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Doug Nebeker ("Doug")
I recently raised the price of one of my desktop applications from $30 to $50, in an attempt to test the waters. Revenue continued to be OK, and now with the release of a new version of the software that doubles the number of features in it, I've raised the price again to $80.
(For context: The size of the core market for this software is not very big, and even at $80, it comes in on the cheap side of the software in this segment.)
Today I received an email from someone who was very put off by the increase in price (and who even remembered the original price of $15 from years ago), asking if they could get the software at a cheaper price. What's the best way to handle this?
The truth is that the product isn't sustainable at the cheaper price. The revenue does not yet cover the development cost, so I have to make more money. My strategy is both to slowly drive up the value (and price) of the product by adding more features, and to slowly expand the potential market and audience for the product with those additional features. Does that sound sensible? Is there a better approach to growth?
Anyways, I'm inclined to stand my ground on the pricing issue (in the nicest way possible) at least for a few months because I feel like it's "do or die" time. Either I find a way to make the product sell at this price, or the economics are just never going to work out to make this product truly viable.
Thanks for your eyes, ears, and brain cycles.
You don't owe an a customer a lower price unless you promised it. I'd tell the customer, as nicely as possible, that the price will remain as is, and that there may be other products that would meet that customer's needs better.
Wednesday, August 07, 2013
Your pricing growth plan sounds reasonable to me. Basically that is what I have done, going from 20 5-years ago to 60 today.
I would give your customer a discount coupon (say 50%) to make them happy and get the sale. Selling at a lower price is better than not selling at all and this is just a one-off. Your customer will be happy and maybe even recommend your software to others because of it. Plus it's another person you can charge for upgrades in the future.
Sounds like you're approaching a healthy price point -- where a small number complain, but sales continue regardless. Worth remembering though that you should only be listening to the price complaints of new customers, of people who never knew about or bought at the cheap price.
We used to populate the $25 market too, and it attracts a different type of buyer. Those old, $25 customers are the only ones who complain about our $60-$90 price tag today.
I wouldn't offer him a discount at all -- but I love standing my ground, and there's nothing like sales being made at the higher price to prove that it's the right price.
There's too issues here:
1) Should you have raised the price / should you now lower it? For me the question of whether profits have reduced, stayed the same or increased is the salient point. This can be hard to judge with low volumes. If you believe profitability is staying the same or increasing with your pricing strategy I'd say stick at it.
2) This particular customer is a special case who has no bearing on the above - if you want to give them a discount go ahead, opinions vary on whether that's a good idea.
The important part imo is that you shouldn't let complainers dictate price, only profits. If anything you should consider putting up the price if people aren't complaining about it.
Never do anything for free.
Ask the user if they would be willing to send you a postcard from or pictures from their location in return for a discount.
That way, they are invested in the outcome.
I've done this before and asked for pictures of their location and in return, I received pictures from INSIDE the construction of the VLA in Brazil(?) It was a pretty boring pic and a couple of years ago but I felt like a part of history. They also sent me a snail mail postcard with a beautiful time lapse pic of one of the telescopes in the array on the front.
Sometimes, people just can't afford it. Is $40 worth it to lose a customer or to gain a friend?
I wouldn't change the price for 1 customer. Negotiating the price for "off the shelf" software isn't a good idea unless you're doing a very small volume.
Just let him know that the old version is no longer for sale, and the current version costs $80. For people who just can't afford that price, you can provide them with links to similar free software if available. Then they can decide whether they want "cheap" or "good" :-)
And you can move on without losing any energy over it and continue improving your product. If it makes sense to create a "lite" version with limited features later, then you could do that, but don't sell the pro version for the lite price :-)
If you only have one complaint, and it's from someone who used it years and years ago at a very low price, you're doing well. In fact I would say you may not even be at your optimal price point yet.
You have to expect people to complain about the price. If you don't get a certain level of complaints then you're priced too low. No one ever complains that your price is too low ;)
Wednesday, August 07, 2013
Funny you should say that Stephane, I did once complain that a price was too low :)
It was an misv product I was using (not a member here). For the value it was providing it was priced far lower than I thought logical. He tripled the price as I suggested and it's still at the higher price ($149) now (several years later) so I guess it worked for him.
Thinking about it that product is possibly something we can all learn from. It has many open source / free competitors several of which are much more feature rich. Unfortunately they all have an incredibly steep learning curve, so this commercial product has a niche.
So the entire reason I spent $49 on that product and would have spent $149 was usability. Just something to think about.
I'm curious about the product you mentioned that you recommended be bumped in price (to 3x!). Could you give an idea as to what "domain" of software it was in? (techy utility? office need? creative? personal enrichment? hobby helper? institutional? etc)
I'd be similarly curious about the domain for the software from Marlee Ammon that went from $25 to $60-$90. In a world of free web services and $0.99 iOS apps, that's interesting.
The product was for viewing network traffic. Definitely a pro tool. This is why I prefer b2b to b2c, people are less likely to compare the price of your software to an iphone app or the round of drinks they want to buy that night.
Jonathan, thanks. Makes perfect sense. That is a totally different kettle of fish than an app to store brownie recipes. (eww on that metaphor again).
I agree about the advantage of B2B...but I'm aiming for (when I finish the work) B2C because my interest was driven originally by personal interest in the topic, not by profit, though with the work I've put in, I now feel selling it for a reasonable profit is appropriate. I might be able to adapt what I've done, ultimately, for a B2B version to help the revenue.
What everyone else said but 2 points jump out to me.
First, be a bit wary of the idea of adding extra features to add more value.
Realistically most people don't want to buy "lots of features', they want their core needs met and they want them met very, very, well.
You can improve a product, and thus its value, without adding more features, is what I'm saying. Worse, I've seen examples of developers throwing more and more and even more features at a product, only to find sales dropping and support requests rising.
Keep it simple :)
The 2nd point is that higher prices have something much better than just 'more profit'...
They can make the difference between viable marketing or nonviable. In turn, successful marketing can mean a much bigger jump in overall profits, greater market recognition and a kind of 'critical mass' effect.
I know it's boring to hear "test!" but really, it's worth rising even higher, until you can see total profit peak, then drop. Revert to the peak.
Wednesday, August 07, 2013
Making more marketing viable is an awesome effect from higher prices. Things really are easier at the top of a niche.
This is one of my biggest problems with the app stores I've seen. The price deflation means almost any paid advertising is out the window.
Interesting Jonathan that you complained for a product priced too low. It is very rare. Generally you only see that when people think there's a catch or something. In that case you should absolutely increase your price right away!!
And as you said, he did and it's stayed higher. That says a lot ;)
Wednesday, August 07, 2013
I have had a few emails from cheeky customers, I just ignore them, I'm guessing that's what Microsoft etc would do, so if it's good enough for them, it should be good enough for us.
Wednesday, August 07, 2013
You seriously considered changing strategy because of 1 email fro. 1 person?
Wednesday, August 07, 2013
Ask them for a 300 word testimonial about how they use your product and why they find it useful. Ask for permission to publish it on your website along with their name and a link back to their website. If they comply give them access to the old pricing.
But DO NOT re-evaluate your pricing policy on the basis of one email.
Wednesday, August 07, 2013
"What's the best way to handle this?"
I think the best way to handle this is just to politely write back the customer and say something like, "The truth is that the product isn't sustainable at the cheaper price. The revenue does not yet cover the development cost, so I have to make more money. My strategy is both to slowly drive up the value (and price) of the product by adding more features, and to slowly expand the potential market and audience for the product with those additional features. "
"Ask the user if they would be willing to send you a postcard from or pictures from their location in return for a discount. That way, they are invested in the outcome."
Wow. That left me breathless.
Bring back anon, you keep keeping on man. That is a really cool solution. I can see it stops the back and forth haggling too - the next move is theirs to send that postcard. The postcard for many, despite costing less than a dollar, will be such a hassle they'll just buy the product at full price. For others they send the postcard, get the discount, and think "I got a $15 discount for a $1 postcard, that's a $14 profit!"
I think this was the place. Coincidence that it showed up on my YouTube feed today:
Thank you for your advice and insight.
The reason I took this prospective customer's email so seriously was because it was preceded by a tweet of similar sentiment from someone else, and the timing of both was immediately after the price was bumped up. My gut contains an early warning system for impending shitstorms, and that the alarms were going off in this situation.
As per Scott's advice, I replied to the customer with a sincere explanation of why the price had to go up, but also offered them the old price. They were very understanding and sympathetic, and accepted my offer. I'd like to think this was a good compromise - He's a very happy customer now, and I still made some money.
Twist: I've received a SECOND email now, from a different potential customer, who shares the same sentiment but seems less happy at my pricing strategy. Here's a quote from their email (talking about the new $80 price point):
"For software that was recently $29, that seems a bit crazy."
So obviously this guy's not too pleased, but an important thing both of these unhappy shoppers said is that they were planning on buying it any day now. I've likely lost many potential sales from people who were sitting on the fence, which could have been mitigated somewhat by doing a full version bump (to 2.0) for this release. As someone mentioned though, I should really care more about whether new shoppers who've never seen the old price will buy it at the new price.
Thanks again for your insights,
Second email is still a potential sale, and every sale is someone you can sell upgrades to... forever.
What won't go on forever is people requesting the old price, at a certain point it becomes silly to do so and you could try a response of "Thank you very much for your interest in our program. It sounds like it would be a perfect match for your [task of whatever]. The price was raised a year ago since the new version N had 1.8 times as many features [or 'because the early bird pricing expired']. We've made a few special case grace period exceptions in the past, but at a certain point it becomes disruptive to continue doing so. If you are a student though we would be happy to offer you an x% discount."
Generally though, nobody is going to ask for discounts on the upgrade price since that's the upgrade price and that's that.
Over time this is where the big money kicks in, having a huge customer base to sell the upgrades to.
Let's say you have 100,000 customers that you've acquired over a 10 year period, with sales increasing, and there were 25,000 new ones the last year.
Your program is $200 and the upgrade price is 25%, or $50. So you are selling 25,000 * $200 = $5 million in revenue from new purchases.
So you come out with the new must-have version. In the next year, 1/3 of the current customers will buy the upgrade, and a bunch of the 2-versions-ago stragglers will want to upgrade to (always offer normal pricing to the skip-a-version people - you want to keep them on board). So you are selling 50,000 now at $50, that's another $2.5 million from renewals. That's 50% of your total revenue from upgraders.
The more people that own the program, the more buy the upgrade.
It would even be worth it to give the program away for free for the first version to get more on board, except that's silly because of cost of customer service, and because there's no reason to upgrade if you get the program for free by registering under a new alias.
So you sell it for a price that justifies the renewal price.
It will be good for you in the long term.
If I need to raise prices, I give my support people a discount coupon they can share with people who complain in the short term.
I'm particularly sensitive to customers who may have downloaded a trial thinking that the price was $X, but when they come to buy it now the price is $Y.
Monday, August 12, 2013
"I'm particularly sensitive to customers who may have downloaded a trial thinking that the price was $X, but when they come to buy it now the price is $Y."
OMG, yes, I've seen THAT on the App Store more than once! And on the flipside, I once paid $2.99 for an app on iTunes, which was advertised for only $0.99 on their website. When I contacted them about it, they said the price on their website was wrong and they'd fix it. That was over a month ago. Nothing's changed. I know it's "only" $2 extra but come on, sell it for what you're advertising.
> I'm particularly sensitive to customers who may have downloaded a trial thinking that the price was $X, but when they come to buy it now the price is $Y.
You don't raise prices for the current version, do you? It is a new version that costs $Y, right? Then you can tell those prospects that for $X they can buy the version they've evaluated, with an option to upgrade later for $Y-X.
Another way to handle this is to offer a limited time discount of $Y-X when the new version comes out. If you collect evaluators' emails, you can offer that discount only to them.
Dmitry Leskov @Home
Tuesday, August 13, 2013
The price seems to be low, if you want to have higher price, you should ask for quality.
Web Design Valley
Tuesday, September 03, 2013
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