|
Does Price Matter?
January 16th, 2007
We recently tested price in one of our subscription campaigns. The results were frankly astounding.
Our agreement with the seller of the service is that we get a multiple of the subscription price, therefore if we can sell it for a little a higher price without losing sales, we obviously benefit.
The standard price was $19.95 to start and our landing page had historically converted at close to 15%. We tried 4 different price points and randomly served all paid search ads to one of the price points. The prices we tried were $14.99, $19.99, $24.99, $29.99. The product we are offering is somewhat of a commodity and competitors were offering similar services from $12.95 to $33.95. Other than price, everything about the user experience was identical.
The first thing we saw is that there was about a 5% drop in total sales between $19.99 and $24.99, but the difference between $14.99 and $19.99 was almost zero. The difference between $24.99 and $29.99 similarly was very close to zero. This reinforced the old marketing practice of making things seem cheaper by dropping a penny below a price threshold. $19.99 is not $20, it is in the teens…
Another interesting thing as the test ran is that the $19.99 price actually had a slightly higher conversion rate than the $14.99 price.
Some numbers. If we assume that we had 1000 monthly signups at the control price -$19.95. Here is where the other prices fell:
$14.95 - 987 sales - 1% decline
$24.95 - 952 sales - 5% decline
$29.95 - 942 sales - 5.8% decline
Obviously, the product we were offering was fairly price inelastic. A lower price did not encourage more to buy it and a higher price did little to discourage buyers.
Since we have instituted the new higher price across the board, some of our competition has actually lowered price and we have seen almost no conversion rate decline, even when they advertise significantly lower prices in their ads. (Our ads do not mention price)
We like to think it is because our landing pages look great and make the buyer feel more comfortable with the product we are selling. There is also probably a stupid consumer factor.
Next time your profits are getting squeezed and you think the only way to improve performance is to sell more, try raising your prices instead.
|