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Name Your Price – a pricing experiment

Posted on Nov 10 2014 in News, Popular

After reading Robin Sloan’s fantastic piece about rethinking the idea of the static price tag, I came back from my holidays dying to experiment with flexible pricing myself.

From reading about other experiments I knew that giving people the choice to pay (next to) nothing usually attracts a lot of opportunists that care more about scoring a bargain than paying for something they really appreciate. So I was expecting the average price paid to be well below the standard price for a copy. And so, in order to decrease my chances of losing a lot of money in this exercise, I decided to set a few limits. Here is what the experiment looked like:

The Setup

I designed a simple page with a three-step checkout process:

In the first step, visitors could pick one of the available back issues. I intentionally didn’t make future issues available for pre-sale because, well, selling things I haven’t even produced yet for potentially less than cost price is a pretty dumb thing to do.

The second step offered a slider to define your own price — from $5 at the minimum to $38 at the max. With $5 as a minimum I could at least minimise the impact of a worst case scenario and have some of my shipping cost covered. I chose $38 as a maximum amount simply because it would put the handle of the slider right in the center at $22 (the regular price), which was also the default setting when opening the page.

Just below the slider I offered a bit of insight into how the chosen price affects Offscreen as a business. Here are the tiers and their message:

  • $5 – $7: Significant Loss
    If all copies sold at this price, Offscreen would generate a significant loss, killing the magazine instantly.

  • $8 – $10: Small Loss
    If all copies sold at this price, Offscreen would generate enough money to cover shipping, but would still struggle to pay for other expenses.

  • $11 – $13: Break-Even Point
    If all copies sold at this price, Offscreen would generate enough money to break even on expenses, but the publisher would essentially work for free full-time.

  • $14 – $20: Small Profit
    If all copies sold at this price, Offscreen would generate a small profit, enough to operate as a side project producing 1-2 issues per year.

  • $21 – $23: Sustainable Profit
    If all copies sold at this price, Offscreen would generate a sustainable profit, allowing the publisher to create at least 3 issues per year full-time.

  • $24 – $30: Profit for Growth
    If all copies sold at this price, Offscreen would generate enough profit to hire a part-time editor to increase quality and content for at least 4 issues per year.

  • $31 – $37: Profit for Expansion
    If all copies sold at this price, Offscreen would generate a enough profit to hire 1-2 people full-time to increase quality and frequency, and the brand could expand to events and other projects.

  • $38: Offscreen Venture Capital Inc acquires News Corp for immediate sunset.

Step three had a simple PAY NOW button with this message next to it: “To make this experiment fair and available to as many people as possible, we kindly ask you to order one issue at your custom price only.”

I also decided to limit the availability of this offer to 18 hours (with a countdown displayed on the page), largely for two reasons: once again to limit my chances of losing a lot of money, but also to create a sense of urgency and scarcity, one of the oldest tricks in the marketeer’s book.

The Result

I launched the experiment on a Wednesday night at midnight local time (Melbourne, Australia) when most people in Europe and America are awake or waking up soon. After a fairly restless night worrying that the experiment would somehow take off on social media and I’d become a victim of my own success, the counter stopped at a total of 71 sales the next day.

Here are the sales according to price paid:

Take-Away

First off all, my assumptions about people taking the opportunity to grab a bargain were validated. 21 people paid the minimum price ($5), compared to just one person sliding it all the way up to $38. (If you are reading this: you are awesome!)

Several people either disregarded or didn’t see my request to order one issue only. 6 customers went through the process several times and ordered all available issues at the lowest price (only shown as one order in the graph). I followed up with them and informed them that I had to cancel all but one of their orders and to my surprise their response was polite and apologetic, and a few of them even asked me to cancel these orders, but keep the money as a donation.

Several people that ordered their copy at the minimum price emailed me to tell me that they would love to give more, but can’t for personal/economic reasons. They explained that this was a unique chance for them to ‘test’ Offscreen. Unsurprisingly, many of these orders came from countries where the economy is not doing so well (e.g. Spain, Portugal, Brazil, Ukraine, Italy). And there was the occasional student in that group too.

The average price paid ends up being $12.40, which is just above my break-even point as stated below the slider. I don’t think this is a coincidence. Most sales congregated around the ‘break-even tier’ and I like to believe that knowing where it ‘doesn’t hurt me’ influenced customers’ decision. Though paying the ‘break-even’ price doesn’t make Offscreen sustainable, for the customer it’s a seemingly fair balance between scoring a bargain and not leaving the maker out of pocket.

Other than that, I don’t think there is much else to take away from this experiment. Considering that I offered back issues only, my existing and most loyal readership didn’t participate and hence didn’t get a chance to express how much they value Offscreen. I’m not sure exactly how many of these orders come from new vs. returning readers, but a few random checks showed that many of the customers in the lower pricing tiers are buying Offscreen for the first time (which is great).

Is such an experiment worth the effort? I believe so. There are a lot of variables that could be changed to see how it affects people’s decision to pay a higher or lower price. How did my messages/tiers influence their decision? Should I have made a future issue available for purchase and thereby encourage existing readers to have a say? Should I have run it for longer than 18 hours in order to have a bigger sampling group? How could I change the UI/UX to encourage a higher price?

Rather than making decisions about ‘the ideal price point’ based on one such experiment, I think you’d have to run several campaigns like this for it to be a reliable and realistic source for your pricing strategy. And of course, there will always be opportunists and poor students. ;-)

Dispatch
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