Ask HN: Is a pricing grid really the best option?
I've seen it recommended more then a few different places that the more choice you give a potential purchaser the less likely they will be to make any decision at all. Why then does nearly every pricing page have a grid of at least three choices? I realize having one choice (with upgrades after the purchaser has signed up) is not always possible but I would think I'd see more of the single plan with upgrade here (on HN) then elsewhere. Any thoughts?
2 comments
Price discrimination: the top plan that gets bought by people spending other people's money generates ~40%+ of gross revenue. Feel free to innovate in pricing and packaging, but this particular question is testable and tested.
Another reason why I think you'd have 3 plans is so people can compare.
If you offer 3 products, 2 that are similar and 1 that is different, most people will discard the dissimilar item and compare the remaining 2, making a decision based on those two.
Example: Buying a blender. You need a blender to make awesome drinks at your next party. You don't know anything about blenders, so how to choose? 1) 5 speed blender, $35 2) 7 speed blender, $45 3) 7 speed stainless steel blender, $95
If you're price sensitive, you would probably discard the $95 blender as it's too expensive. Then you're comparing 5 speeds for $35 vs $45 for 7 speeds. Maybe there's some other small distinctions, like the finish on the $45 blender which would make it seem better. You go with the $45 blender because it's the obvious better of the two, and you know nothing of blenders. A store may have some incentive to prioritize the selling of #2, since it makes them more profit, which is why they've shown you these 3 particular blenders.
However, there's a segment of customers who will buy the most expensive item because it somehow fits for them. In this case, it might be the stainless steel which matches their other appliances. They put a premium on that feature and are willing to pay for it, and you can use Patrick's "consumer surplus" rule for that.
If you offer 3 products, 2 that are similar and 1 that is different, most people will discard the dissimilar item and compare the remaining 2, making a decision based on those two.
Example: Buying a blender. You need a blender to make awesome drinks at your next party. You don't know anything about blenders, so how to choose? 1) 5 speed blender, $35 2) 7 speed blender, $45 3) 7 speed stainless steel blender, $95
If you're price sensitive, you would probably discard the $95 blender as it's too expensive. Then you're comparing 5 speeds for $35 vs $45 for 7 speeds. Maybe there's some other small distinctions, like the finish on the $45 blender which would make it seem better. You go with the $45 blender because it's the obvious better of the two, and you know nothing of blenders. A store may have some incentive to prioritize the selling of #2, since it makes them more profit, which is why they've shown you these 3 particular blenders.
However, there's a segment of customers who will buy the most expensive item because it somehow fits for them. In this case, it might be the stainless steel which matches their other appliances. They put a premium on that feature and are willing to pay for it, and you can use Patrick's "consumer surplus" rule for that.
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Patrick - Thank you I hadn't heard of price discrimination before. So I can internalize this by giving only one price point I'm forcing those in the market with other peoples money (above my price point) into the lowest tier plan or to take their business where a plan matches their intended use more? And those below my price point to just go elsewhere. My goal / thought was to reduce complexity at the purchase point so in the example of appointment reminder everyone signs up at the personal level and then at the next screen before payment are offered addons like "Record Custom Reminders" and more "Appointments per month" but I can see how I would be introducing more complexity then I'd be removing.
Your way of doing it almost certainly decreases conversion rates, but feel free to test.
The idea is that, for every transaction ever, someone has an amount of money they'll go up to for that purchase. If it costs more than that, no sale. If it costs less than that, they capture what is called a "consumer surplus." (This is micro-econ 101.) It happens to be the case that a lot of software is sold to businesses which have ways of calculating value against which all common startup software price points are negligible. Accordingly, attempting to capture some of the consumer surpluses from businesses does not leave them meaningfully worse off.
Can I give you a concrete example of how this works for Appointment Reminder? I have a particular customer whose appointments are worth in excess of $2,000 each. His actual usage of the software puts him in the $29 / month plan, but the software demonstrably makes him in excess of $10k each month. He pays $199 a month for the software, and told me that if I charged him $2k a month he'd pay it without a second thought.
It is strongly not in my interest to tell him "OK, start on the $9 plan and you can upgrade to the $29 plan when your usage goes over the limit.", because he'd never reach the higher plans. The difference in $29 and $199 is not meaningful to his business but, aggregated over similarly situated customers, it is very meaningful to mine.
The idea is that, for every transaction ever, someone has an amount of money they'll go up to for that purchase. If it costs more than that, no sale. If it costs less than that, they capture what is called a "consumer surplus." (This is micro-econ 101.) It happens to be the case that a lot of software is sold to businesses which have ways of calculating value against which all common startup software price points are negligible. Accordingly, attempting to capture some of the consumer surpluses from businesses does not leave them meaningfully worse off.
Can I give you a concrete example of how this works for Appointment Reminder? I have a particular customer whose appointments are worth in excess of $2,000 each. His actual usage of the software puts him in the $29 / month plan, but the software demonstrably makes him in excess of $10k each month. He pays $199 a month for the software, and told me that if I charged him $2k a month he'd pay it without a second thought.
It is strongly not in my interest to tell him "OK, start on the $9 plan and you can upgrade to the $29 plan when your usage goes over the limit.", because he'd never reach the higher plans. The difference in $29 and $199 is not meaningful to his business but, aggregated over similarly situated customers, it is very meaningful to mine.
The problem you're having is that you're equating usage/features with value. They're not the same, or even correlated as much as you'd think. Precisely the same software can be an order of magnitude (or several!) more valuable to one customer than it is to another. You can't always use features and usage as a means by which to price discriminate, because sometimes there is literally no difference to go off of.
I run a bug tracker with one plan- $20/month. I have customers who are stretching to pay the $20 a month, and others who would easily have paid $200. Yet there is no way to tell one from another by looking at how they use the product. It's kind of frustrating. I am giving up 9 customer's worth of value because I can't figure out how to charge one of them more than $20 per month. (Actually, I can, but my billing code isn't finished yet).
I run a bug tracker with one plan- $20/month. I have customers who are stretching to pay the $20 a month, and others who would easily have paid $200. Yet there is no way to tell one from another by looking at how they use the product. It's kind of frustrating. I am giving up 9 customer's worth of value because I can't figure out how to charge one of them more than $20 per month. (Actually, I can, but my billing code isn't finished yet).
Patrick - Thank you I really appreciate you taking the time.
Assistly's pricing model ( http://www.assistly.com/pricing ) bucks that trend, but I think there's a psychological desire for some choice (to feel in control) but not too much (which might require research) and pricing tiers are a very easy axis to make that decision on.
ultrasaurus: Awesome thank you. I found a discussion of the pricing model by Matt Trifiro, Assistly’s SVP of Marketing on their blog.
http://www.assistly.com/blog/ilincoln-murphy-matt-trifiro-di...
Matt discusses the factors for the lack of price tiers around 30 minutes in.
http://www.assistly.com/blog/ilincoln-murphy-matt-trifiro-di...
Matt discusses the factors for the lack of price tiers around 30 minutes in.