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Stop guessing. Use A/B testing to determine ideal price for your product

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Re: Stop guessing. Use A/B testing to determine ideal price for your product

#21

Post by gregpilling »

podperson wrote: post #15
gregpilling wrote: post #8

Earlier quoted context omitted.

It is not illegal to offer different prices. Case in point - a lowly 12 oz of Budweiser. If I buy it in a keg it costs me around 50 cents (USD)each. In the bottle it would be closer to $1. At a local bar that has good beer prices and good food it is $3.00 for draft normally, except on Thursdays it is $2 (Bisonwitches, Tucson AZ). If I go to a fancy restaurant it will likely be $4 or even as high as $6. In a free mark…

Ah so it's OK to charge people you don't like (wrong skin color say) more because it's a free market? There's a difference between giving bulk discounts and selling the same product for different prices to different customers.

No, it is not legal to charge people a different price if their skin is purple instead of blue. In the OP example, he is talking about web delivered services where it would be difficult to determine someones skin color anyway. In my example the price of budweiser varies by location and circumstance, not by the color of the purchasers skin.

Re: Stop guessing. Use A/B testing to determine ideal price for your product

#22

Post by mckoss »

paraschopra wrote: post #6
rmc wrote: post #5

Why is it illegal to offer different prices for the same service (as this article says)?

Read this: "PRICE DISCRIMINATION AND THE LAW" http://www.imakenews.com/strategicpricing/e_article000649775...

Note that selling a product below its cost is required to break the law (aka "dumping"). I would assume this means below its "marginal" cost; which, for digital goods, is nearly zero.

Re: Stop guessing. Use A/B testing to determine ideal price for your product

#23

Post by btilly »

A major complication that you do not address is how to do confidence testing on the results of your pricing difference. There is an important difference between "A did better than B but who knows why" and "We're confident that there is a real difference." Figuring that out is not easy.

Re: Stop guessing. Use A/B testing to determine ideal price for your product

#24

Post by ambirex »

paraschopra wrote: post #3
lachyg wrote: post #2

Good post, I think more people should be testing different values (I remember reading something where someone kept doubling the price til they reached the tipping point). Cheers

Yes, price testing is very important at initial stages of launch. It becomes progressively harder as your product gets established. After your product is established, the only way to test price sensitivity is to launch pro version.

A pro version isn't the only way, you could launch:

* light version

* experiment with different sales and promo codes

* offer different rates for paying ahead a certain amount

Re: Stop guessing. Use A/B testing to determine ideal price for your product

#25

Post by mattmanser »

paraschopra wrote: post #13

In 2000, Amazon got caught doing price testing and the news was covered on all major blogs. Here is a link: http://news.cnet.com/2100-1017-245631.html

What's your source on a/b testing price on identical products being illegal?

I've never heard that and none of the links provided in the comments so far justify your claim. It is a pretty extreme assertion and you provided no links justifying it either.

I can see this rapidly turning into an urban myth, whispered wild eyed at 3am over ramen noodles as founders try and figure out a price for their product.

Re: Stop guessing. Use A/B testing to determine ideal price for your product

#26

Post by davidw »

mattmanser wrote: post #25
paraschopra wrote: post #13

In 2000, Amazon got caught doing price testing and the news was covered on all major blogs. Here is a link: http://news.cnet.com/2100-1017-245631.html

What's your source on a/b testing price on identical products being illegal? I've never heard that and none of the links provided in the comments so far justify your claim. It is a pretty extreme assertion and you provided no links justifying it either. I can see this rapidly turning into an urban myth, whispered wild eyed at 3am over ramen noodles as founders try and figure out a price for their product.

I don't know if the other comment was edited, but he doesn't say anything about 'illegal'. People certainly found it distasteful though.

Re: Stop guessing. Use A/B testing to determine ideal price for your product

#27

Post by [deleted] »

mattmanser wrote: post #25
paraschopra wrote: post #13

In 2000, Amazon got caught doing price testing and the news was covered on all major blogs. Here is a link: http://news.cnet.com/2100-1017-245631.html

What's your source on a/b testing price on identical products being illegal? I've never heard that and none of the links provided in the comments so far justify your claim. It is a pretty extreme assertion and you provided no links justifying it either. I can see this rapidly turning into an urban myth, whispered wild eyed at 3am over ramen noodles as founders try and figure out a price for their product.

[deleted]

Re: Stop guessing. Use A/B testing to determine ideal price for your product

#28

Post by paraschopra »

mattmanser wrote: post #25
paraschopra wrote: post #13

In 2000, Amazon got caught doing price testing and the news was covered on all major blogs. Here is a link: http://news.cnet.com/2100-1017-245631.html

What's your source on a/b testing price on identical products being illegal? I've never heard that and none of the links provided in the comments so far justify your claim. It is a pretty extreme assertion and you provided no links justifying it either. I can see this rapidly turning into an urban myth, whispered wild eyed at 3am over ramen noodles as founders try and figure out a price for their product.

The concept is called "price discrimination". There is a great discussion going in this thread and I may be wrong at this. Even if it may not be illegal, it would leave a bad taste in your potential customers' mouth especially since there are better alternatives.

Re: Stop guessing. Use A/B testing to determine ideal price for your product

#29

Post by paraschopra »

davidw wrote: post #26
mattmanser wrote: post #25

Earlier quoted context omitted.

What's your source on a/b testing price on identical products being illegal? I've never heard that and none of the links provided in the comments so far justify your claim. It is a pretty extreme assertion and you provided no links justifying it either. I can see this rapidly turning into an urban myth, whispered wild eyed at 3am over ramen noodles as founders try and figure out a price for their product.

I don't know if the other comment was edited, but he doesn't say anything about 'illegal'. People certainly found it distasteful though.

I think he wasn't referring to my comment but to my post where I write: "It’s illegal and can lead to huge potential lawsuit."

Re: Stop guessing. Use A/B testing to determine ideal price for your product

#30

Post by michaelleland »

"Pricing for physical goods is simple. For example, if you are manufacturing staplers, all you need to do is to calculate cost of production and distribution, slam 20% margin on it and there you have the price you can sell your shiny stapler machines for."

Not true. In fact, a lot of Maker businesses get hung up here. The pricing of physical goods depends on the market every bit as much as the pricing of software or web services. In fact, large companies rely on that all the time--case in point is P&Gs Swiffer Sweeper, that they charge much more than the manufacturing cost for the sweeper and for the refills.

Many small business owners I've run across actually feel guilty if they charge "too much" (say 100% markup) for their physical goods they are selling, even though their competitors sell at that price. The price elasticity of demand applies just as much for physical goods as it does for non-physical.

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