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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

#51

Post by revorad »

tomkinstinch wrote: post #36
jacquesm wrote: post #31

Earlier quoted context omitted.

I've heard that one before and I've seen sites that do it but I have yet to find a place where there is actual evidence that it works, do you have a reference for that? We're debating trying this and I'd like a bit more evidence that it really works and why it does.

Here are a few citations, not all directly relevant, from Dan Ariely's _Predictably Irrational_ (itself a good read for any startup founder): ___________________________________ 1. Amos Tversky, "Features of Similarity," Psychological Review, Vol. 84 (1977). 2. Amos Tversky and Daniel Kahneman, "The Framing of Decisions and the Psychology of Choice," Science (1981). 3. Joel Huber, John Payne, and Chris Puto, "Adding…

Robert Cialdini's work also has some examples - http://www.influenceatwork.com/

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

#52

Post by revorad »

wensing wrote: post #17
wensing wrote: post #12

Earlier quoted context omitted.

Stormpulse has recently shifted from B2C to B2B. Pricing is so completely different there's no A/B test you could use to determine that. Say you were selling tickets to hear Lang Lang play the piano. You could try selling those on the corner of 3rd and Main and get $20 for them because no one you talk to (unless you get lucky) has heard of him (and you could waste a lot of time convincing them that he's great). Or yo…

This is why I think the golden goose of web optimization tools is going to be the one that automagically segments a user base into population/profiles based on their repeated behaviours and their origin IP (consumer/biz) (provide a klout.com type of analysis on everyone that visits/registers). It will allow startups to see their potential market segments and follow the most promising ones.

Oooh there's this company that starts with an F and ends with a k. Ah but the valuation's too high. Fuck!

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

#53

Post by nostrademons »

ekanes wrote: post #38
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 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.

Don't car dealerships do this all the time? Or small shops in Chinatown that negotiate for tourist souvenirs? Safeway or CVS cards? Google AdWords? Priceline.com? Employee/corporate discounts? Heck, on my recent trip to the Grand Canyon, my sister and I both checked out the exact same rental car through our respective employers, and it was about $30 cheaper through mine, presumably because my employer gives a better corporate discount than her employer. Really, anything where you negotiate the price will end up with different prices for the same item.

You're thinking that just because people don't do it, it must be illegal. The idea of "one price for identical items" is a pretty recent invention, dating back to the rise of department stores (Woolworth's, Macy's, Sears) at the turn of the 20th century. It's for economic reasons, not legal ones. They found that it was cheaper to forego the extra revenue than it was to hire all the salespeople needed to negotiate each individual purchase. Charge less and make it up in volume. It also has the advantage of fairness and simplicity, which customers tend to like.

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

#55

Post by jules »

bnoland wrote: post #50

If 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?

He is not saying you should offer a second basic plan next to the primary basic plan. He is saying that you should AB-test two different basic plans, only one of them is visible for any given customer.

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

#56

Post by khafra »

rabidsnail wrote: post #49

Has 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

Fascinating concept. Makes me want to start selling something in large volumes, just so I could apply other optimization techniques like simulated annealing or beam search to price points and other scalar variables.

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

#57

Post by roel_v »

ekanes wrote: post #48
roel_v wrote: post #43

Earlier quoted context omitted.

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.

Why not?

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

#58

Post by jeremydavid »

bnoland wrote: post #54

What if you do display different prices, but at the end of checkout you surprise them and charge everyone the lowest price in your range.

That is a really interesting idea.

The only issue I would see with this is that having the sudden "We lowered the price!" message would influence conversion rates at the final step.

You would have to measure and compare the number of "add to baskets" and "proceed to check outs" and not the revenue / conversions.

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

#59

Post by ZoFreX »

michaelleland wrote: post #30

"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…

This article was overall a very shallow economic analysis, they should have gone into marginal costs and price differentiation for this problem. Maximising income from customers by charging more to those willing to pay more is a very well studied problem, and solutions to it are observable in every shop on the high street.

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

#60

Post by dtegart »

lionhearted wrote: post #40
paraschopra wrote: post #28

Earlier quoted context omitted.

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.

> The concept is called "price discrimination". Not quite - price discrimination is finding a way to take people with more money, and charge them more money. The challenge is, that prices people with less money out of the market - so price discrimination is about finding ways to justify cutting prices for some people while charging more to people who can afford more. Examples: Student discounts, senior citizen discou…

Price discrimination doesn't have to be on just cutting prices, although it is often used this way to increase your potential pool of customers. I believe Amazon was using their knowledge of you purchase history, to decide if you were more likely to buy a product. If you were, the price would be higher.
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