Well, if one has to offer "completely" different products at different prices for testing purposes (say product "x", "y", "z") like the author suggests, how can you determine the ideal price for product "x" in the end?
Stop guessing. Use A/B testing to determine ideal price for your product
41–50 of 61 posts
Re: Stop guessing. Use A/B testing to determine ideal price for your product
#42Any best practices for A/B testing on the iOS App Store?
Re: Stop guessing. Use A/B testing to determine ideal price for your product
#43Earlier 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 believe it's legal to charge different prices to different people for exactly the same product. Changing the price (for everyone) is fine (you could even change the price 5 times a day), or adding a back scratcher and bumping the price by $500 is fine, but doing an AB test where you flip the price back and forth on the same thing isn't legal as far as I know. IANAL.
How would that be so? How do you 'believe' a factual thing like this? I can charge one guy 10$ for a pie in my bakery shop, and the next guy 100$ because I don't like his face. There is a narrow set of classes on which it is not allowed to discriminate but all else is fair game.
I'm not claiming to know this of all jurisdictions, there may be specific circumstances in which this does not hold, but these are the exceptions.
Re: Stop guessing. Use A/B testing to determine ideal price for your product
#44Earlier quoted context omitted.
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."
Oops, indeed. Hadn't seen who submitted the article. I think he's right though that there needs to be some linkage to "what you can and can't do, legally".
Depends what country your in really. Always check your local laws and regulations before taking advice on the internet; the laws for someone may not be the same as yours.
Re: Stop guessing. Use A/B testing to determine ideal price for your product
#45"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…
To an extent I agree with the sentiment of your post, but the practicalities are different imo, and "The pricing of physical goods depends on the market every bit as much as the pricing of software or web services." I don't agree with at all. Many non-software products and services (staples, pies, chimney sweeping, plumbing, ...) are much more commodities than software. Efficient markets, lemon problem etc. drive down the markup to a low (single to low-double digit) percentage. Since cost is also much less variable (costs in terms of resources, labor, capital investments etc. for a pie from one baker is going to be very similar to those of another down the street) the end-price is going to be not very flexible; and any eventual elasticity will just drive down consumption rather than price. The degree of availability of substitution options is a major influence. That's why even major supermarket chains operate with low single-digit profit margins, even on a product (food) where there is obviously a constant and high demand.
Compare that to software where no two offerings are direct substitutions (the degree varies, of course) and where one company can upset a market with new technology very easily without his competitors necessarily being able to duplicate (for skills reasons, legacy investments, ...). An incumbent can enter the market with fixed costs that are 75 or 50 or 25 percent of the established players. Such an incumbent can do two things: go deep on price to get market share, or get fat off 500% profit margins. I don't know of many such situations in physical goods businesses.
(of course the same could happen with physical goods, it's just much more common in technology)
Re: Stop guessing. Use A/B testing to determine ideal price for your product
#46Any best practices for A/B testing on the iOS App Store?
I have done this with an iphone app. The ideal case for testing:
-Your app has little publicity and is generally found through keyword searching. This means that you have few repeat visitors to the app page
-Your daily sales data has little variation. You typically see this 2 weeks after release when it is no longer in the new apps list. Avoid holidays and other sources of variation for your test.
-Schedule pricing into the future on one week increments. Try not to have pricing go generally up or down, perhaps by using some randomization or shuffling of possible prices.
-Use the revenue generated during each of the weeks coupled with the pricing to identify your ideal price.
Using poor scientific measurements (I crossed holidays, and did a declining price from a high point) I came up with $2.99 as an ideal price for my app.
Keep in mind that your sales rank influences your revenue, and if you think your app can break the top 100 apps list, then price it at $.99, because once you get into that list any losses prior due to underpricing an app are nullified.
Too bad the app store doesn't primarily sort by revenue (aka value to the consumer) and doesn't provide a continuous scroll past the top 100 which would make such devaluations unnecessary.
Re: Stop guessing. Use A/B testing to determine ideal price for your product
#47A 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.
Yes, that's right I should have touched that point. I think the revenue for each variation can be approximated as normal curve and then a hypothesis test can be done to see if difference in mean is statistically significant.
That approach absolutely works. But fairly few people have enough of a math background to figure out how to do it.
There are also complications around noise from large outliers. Though this matters less with a fixed price service.
Re: Stop guessing. Use A/B testing to determine ideal price for your product
#48Earlier quoted context omitted.
I don't believe it's legal to charge different prices to different people for exactly the same product. Changing the price (for everyone) is fine (you could even change the price 5 times a day), or adding a back scratcher and bumping the price by $500 is fine, but doing an AB test where you flip the price back and forth on the same thing isn't legal as far as I know. IANAL.
How would that be so? How do you 'believe' a factual thing like this? I can charge one guy 10$ for a pie in my bakery shop, and the next guy 100$ because I don't like his face. There is a narrow set of classes on which it is not allowed to discriminate but all else is fair game. I'm not claiming to know this of all jurisdictions, there may be specific circumstances in which this does not hold, but these are the excep…
> There is a narrow set of classes on which it is not allowed to discriminate but all else is fair game.
You're thinking about laws around hiring. I can't charge you double to buy a VCR in my store because I don't like your face.
Re: Stop guessing. Use A/B testing to determine ideal price for your product
#49Has anybody tried using hill climbing to arrive at an optimal price?
eg:
1. Pick a pivot price
2. Make N buckets with prices at fixed intervals from the pivot
3. Find the bucket with the most profit, and use its price as the new pivot
4. Repeat
Re: Stop guessing. Use A/B testing to determine ideal price for your product
#50If 99% of your value is in the base product and 1% is in the advanced features, most people will chooses the cheapest plan available.
My customers don't care about ssl or extra storage so they'll always choose the cheaper plan. But if the basic plan was +$10 what percentage would still buy it?