PRICING LESSONS EVERYWHERE Chris Lema @chrislema http://chrislema.com

IN A STORE •  In 2009, Cornell found the $ lowered spending. •  The Dollar Bin section & Dollar Store sell for more. •  Buy 1 get 1 free pushes the “bargain” button. •  Limit 2 per customer anchors us on 2. •  Old/Sale price listings anchor & push bargain button •  Easier math on old/sale delta feels like bigger savings •  Smaller font = smaller price (Clark University)

@chrislema

IN RESTAURANT •  Stars, Plowhorses, Puzzlers, Dogs – on every menu •  First items in section are most profitable. •  Hard to find often means unprofitable dish. •  Drawing a box around it drives sales. •  Packaging / MealDeals work. •  Free appetizers protect you from “all you can eat

@chrislema

IN AN ENTERPRISE •  Yammer - $5/month •  Xobni - $29/once •  DropBox - Free •  Amazon Web Services – $.89/month

The idea is that you can price it for consumers, get several in a single company to buy it, and then make it a no-brainer for the enterprise license (which is much more expensive).

@chrislema

IN ECOMMERCE •  Items too close in price drop sales (Yale, 2012) •  Explicit comparisons slow purchasing (Stanford) •  A comma can make things worse (Clark Uni, 2011) •  There’s no discernable drop in sales pre-price bump. •  You can A/B test everything - Amazon. (Optimizely) •  More competition can drive price higher for

premium products by 40% (LBS)

@chrislema

IN VIDEO GAMES •  Valve runs Steam, the iTunes of video games •  Continuously running pricing experiments •  Initially found perfect price elasticity •  Then did a huge 75% sale with promotions. •  Saw a 40x increase in gross revenue. •  Assumed temporal shifting. •  Then saw in store sales increase + post-sale increase.

“Our audience [buyers] were more effective than promotions.” @chrislema

IN CLASSIFIEDS •  Check out Significant Objects online •  Rob Walker & Joshua Glenn, 2009 •  100 items were purchased for $1.25 (average) •  All the items were sold on eBay, total of $3,600.

•  The narrative adds value.

@chrislema

WHAT CAN WE LEARN FROM ALL OF THIS? Chris Lema @chrislema http://chrislema.com

ALWAYS TEST •  Every single experiment, and every single result, is a matter of

context: –  The buyer’s context –  The market’s context –  The product’s context

•  Don’t copy someone’s move. Copy their motivation.

•  Valve’s initial test suggested perfect elasticity. If they’d stopped testing, they would have missed out.

•  Always test! @chrislema

NEVER JUST $$ •  People choose to buy or not buy a

product, but the price represents more than just money.

•  It’s about Value, Time, Energy & Savings

@chrislema

ANCHORS WORK •  “The best place to sell a $3,000 watch is

next to a $15,000 one.”

•  With cars it’s the MSRP.

•  Arbitrary Coherence Social Security Number Experiment (http://danariely.com/the-books/excerpted-from-chapter-1-%E2%80%93-the-truth-about-relativity/)

@chrislema

NOT RATIONAL •  You make emotional decisions and

then justify them with your own form of “logic”

•  You’re wildly biased and easily influenced

@chrislema

BEST BET? USE VALUE TO PRICE INSTEAD Chris Lema @chrislema http://chrislema.com

RAISE PRICES? •  If you anchor higher prices, then

you’re really “coming down” for special cases, not “raising them” for others.

•  Think about movie tickets in the afternoon >> Discount.

@chrislema

VALUE IS… •  In the eye of the beholder. •  This means you need to spend time

learning how they see the world. • Don’t price in a vacuum.

@chrislema

VALUE TAKES… •  Tons of work. •  “Marinate in the problem space.” •  This isn’t as fast or easy and looking

left and right. But it’s worth it.

@chrislema

GET HELP!

Chris Lema @chrislema http://chrislema.com CTO & Chief Strategist Crowd Favorite