the goose

Pop down to your local Spar.  Look at the wine on offer.  The majority of it is betwee €8 and €12.  There might be one or two for €5 and a couple for €16, but the majority lies somewhere in the middle range.  Have you ever wondered how wine which has come from so far and near, from France to South Africa to Australia, should all settle down to this narrow band?  I have.  I blows my mind that even though the South African Pinotage had to be shipped from another hemisphere it still costs roughly the same as the French Cab Sav.  Is it a massive co-incidence?  

No.  The reason is – the customer gets to chose what price to pay.  Its true for wines and it is true for web-apps and websites.  The value of one wine over another is purely subjective and it is up to whoever has the moula in their pocket at the time to decide how much of it is worth handing over.  As merchants, we don’t really have any control over that.  All we have control over is the amount of value we chose to offer.  So when it comes to pricing, here are the things I always try to implement.

1. 9 buck starting price: Offer a few bucks for something basic.  For consumers this should be around the €9 /month range.  It is a table wine for every day consumption.  For business’s that should be more like €25 a month.  No matter what the product, these are the psychological pressure points for consumers / business consumers.  The latest example of this style of pricing I have come across was for EasyTweets.
2. Up-sell by adding value: Above the basic plan, offer more value in return for a higher spend.  You can’t control how much your customers think your service is worth but you can control  how much value you can add at each price point.  On level up from the basic plan will be the €19 a month for consumers and €49 for ‘business consumers’.   
3. Look for ways to build in some kind of obsolescence:  Blinksale, BackMeUp and Basecamp all use this model.  After you start using more than x number of invoices/megabytes/projects a month you need to upgrade to the next price point.
4. Always have a plan you don’t think anyone would buy:  Because you don’t know how much value your customer will place on your service, always have a top plan or price you don’t really expect anyone to buy.   In any restaurant, the most popular bottle of wine will be the second least expensive.  This is because guys don’t want their dates to think they are cheap – so they don’t want to buy the cheapest bottle on offer.  At the same time, they normally are cheap, so they buy the next one up.  In a similar way, some people don’t want to appear flash – and will feel it more ‘reasonable’ to buy your middle plan as long as there is something above it.  Of course there will be others out there (about 5%) who have to have the best plan available.  Don’t forget to come up with a way to take their money and deliver a suitable level of value. 

On the Piehole project we added a top plan for almost €2,000 a year  - not really expecting anyone to buy it.  When we did add the plan however – two things happened.  

1. Sales of our middle plan went up.
2. Two people actually bloody bought the top one.

We are delighted that we were able to deliver enough value that someone would consider giving us that much of their hard earned cash.  As it turns out – they both made their money back in the space of a couple of weeks.