apple release...ever.).
Another great way to use differential pricing is to price along a value metric. Not everyone can afford your product, but more importantly, not everyone needs the entirety of your product. As such, break things down after identifying what your value metric is, and make sure that customers are able to buy your product at different stages in their cycle of need. A great example of this is Wistia, where companies big and small have options for video hosting. The great externality of this setup is that Wistia creates customers for life, as small folks simply buy more from Wistia as they grow.
2. Bundling: As simple as Base, Plus, and Premium
Price bundling is the strategy of selling different but similar versions of a core product for different prices. You’ve experienced this part of the multi-price mindset anytime you’ve purchased a lite or deluxe version of a piece of software. The idea behind this versioning is that adding and subtracting features to a product and pricing accordingly will enable you to earn revenue from frugal customers as well as more affluent ones.
Your company can develop options that tier your product and appeal to different price points, and chances are spreading the love won’t cost you nearly as much as developing the core commodity of your business. Premium versions of your product that include extras and bonus features can have high profit margins if a solid pricing strategy is implemented, and the stripped down version will attract new customers that can’t afford the fancier one.
By creating these opportunities to pay a different price for similar choices, you’re more likely to appeal to every potential consumer’s sense of value, thus increasing your profits. This is really similar to pricing along a value metric (discussed above), but is used more for products that are feature differentiated, such as Litmus.
3. Segmentation: Expand your offerings to capture more customers
Applying new pricing concepts to your product to convert interested leads into new customers is called segment-based pricing. This strategy utilizes different pricing techniques to attract potential customers and capitalize on interest that already exists for your product. Examples of segment-based pricing include leasing, bundling, rentals, and the development of completely new products.
While many of the pricing methods that fall under this strategy are also examples of differential pricing (product bundling being a prime example), the idea is to use different options to gain new customers and grow the customer base. Think of ways you could change how the cost of your product is perceived. Is there an exceptionally basic version of your product that you could spin out from the enterprise version? Perhaps you could appeal to new customer segments by creating monthly and yearly memberships, or charging per-use fees to those who aren’t committed to owning your product and need to use it less often.
A great example of this is Mercedes who although known for really expensive cars has recently come out with a not cheap, but not expensive entry level car that more families can afford. You don’t need to build an entirely new car, but segment-based pricing will turn your leads into buyers because your company will have pricing options that change the perception of the cost, enabling potential customers to find a price that works for them.
Stop searching for the mythical, silver bullet price
Data can can help you significantly narrow the range of possible prices for your product and remove most of the guess work that comes with looking for the right price, but it’s important to take advantage of the results. Rather than obsessing about a perfect fixed price, focus on using multiple optimum price points to bring in new business and extract higher profits from your existing customer base.
With a multi price mindset, your company can adapt to the different pricing needs of your customers while encouraging them to spend more. The strategies that make up this approach will turn flexible value based pricing into an advantage that generates more revenue and stimulates the growth of your business.
To learn more, check out our Pricing Strategy ebook, our Pricing Page Bootcamp (it’s free!), or learn more about our price optimization software and solutions. We're here to help!
While it’s definitely true that the pricing process is the most important aspect of your business, your pricing strategy is only as good as it’s implementation. Almost everyone in your company is involved with pricing, from marketing and distribution to management and sales.
In fact, a low level grunt working behind the counter at Starbucks has more power over the price of your coffee than any council of strategists brainstorming various promotions deep in their corporate coffee cave. After all, if your best friend is behind the counter, then chances are you won’t be paying for anything. We’re not all peddling coffee, but how can your company make sure it isn’t losing money because of poor execution? The answer is to create a culture of profit.
Businesses with a culture of profit rally the team around small changes that have a huge impact on the bottom line (How’s more revenue sound?). Let’s take a look at what exactly a culture of profit is, review why it’s important, and then illuminate three ways you can rally the troops around profits and not excuses, discounts, and the like.
What exactly is a culture of profit?
The concept of a culture of profit was first popularized by pricing guru Rafi Mohammed where he defined the culture as, “a business environment and shared way of thinking that allows your company to price for profits and growth.”
That’s really ambiguous, right? Well, essentially what Rafi is getting at is pricing (and the metrics surrounding it) need to be top of mind for everyone. You need consistent guidelines for discounts; you need to ensure everyone understands the central value of your offerings; and you need to make sure everyone is on the same page about your pricing strategy.
Scale and Consistency: Why is a culture of profit so important?
Profit cultures scale quicker
In the hustle and bustle of a growing business, you can easily forget how much power the rest of the organization has on profitability, especially when you’re adding employees on a weekly, monthly, or even a quarterly basis. Soon you won’t be able to keep tabs on every sales or marketing individual, and if your culture isn’t unified around profitability then value in messaging and value in sales will ultimately be lost.
However, if the organization is centered around the right metrics and profitability, your job becomes that much easier, because everyone is beating to one drum and newcomers quickly conform to the goals of the business as a whole.
Profit cultures empower employees
Even if you’ve managed to scale without a profit mindset, creating that culture can have enormous implications on the bottom line by empowering the team. We’ve worked with dozens of businesses where profits are leaking out of the discount faucet at a flood-like rate, because sales folks on the front line had no insight into the impact of their discounts. Even outside of the sales teams, marketers or product managers may be pushing and streamlining low margin products.
If you empower your team around profit, they’ll follow by moving the company in the right direction from their actions, big and small. A 1% improvement in price equates to an 11% boost in profit. I don’t know many businesses that would rather leave that cash on the table.
Here's how to create a corporate culture focused on profit
Understanding the importance of a profit focused culture is all well and good, but this is still a little fluffy. So, let’s dig into some very specific things you can do to turn your culture around to focus on profit and revenue.
1. Transparency and focus on the right metrics: Make revenue, skus, and margins crystal clear
In the technology world transparency is preached in organizations to the point that it’s almost cliche, which is great, but make sure you’re transparent with your pricing, costs, and profits, as well. Teams relish at the opportunity to be involved in analyzing these sorts of numbers, and immediately feel as if they are truly a partner in the company. You’ll naturally see a shift in team members selling and marketing the right products to the right customers. Plus, the team will realize how large of an impact a few dollars (or thousands) will have on the bottom line health of the business.
The proper metrics to focus on is worth an entirely separate blog post, but make sure you focus on profitable metrics, not vanity metrics. Revenue is great to show to an investor, but margin is even better.
2. Use discounts sparingly and properly
We’ve spoken about the dangers of discounting in a previous pricing strategy post, but to recap, discounts should be used as pointed campaigns, not catch alls. Discounts should only be used in three ways: to upsell customers to products with higher profit margins, in negotiations to make very specific sales, and to keep customers away from competitors. All discounts or promotions should be discreet to a single customer or persona, and shouldn’t keep other customers from paying full price. Plus, all employees should know the limitations of the promotion, as to not leak profit unnecessarily. For discounts and promotions to run properly, the execution needs to be consistent so that these discounts do what they’re supposed to: increase your profits and your customer base.
To sum this up, the actions of any of your employees can affect the price of your product. If everyone on your team isn’t on the same page, then customers new and old might be getting better deals than you intended. Your team might think giving discounts to new and old customers alike will increase loyalty and repeat business, but it’s far more beneficial for your company if these customers are convinced the product is a smart purchase at the actual price.
3. Create and adjust confidence in your product and pricing throughout the organization
When you’re building a lean product, it’s easy to focus on what your product isn’t, especially with a feature wish-list that borders Santa’s Christmas list. On the flip side, when you’re in an entirely new market, it’s easy to focus on how wonderful your product is, even though consumers aren’t quite sure why they need your product (yet). We’ve seen both these organizations amongst our customers, and each results in overpricing and underpricing, driven largely by the team.
To create a culture of profit your sales, marketing, and product teams need to be confident in the value of your product, but also need to clearly know who your product is for and what features and value propositions move the needle for each customer persona. Clearly define your customer personas, in addition to laying out what makes that customer tick.
Once you have this information, preach it from the rooftops. Everyone in your organization should know why your product is so great for each customer, and what that customer needs to be told to make them truly happy. Relayed confidence in the current price and the product’s value also ensures that customers won’t be getting numerous goodwill discounts that cut through your profit margins.
In summary, align your company along implemented value
A cohesive pricing strategy based on value is the best approach to creating a successful business, but the right environment is essential to implementing that strategy. Educating your staff about every aspect of your pricing and the product is the groundwork that helps generate more profit and growth. As long as your employees have some control over the price, then training them in a culture of profit will be the key to your company’s success.
To learn more, check out our Pricing Strategy ebook, our Pricing Page Bootcamp (it’s free!), or learn more about our price optimization software and solutions. We're here to help!
Posted by
Eric Yu on Mon, Apr 15, 2013 @ 03:06 AM
T-Mobile has long been the neglected step-sister in the US mobile carrier family. She just hasn’t been able to compete with her more popular, older sisters, Verizon and AT&T, who dominate the US market at a rate of nearly 5 to 1.
Fear not though, T-Mobile has been working hard to improve, especially with an announcement that can only be the start of our own fairytale as consumers: T-Mobile has officially released their “Un-Carrier”, contractless pricing strategy. For years consumers were placed atop the anvil of the telecom bells’ harsh oppression with early termination fees and contracts longer than any union should be between a human being and a circuit board.
Why should you care? Well, T-Mobile is making a huge pricing strategy splash in a heavily competitive market and they're already seeing traction. If you’re here, then you’re probably looking to make your own splash with pricing as a core competency. As such, let’s breakdown what’s so revolutionary about T-Mobile’s new strategy, and reveal which aspects of the new approach you can bake into your own pricing strategy for immediate positive impact in the revenue department.
Listening to the customer: Why T-Mobile made the pricing change
Traditional cell phone contracts make us nauseous
Unless you’re one of the .0001% of netizens with access to the Internet, but no cell phone, you probably have some form of contractual relationship with a telecom company. Yet, one fact that is oddly missed on a large number of consumers is that when you buy a smartphone with contract from a carrier, the price you pay is heavily subsidized. This is why you can get a pocket size computer that can capably fly the space shuttle for $99.
Carriers use these subsidized phones as a promotional aspect to their pricing strategy, because no one wants to pay the true cost (up to $1000) plus the cost of service. In this manner, carriers make the bulk of their cash on guaranteeing that you’ll stick around and pay for the service plan for two or more years through a contract. Of course, you can leave before the contract is up, but you’ll be assessed an enormous early termination fee (ETF) to essentially cover the cost of the subsidy on your smartphone. Unfortunately though, telecom companies aren’t well known for their customer service and when the poor service mixes with a major new smartphone release rate of at least every six months, these stiff contracts become universally hated by consumers that feel trapped.
How T-Mobile's "Un-Carrier" plan is differnet
T-Mobile’s new approach to cell phone plans doesn’t completely get rid of an agreement, but allows consumers to leave T-Mobile at any time, as long as they pay for the remaining subsidy on the smartphone. So, for instance, if you want to buy the new iPhone 5 on T-Mobile you’d pay the $99 up front and then each month you stay with T-Mobile $20 comes off the value of the phone. After two years, the balance on the phone is paid off, but you can still leave by paying $600 minus the $20 for each month you were a customer.
Why this change is brilliant, and what you can learn
T-Mobile isn't necessarily doing anything revolutionarry, but it seems that way because they're in a market where a contractless relationship with a customer is considered lunacy. Here’s why we like the move from a pricing strategy perspective....and what you can learn:
1. Consumers love flexibility, and the flexibility onus is on you
Technically under the new plans, T-Mobile customers aren’t under contract, except for an agreement surrounding the smartphone subsidy. The flexibility to leave before two years is absolutely brilliant, because the more choice you put in the hands of your customers the better the producer/consumer relationship.
Term and pricing flexibility remains key to success, because you’re able to appeal to a wider array of potential customers. Some people want to pay for a year of a service up front, while others want to pay month to month - especially in the SaaS world. Unlike the telecom space though, a lot of customers won’t voice the need for these options. Instead, they’ll just go to your competition that offers them the solution in the structure they seek. You’re probably already taking advantage of flexibility with multi-tiered pricing saas pricing, but think about additional ways you can be more flexible to accommodate your target customer personas. Term conditions and add-ons are a great place to start.
2. Take advantage of the “time value” of money
Letting people pay off smartphones in monthly installments allows them to take advantage of the power of "the time value of money", which Albert Einstein called the most powerful force in the universe. The time value of money gets to the core of liquidity, essentially saying that a dollar today is worth more than a dollar tomorrow, because you can invest the dollar you have today in this moment in time; the dollar tomorrow isn’t guaranteed.
We’ve already mentioned being flexible on payment terms, but when you are flexible keep the language of your product in the context of the monthly investment your customers are making in your product. Individuals are buying a product to quelch a pain they’re feeling right now, and on a recurring basis. No matter the terms, psychologically, thinking about the solution as a small monthly charge shows the investment. Yet, this mindset also helps you take advantage of the “time value” principal by turning a $1200 charge into “only $100 per month for the year.” Non-profits, infomercials, and all kinds of software companies take advantage of this phenomenan all the time.
3. Differentiate your pricing to align with customer value
T-Mobile’s marketing team has been out in full force since the announcement of the “Un-Carrier” plan, which is positioned as something completely different than any other cell phone service provider. Remember though, it really isn’t that different. T-Mobile is still covering any potential losses. Yet, now they’re recognizing a major pain customers voiced and aligning their new plans along what each value. Telecom customers have evolved from simply finding value in connection, minutes, bandwidth, and tests to all of those things plus freedom.
Just as T-Mobile has recognized and taken advantage of this new axis of value, you need to truly understand every aspect of your customers’ view of value in your product. You need to know not only what pain are you solving, but what aspects of the pain are the most important to your customer. Recognizing the primary, secondary, and even tertiary levels of your customers’ value metric allows you to truly be a leader in your market, because when everyone is pricing based on number of seats or API calls you’ll be pricing on number of database connections, number of tests, or even conversions. Essentially, you should get paid along the same axis that the customer finds value.
Seriously: Revenue maximizing pricing is all about the customer
We’ve always been told that it’s all about the customer, but this goes well beyond your customer service and product departments into the very core of your pricing strategy. T-Mobile listened and made changes to better align with their customers’ wishes with more flexibility and a downright better deal, which is going to come up huge for differentiating them from the rest of the market. Of course, companies have gone too far in their differentiation, such as JC Penney’s disastrous pricing strategy. Yet, retail customers weren’t/aren’t as up in arms as current smartphone customers.
We’ll see how the T-Mobile strategy pans out, but we’re very optimistic, especially considering Verizon is seriously looking into following the contractless trend. As for your pricing strategy, look deeply into the perspective of your customers. Find what makes them tick, price along that value, and be flexible enough to capture each shade of that persona.
To learn more, check out our Pricing Strategy ebook, our Pricing Page Bootcamp (it’s free!), or learn more about our price optimization software and solutions. We're here to help!
Note: This is the first in our "They're leaving money on the table" series, where we actually test out and find which companies are leaving an enormous amount of cash on the table through improper pricing. Let us know who we should test next by emailing LeakingRevenue@PriceIntelligently.com.
Although Wall Street and a lot of the tech press love to hate on Groupon, I'm a huge fan. They developed such a simple, yet powerful idea, and there's nowhere on the internet where I can find a deal on everything from a night out on the town to an oil change. Well, except for the endless barrage of other daily deal sites that have spawned in Groupon's wake. With a concept so novel that none us thought of it (Group + Coupons = Group Coupon or Groupon), they took the internet by storm in 2008, turned down a $5.3 billion offer from Google in 2010, and limped through a 2011 IPO into 2012 trying to figure out proper unit economics for profitability.
While we're rooting for Groupon to figure their issues out, we unfortunately found a huge chink in their already lightening armor that goes beyond local business relations or user acquisition: their color scheme. Kidding. We're a pricing blog. Of course, we wouldn't write an article unless it was their pricing. Through our study, we've discovered that Groupon is losing roughly $1,117,808 per day (or $408 million/year), and that's a conservative estimate. Sounds absurd right? Well, let's walk you through our study, show you the facts and calculations, before illuminating some ways you can avoid falling into a similar trap.
A Quick Overview of Groupon's Revenue Model, Including Its Quirks
Groupon's revenue model is pretty simple. The basic premise is that they take a local business (such as a restaurant), cobble together a deal ($25 for $50 worth of food), sell the deal (yum!), and then split the sale in some proportion ($12.50 to Groupon and $12.50 to the merchant). The exact proportion varies per deal, but we've seen the standard in our research be around a 50/50 split.
Why would anyone agree to such a deal? Well, Groupon pitches their flock of daily dealers as a method for not only infusing your business with customers who may not come in without an extra nudge, but as a way to increase customer retention and repeat customer rates. After all, retailers don't win unless their doors are revolving. Many retailers question the validity in Groupon's retention and loyalty averages with many reports stating those claiming Groupon's deals are simply bargain hunters who refuse to come back to the establishment, but regardless, people are still buying (thousands per day) and it appears Groupon is working hard to turn their retention and repeat rate averages around.
Our Study: Testing Groupon Subscriber's Price Sensitivity
In our analysis, we chose to focus on two core deals that we consistently see on Groupon, a meal at a mid-tier restaurant and a 5 pack of yoga classes. There are dozens of other categories of deals we see on Groupon (auto detailing, electronics, fun outings and endless Zoom whitening treatments), but since the very beginning there has been some variation of a meal and a fitness offering. Typically, we'd do a pricing study directly on the product, but remember the whole point of going to Groupon is to get a deal. As such, our analysis focused on pricing out the item in context of being a Groupon. In other words, knowing that the deal is worth $50, how much are target customers willing to pay for the deal? Here are screenshots of the two deals we analyzed:
Restaurant Groupon - $25 for $50 at The Elephant Walk
Fitness Groupon - $35 for $70 of Yoga Classes
Briefly: How our software works
Specifically, without getting too deep into our software (you can hear the pitch on the phone or website if you'd like), we utilized our value based pricing technology that gets to the heart of willingness to pay by collecting data directly from the customer. For our software to work, we ask a target customer a few core questions, crunch that data through our algorithm, and then spit out the charts you see below. We have more on validity checking and the pricing process, but here's some example output from a fun pricing study we did comparing the price of time with Dharmesh Shah or Jason Calcanis:
Testing Willingness to pay amongst Groupon Customers for Groupon deals
For the Groupon studies we quite literally took the deals right off the website and told the respondent that they were pricing a daily deal from Groupon with a value of $X, where $X was the strike out price on the deal. For example, for the deal below, we showed respondents the deal, including all the fine print and features, and told them that the deal was for $50 at The Elephant Walk. We obviously hid the Groupon sale price and discount percentage.
We then priced the deal out and found the willingness to pay. For respondents, we used one of our panel partners to find individuals who: 1. have a Groupon account, 2. purchased a daily deal in the past two weeks, and 3. self identified as being interested in the deal (i.e.. said "Yes" to "Would you be interested in a deal from a Cambodian/French restaurant?"). Essentially, we wanted to make sure these folks were in the target demographic.
Groupon is leaving a lot of cash on the table
As we already gave away above, they're underpricing and losing a ton of cash. Here are the results for each of the studies:
Restaurant Groupon
| |
Current Price |
Optimal Price Band |
IPP (Median Price Point) |
% increase |
| Restaurant Groupon |
$25 for $50 |
$26.96 - $39.38 |
$36.24 |
+44% |
Fitness Groupon
| |
Current Price |
Optimal Price Band |
IPP (Median Price Point) |
% increase |
| Fitness Groupon |
$35 for $75 |
$51.71 - $59.60 |
$56.38 |
+61% |
Just a quick note: IPP stands for Indifference Price Point, and is where half the respondents believed the item was expensive and half believe it inexpensive. The point is a phenomenal one to look at, because it serves as the middle point of the data, allowing you to compare across different campaigns and studies.
To summarize the above, we found that at least for these two deals Groupon could raise the actual sale price by over 40% and still bring in the bacon.
How does this equate to such big yearly and daily losses?
Now to get to the big numbers we quoted above we did some digging. In 2011, Groupon sold over 170 million deals (PDF) with an average amount of revenue per deal of about $12 (we say about, because we could only find the average for the first three quarters of 2011). If Groupon increased that average revenue per deal by 20% (we're being really conservative here and not going for the whole 44-61%) they could bring in an additional $2.40 per deal, which equates to an additional $408 million, or $1,117,808 million per day. That's a lot of cold hard cash for everyone, just by being smarter about the structure and price point of their deals.
Now admittedly, there are a lot of additional factors at work here, including the scale of Groupon offerings, the segmentation of each deal (different markets = different price sensitivities), the nuances of Groupon's accounting, and the like. Yet, the big lesson staring us all in the face is that Groupon is leaving cash on the table by not providing their business customers with insight into how to structure the pricing of their deals and what the delta should be between their list value and strikeout price.
Groupon can easily close their cash gaps
From an investment point of view, this data should be startling, because even leaving $100 million on the table at a company that's been struggling to meet earnings and losing day in and day out in the Wall Street game would be a lot of cash, let alone $408 million. Plus, in a business that struggles to get beyond barrier to entry and cost of user acquisition issues, there's clearly a more innate, easily adjustable solution to maximizing the revenue out of the volume of deals Groupon prints on a daily basis. I'm not sure what pricing analysis Groupon currently does, if any, but from reading numerous accounts of small business owners using Groupon, it appears they put a lot of the deal structure in the hands of the actual business with only light guidance from the sales rep and some historical data. Clearly, something needs to change.
For you, this data should be indicating that you need to take pricing seriously or at the very least rethink your pricing process. Think about how you're currently pricing, how you can determine your customer base's willingness to pay, and how you can bring some data into the mix. A process and data. That's all you need.
To learn more, check out our Pricing Strategy ebook, our Pricing Page Bootcamp (it’s free!), or learn more about our price optimization software and solutions. We're here to help!
Note: This post utilizes data from one of our customers, SmartBear Software. We'd like to thank Jeanne Hopkins, their CMO, for letting us release the gist of the findings, in order to let everyone learn from them.
Freemium has gone from an intermittent growth tactic in the software disk days of the 1980s to a strategy that every SaaS company can’t live without. After all, how do you grow a business without giving away the farm for free?
Sarcasm aside, we’ve debated the merits of freemium before in a previous post. Our conclusion is better discovered on that post, but the gist is: freemium is an acquisition tool, not a revenue model. When used correctly, freemium can be wonderful for businesses and that’s why everyone is flocking to barren tiers. Yet, with 5 million downloads of their free tools for developers, one of our customers, SmartBear Software, was thinking about the naming convention of free or lite in labeling their software offerings, positing the question:
"Does calling the free plan “free” (or “lite”, “basic”, etc.) diminish the value of the product?"
The subtext here is that free plans have become such a novelty and so poorly set up that unless your first price point is close to free ($0), you’re essentially shooting yourself in the revenue draining foot, because the delta between the free plan and the first paid tier is too high (especially in enterprise companies). To answer their question, we did what we do best: gathered customer data and determined some willingness to pay magic. Let’s explore the study, the results, and top-level findings to help you boost your revenue right away.
The study: Comparing ordinal names to regular names
Without getting too deep into our software and process (you can hear the pitch on the phone or website if you want), we make value based pricing software that gets to the heart of willingness to pay by collecting data directly from the customer. Part of our software also determines relative preference between features, benefits, or value propositions by forcing the user to make choices between them. Here's some example output from a fun pricing study we did comparing the price of time with Dharmesh Shah or Jason Calcanis:
For this study, there were a few moving parts. We first took different target customers for each SmartBear product, had them price out a full featured product based on its features and value propositions, introduced a less featured free product with the free name, and then had them price out the free tier while knowing full well that the less featured tier was free. We then calculated the difference between those two numbers, and voila we had clear trends on the value of the names. (Side note: We also ran the feature preference studies against the different names.)
In terms of different names, we tested modified names where we appended “Free”, “Basic”, “Starter”, and “Lite” to an existing name. We also introduced a non-modified new name that was branded similarly, but didn’t have an ordinal prefix or suffix. For example, let’s say we’re pricing a product named PriceIntel. For the study, we would test pricing by determing the willingness to pay for "PriceIntel" (full featured product), then price “PriceIntel Free”, “PriceIntel Basic”, “PriceIntel Starter”, “PriceIntel Lite”, and then “PriceSmarts”, which is the non-modified name.
Hopefully, everyone is with me so far. If not, comment or give us a call and we’re more than happy to walk you through everything. :)
Results: Names have impact on perceived value
The results were exceptionally telling. Essentially, “free” drove the price to pretty much free or $0. Basic, Starter, and Lite all hovered around 50% of the original value, and the non-modified name only drove the perceived value of the product down 15 - 24%. Keep in mind we tested this across some pretty nerdy segments (software engineers, software developers, network engineers, etc.), but every single segment we tested had pretty much the same results. Take a look at the aggregated results:
The relative preference results fell in line similarly, as well. Keep in mind though that this analysis forces the respondent to choose a most valuable and least valuable name, so no matter the frequency of responses, more than likely when people see “free” it’s an easy choice as the least valuable. Here are those results:
How can this help you? Non-Ordinal Names and Value Metrics
1. Skip ordinal names for your free tier
Instead of using cliche ordinal names like "free", "starter", "basic", or "lite", use a real name. Not creatively inclined? Just grab a thesaurus and get cracking. At the very least name the tier after the customer persona using the product. If the free plan is for a single person with the hope you’ll land and expand into the team, then name the tier “solo.” If it’s for small businesses, you’re also hoping to grow with, then name it the “small business plan.” I’m not a creative genius, so I’m sure there are better examples out there.
Just don’t kill your value, conversion rate, and revenue by pricing improperly.
2. Align your tiers along your value metric
A foundational principle of pricing and packaging is that you need to charge your customer for the value you’re providing them. As that value increases, you should charge more. Wistia is a phenomenal example. As you get more bandwidth and upload more videos (get more value from the product), you pay more.
If you don’t have a finely tuned throttle or proper feature differentiation between your free plan and that first tier, then you can’t move your customers up along your value. You’re just giving it away. This is especially scary in the enterprise space where the difference between a free plan and the first premium one can be from $500/month all the way to $1000s per month. As such, make sure that free plan, no matter the tier moves that customer “up the river” efficiently.
Freemium offers are only the silver bullet to a business when you’ve figured out a good portion of the big aspects of your business: customer, marketing flow, user metrics, etc. If you’re taking the free plunge or starting off with it from day one, make sure to start small. You can always add more features or increase the throttle, but it’s a heck of a lot harder to take things away. After all, if you’re not moving those customers up into greater profitability, then you’re just running a really expensive, developer ridden tech charity, rather than a growing business.
To learn more, check out our Pricing Strategy ebook, our Pricing Page Bootcamp (it’s free!), or learn more about our price optimization software and solutions. We're here to help!
Wednesday night I had the opportunity to have dinner with a group of folks who were well above my weight class. Jason Calcanis (LAUNCH, Maholo, general rabble rousing) was in town meeting with Dharmesh (Hubspot, OnStartups, angel investor) and I was able to hustle my way into a spot at the table that included a number of other Boston heavy hitters.
The table conversation swayed from catching up on the Boston tech scene to old war stories of trials and tribulations on the warpath of business, but one of the more fascinating topics concerned using tech stature and advice for paying it forward. Both Dharmesh and Jason have given their time to countless entrepreneurs, and in some instances have even auctioned off lunches and meetings for charitable organizations. As the conversation progressed, the group around the table evolved into discussing what any group of highly competitive individuals would:
Who could wrangle up more cash for their time?
Rather than leaving the question to the imagination, I decided to use our software to get some real data to determine whose time (between Jason and Dharmesh) is worth more. If you just want the results, skip to the end, but we’ll briefly go through the methodology.
The Scope of the Study and Our Methodology
At Price Intelligently, we build value based pricing technology to reveal true customer willingness to pay and price sensitivity. Without getting too deep into the pitch and the boring bits, essentially we allow you to stop guessing on your pricing and have real data from your customers about what features and benefits are most important to them, as well as what price you should truly be charging to maximize revenue.
For this study, we targeted entrepreneurs who were pre-series B in the Boston tech space as the target customer persona, who had knowledge of Dharmesh and Jason, and were interested in seeking their advice.
We positioned “the product” as a 60 minute meeting with Dharmesh or Jason that included a meal at a 4 star or above restaurant, the option of bringing an additional co-founder, and where all the proceeds went to a charity of Dharmesh or Jason’s choice.
In terms of methodology our software collects data directly from customers and then crunches those numbers through our algorithm to reveal the output you’ll see below. It’s based on some fancy science, but for more on the process and validity, check out our pricing is a process blog post. We also dug into the relative value of reasons why these entrepreneurs would want to meet with Dharmesh or Jason, which hinges upon the basic premise of forcing the respondent to make choices between options.
The big reveal: Who’s worth more in Boston?
After crunching the numbers, the data revealed that Dharmesh’s time was worth between $2,521 and $3,336, while Jason’s was worth between $1,781 and $2,430. The Indifference Price Point (IPP) for each was $2,983 and $2,244 respectively. For context, the IPP is also known as the “median price point”, where half of respondents believe the product is expensive and half believe it is inexpensive. For this reason and given the fact that the sample sizes for each study were smaller (n = 40 or below), comparing IPPs is much more valuable than comparing the optimal price ranges.
Here’s Jason’s output:
A big thing to notice here is that the price sensitivity graph (the brown one below) is relatively flat, which makes sense, because in a variable good like time with a rock star entrepreneur, you’re definitely going to have a lot of variability, unlike a commodity like gold where the profile of the graph will be much more defined.
The same goes for Dharmesh’s output:
Although Dharmesh’s output isn’t as flat as Jason’s, it does have a wide bottom, which means that there is greater predictability for a higher price point within the range, as opposed to a lower one.
For both heavy hitters, if they were to sell their time in an auction model they could definitely exceed the limits of their range, because as you notice in the price sensitivity graph, some respondents were willing to pay much more than the top end of the optimal price band. With a singular, fungible product like time, you don’t need to sell to the masses, you just have to find one person.
Why do they want to meet with Jason or Dharmesh
Knowing a price point is great, but as we mentioned before, getting into the purchase intent or even what “features” of a particular product is especially important, which brings us to our “feature” utility product. Both Jason and Dharmesh’s output aligned very closely to one another, so in the nature of space, we combined the data to give you a concise look:
As you can see, clearly these two know a thing or two about giving away cash, as that was the number one area, followed by marketing. On the other end, thankfully these folks knew what they wanted out of the pricey meeting, because few found just general networking to be worthwhile.
Keep in mind these results are targeted
Keep in mind that these results are for Boston area entrepreneurs. Dharmesh is one of the head honchos around here, which definitely had an impact on the results. As I mentioned before, the sample size is targeted, but not huge, and for a “product” like their time, especially in a charitable setting other “customer personas” may pony up much more cash.
In all, these results were pretty cool to see, especially because there’s clearly some cash being left on the table by any area groups looking to raise money for charitable purposes or just to give back to the community. As such, someone should take up the banner and get some dinners, luncheons, or workshops going with this model: TUGG, Intelligent.ly, Dart...I’m looking at you.
To learn more, check out our Pricing Strategy ebook, our Pricing Page Bootcamp (it’s free!), or learn more about our price optimization software and solutions. We're here to help!
We’ve worked with all kinds of companies here at Price Intelligently, from software to retail and consumer to enterprise. Yet, throughout all of our conversations, one of the biggest themes we see is that at every company there’s always that one person who thinks discounting and promotions are the answers to all of their pricing problems. For some reason, the target customer just needs 10% off to finally pay up.
Fortunately, since there’s one of these individuals at every company we work with, I’ve got my response down pretty well:
“Blindly discounting is one of the worst things you can do, because you’re conditioning your customer into de-valuing your product, and you’re literally throwing money away by putting it back on the table from the initial and future sales with that customer”
Don’t believe us? Don’t worry. We’ve got data to back all this up. Let’s explore this concept a bit more by first looking at the fundamentals of discounting and why they don’t properly translate to software. We'll then reveal hard evidence into the true impact of discounting on your bottom line, before finally illuminating solutions to get you on the right track to boosting your value and defending premium pricing.
Discounting: Attempting to translate a retail practice to software
As human beings, we've been trained by a century's worth of retail pricing to love discounts. The idea of scoring a deal makes us feel like we’re beating the system, and to a greater extent, makes us feel special. Yet, to understand discounting, we need realize that at its core, a price is your exchange rate on the value you’re creating through your product or service. With that number put down in pixels, you’re saying that whatever you’ve produced is worth $X, because that product or service helps the customer in a manner that fits that equates to their perceived value.
Different types of customers value that product or service at different price points, meaning different segments of customers will have a different exchange rate, or perceived value, of your offering. Take a look at the price elasticity graph below (a screenshot from our software). The profile of the graph shows us that different segments of target customers value the product differently. As such, stakeholders need to decide where on that graph their product resides to spur a profitable business.
Once you’ve decided where on this range you’re going to price, discounting then comes into play in an attempt to move more sensitive customers “up river.” Essentially, discounting works in a similar fashion to a free trial or even a freemium tier. You’re lowering the price point to the level of sensitivity of a new tranche of users. Thus, attempting to convince those users during that initial term that the product is worth the higher price, and when the next term comes up they should pay the regular price.
For instance, imagine that this chart is showing the price sensitivity for a particular SaaS tier for a brand new CRM. Management, taking into account different stakeholders in sales, marketing, finance, and the like decide to put a stake in the ground at point A. Of course, they aren’t capturing all of the market, but that’s fine because they believe for the current state of the business there are plenty of customer at that level. The next quarter comes up and sales aren’t going so well, so the team decides to slash prices 20% for inbound prospects to point B. Immediately, a bunch of users hop on board, helping the sales team meet quota.
Discounting has sweeping implications that go beyond the impact on unit economics
Everything is rainbows and sunshine now, right? Well, no, not at all actually. By discounting you’ve conditioned the customer to de-value your product. Discounting works in the retail space so well, because brands can limit supply (or at least make it look like supply is limited), and therefore create a sense of urgency in the eyes of the consumer. In the software space, supply is practically unlimited and non-physical, and we’re inundated with so many promotions and discounts every day that we know more are coming down the pipeline, even if you say, “for two days only.”
What’s even worse, is that when that next month or updated product comes, the customer is already using the product at a particular price. Very few companies have the first month user retention strategies in place to boost value to the original price point. Switching costs are so low (especially after only one month of use) that customers churn out, wasting you even more money from marketing, onboarding, and any extraneous costs associated with having that non-ideal customer distract you. As David Skok illustrated, churn is kryptonite to startups, and if you’re growing sales through discounts, problems will only get worse, even if you are retaining a certain percentage of those customers.
Let’s talk turkey though, because everything has been philosophical up until this point. We’ve run hundreds of price sensitivity campaigns for software companies and one of the segments we always test is the effect of discounting on willingness to pay. Enough results have come in for us to assert that the numbers back up our above analysis. Even though it varies by product, industry, etc., customers receiving a discount on their first month or initial purchase value the product at least 12% lower than the product’s list price. Note that free trials and promotion still reduce perceived value of the main product, but not as much as discounts or a freemium offering (read more about how we’re opposed to freemium as a default strategy).
Move beyond discounts in your pricing strategy
1. Create an entry-level tier
The main axis your revenue model should be based upon is a “value metric,” meaning as your customer uses your product more (bandwidth, installs, contacts, etc.) he should be charged more. As such, an entry-level tier allows you to still drive folks to your main product, but allows you to capture customers with a lower willingness to pay. Thus, giving you an opportunity to wine and dine them at a lower service level until they convert to a higher, more ideal tier.
Note: This doesn’t mean freemium, which is an acquisition strategy not a revenue model. You should check out our analysis of freemium here to learn more about proper implementation.
2. Add value instead of providing negative discounts
As we stated before, people LOVE to get deals and feel special, but that doesn’t mean you have to cut the price. Instead, add more units, more user seats, premium service, etc. A little surprisingly goes a long way, and you won’t succumb to the long term implications of discounting. Plus, we’ve already chatted about how psychologists have proven, human beings would rather receive 2 for 1 than 50% off.
3. Improve your marketing segmentation
Whether the price for your product or service is optimal for maximizing revenue is irrelevant to understanding the trigger features and value propositions of your customer. Way too many software companies run rough shot marketing practices that spew the same message to everyone. You need to get deeper and more specific, because even if you’re selling to a niche customer, value will be different amongst different size companies, geographies, incomes, etc.
Overall, we obviously don't expect you to retool your entire pricing strategy over night, especially if your customers are already conditioned into discounts. Keep in mind though, we want you to move toward a more sustainable, revenue maximizing strategy. The payoff is enormous and it's not difficult, but it does require some work. To learn more, check out our Pricing Strategy ebook, our Pricing Page Bootcamp (it’s free!), or learn more about our price optimization software and solutions. We're here to help!
J.C. Penney's experiment with “fair and square” pricing that eliminates all deals, offers, sales, and pamphlets in the Sunday paper is bold, and exceptionally risky. Yet, after over a year of attempting to make the grand experiment work, we’re comfortable saying that J.C. Penney has failed. They've failed so much that we're comfortable calling them the biggest pricing failure of 2012, especially since revenue has only rebounded when returning to the traditional retail promotion strategy.
This isn’t to say the strategy doesn’t have merits, and can’t work, but in its current iteration and with constant board and market influences, we find it hard to believe that the historic retailer will be able to sustain the fair and square pricing strategy.Let’s explore why the experiment failed before, most importantly, relaying to you the lessons you can learn in your pricing strategy.
Forgetting the funadmanetals - It's all inside...except the customers
At the foundation, pricing is the exchange rate for the value you’re providing, an intermediary between what you’ve produced and what your customer is willing to pay. That’s why we harp on the idea that pricing is one of the most (if not the most) important aspect of your business. Not only does a 1% improvement in price optimization result in an average boost of 11% in profit, but everything you do, from marketing to product to sales, works to buttress that illustrious number you’re assigning to your product.
I’m atop the pricing soapbox for the moment, because although the concept and implications of proper price optimization are clear, the process can be quite complicated. That exchange rate you’ve created can be riddled with different tactics, especially in a retail environment. After all, we’ve all fallen prey to the “20% off for this weekend only” sales at least once before, if not many times. In fact, these tactics are almost necessary to create the sense of urgency required to move a target consumer to purchase that much needed winter coat in the middle of summer.
Customers are price conditioned from decades of retail sales
We spoke extensively about this topic when we initially chronicled JC Penney’s saga, but to recap, traditional retailers use a combination of promotional pricing, fake pricing, and price anchoring to form a comprehensive psychological pricing strategy that creates a pricing trigger to minimize the sales cycle significantly. Consumers armed with a sense of urgency resonating from $10 off a purchase of $50 or more, can’t help but flock to the cash register. They feel as if they’re winning something, as the perceived value of the product is still high, but they’re only getting the deal, because Macy’s thinks they’re so special. In reality, no consumer is actually that special, because these sales never truly end. Almost no one ever pays full price.
That being said, it’s kind of obvious where JC Penney went wrong, right? They completely destroyed over a century’s worth of price conditiong consumers have grown to love with department stores, retail, and pricing in general. Of course, newly minted CEO Ron Johnson wasn’t completely off his rocker. Consumers are becoming more weary of sales and promotions with the informational access the Internet warrants them and more “premium retailers” who never budge on price like Lululemon and Apple as context. Yet, assuming that decades of psychological thrills stemming from getting the best bargain could be overturned in a consumer base so accustomed to the traditional retail practices is a bit short-sighted.
Remember though, hindsight is 20/20, and we strongly believe there will be more retailers defending their price points and boosting value on the merits of their products and service in the future. Yet, existing companies will need slow roll outs of this strategy to be successful and re-train their customer base.
Enough about them, what about your pricing strategy
J.C. Penney is a giant company that tried to be nimble like a business with a much more forgiving and loyal base. Here are some tips for you, whether you’re big or small, to make sure you’re pricing correctly and moving the revenue needle in the right direction.
1. You must understand your customer’s motivations. If they love getting the weekly ads, coupons, and promotions, then keep up the promotion cycle, only weaning them off slowly if you’re trying to retool your brand. If they know the strike-out price on your website is utter BS, then don’t patronize them with one.
2. Experiment with your pricing strategy. Don’t take J.C. Penney’s failure and abandonment of a bold move as an indication that you need to have one perfect pricing strategy from the beginning. Experimentation is key to the pricing process as your value ebbs and flows in the eyes of your customers over time.
3. Communication and pricing are two puzzle pieces that must link. Years of conditioning and advertising created the modern day J.C. Penney customer. J.C. Penney tried to unravel this psychological fixation with heavy advertising, but their implementation was confusing and encompassed all of their products. If you’re making price adjustments, make sure you bring your customers along.
To learn more, check out our Pricing Strategy ebook, our Pricing Page Bootcamp (it’s free!), or learn more about our price optimization software and solutions. We're here to help!