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There is also a danger to trying to extract an amount of money as close as possible to the value from each customer. The difference between the value the custo

There is also a danger to trying to extract an amount of money as close as possible to the value from each customer. The difference between the value the customer receives and the amount they pay usually turns into good will towards the product, and in turn how likely they will be to recommend it. If you're going to have different pricing tiers, the higher tiers need to ostensibly have more work put into them. You can't just say that if you fit into one bucket of people we know you have more money, so we're going to charge you more (e.g. DVD regions). You need to give them something more for it, so that your customers don't hate you (e.g. HD movie downloads). Nobody likes to feel like every possible penny is being wrung out of them, or that they're being unfairly targeted to pay more. Measuring happiness of customers or how likely they will refer others is more difficult than measuring which product each customer bought, but just because it's harder to measure doesn't mean it's less important.

pekk 14y ago
What's unfair about price discrimination? It is endemic to real capitalism in markets all over the world, where sellers are simply exercising their right to name their price. If you don't accept the price of the service, then walk away. If you accept it, don't complain that other people got it cheaper.
- czr80 14y ago
  Pricing is as much about emotion as it is about logical evaluations of value. You need to be sensitive about pricing situations where the customer will pay, but only begrudgingly, and so leaves the transaction feeling that they never want to come back and certainly would never recommend you to anyone else.
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nathanbarry 14y ago
In an interview for my new book I asked Jason Fried of 37signals why $150/month was their highest price plan for Basecamp. Since I think plenty of large companies would pay at least double that. His response was something similar to what you said about not feeling the need to make every bit of money possible. The Basecamp prices felt right to him and he was comfortable leaving money on the table to stick with pricing that matched his gut feeling. That's not exactly what you were talking about, but I liked his way of thinking.
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ahoyhere 14y ago
Is offering a higher price tier really "wringing every penny out of them"? Considering it's an optional goodie that nobody has to buy, and it's not like they're arriving at the airport only to be hit by surprise baggage fees, I can't see how that kind of statement is a valid response to Nathan's article. Also, do you have any data for a lower price = happier customer = more referrals who pay? That's a lot of assumptions built into that premise, each one of which could be tested. If we're going to pretend this is all a priori knowledge and not something that can & should be tested, then let me try! Here's mine: "People hate to feel like they're having every penny rung out of them… so they probably love buying the middle tier and enjoy laughing at the silly people who would pay $100 extra for something they don't need." Works just as well as your theory.
jere 14y ago
>If you're going to have different pricing tiers, the higher tiers need to ostensibly have more work put into them. You can't just say that if you fit into one bucket of people we know you have more money, so we're going to charge you more (e.g. DVD regions). You need to give them something more for it, so that your customers don't hate you See, I used to think this until I heard a talk by Kendall Miller in which he described his pricing experience. He had an enterprise tier that was orders of magnitude more costly than the other tiers. Executives would skip straight over the other tiers and buy the enterprise level happily. Customers would come to him and say "I love you guys! You really understand the enterprise." That tier did have extra features, just like you're encouraging. But the punchline is Miller logged the use of every feature and discovered not a single one of his enterprise customers was using the extra ones. They simply wanted to pay more.

pekk 14y ago

What's unfair about price discrimination? It is endemic to real capitalism in markets all over the world, where sellers are simply exercising their right to name their price. If you don't accept the price of the service, then walk away. If you accept it, don't complain that other people got it cheaper.

czr80 14y ago
Pricing is as much about emotion as it is about logical evaluations of value. You need to be sensitive about pricing situations where the customer will pay, but only begrudgingly, and so leaves the transaction feeling that they never want to come back and certainly would never recommend you to anyone else.
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nathanbarry 14y ago

In an interview for my new book I asked Jason Fried of 37signals why $150/month was their highest price plan for Basecamp. Since I think plenty of large companies would pay at least double that. His response was something similar to what you said about not feeling the need to make every bit of money possible. The Basecamp prices felt right to him and he was comfortable leaving money on the table to stick with pricing that matched his gut feeling. That's not exactly what you were talking about, but I liked his way of thinking.

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ahoyhere 14y ago

Is offering a higher price tier really "wringing every penny out of them"? Considering it's an optional goodie that nobody has to buy, and it's not like they're arriving at the airport only to be hit by surprise baggage fees, I can't see how that kind of statement is a valid response to Nathan's article. Also, do you have any data for a lower price = happier customer = more referrals who pay? That's a lot of assumptions built into that premise, each one of which could be tested. If we're going to pretend this is all a priori knowledge and not something that can & should be tested, then let me try! Here's mine: "People hate to feel like they're having every penny rung out of them… so they probably love buying the middle tier and enjoy laughing at the silly people who would pay $100 extra for something they don't need." Works just as well as your theory.

jere 14y ago

>If you're going to have different pricing tiers, the higher tiers need to ostensibly have more work put into them. You can't just say that if you fit into one bucket of people we know you have more money, so we're going to charge you more (e.g. DVD regions). You need to give them something more for it, so that your customers don't hate you See, I used to think this until I heard a talk by Kendall Miller in which he described his pricing experience. He had an enterprise tier that was orders of magnitude more costly than the other tiers. Executives would skip straight over the other tiers and buy the enterprise level happily. Customers would come to him and say "I love you guys! You really understand the enterprise." That tier did have extra features, just like you're encouraging. But the punchline is Miller logged the use of every feature and discovered not a single one of his enterprise customers was using the extra ones. They simply wanted to pay more.