Choosing the right price for your product is a bit like Goldilocks.
Too high and you risk alienating a vast majority of your prospects.
Too low and you probably won’t have enough sales to run a sustainable business. Also, consumers may not value your product or brand as highly if they see a cost that is significantly lower than that of the competition.
But how can you get it just right?
We’ll explore that in this post. Let’s dive into the pros and cons of A / B and test your pricing – and how to do it. Also, if you’ve determined that the weaknesses outweigh the strengths, some alternatives to A / B testing outweigh your prices.
With price tests, you run a test to find the ideal price for attracting prospects and increasing sales. One type of price checking is A / B checking different prices for a specific product. Another type is to test a pricing model for a region.
Product pricing is undoubtedly one of the most important decisions for your business.
Your price can determine how consumers see you in the market. For example, the expensive sunglasses from Ray Bans indicate that they are of higher quality than the ones I can find on CVS. Sure, price could limit the number of consumers Ray Ban attracts, but price also attracts potential customers based on perceived value.
This premise is known as value-based pricing: a strategy that chooses pricing based on a consumer’s value for a product. I believe that Ray Ban sunglasses are high quality, and more importantly, I have a good perception of the brand, which makes me feel that the sunglasses are worth the high price.
Value-based pricing is most effective when your brand reputation is good. If you’re new to the market, it may be more difficult to convince consumers that your product is worth the cost. People need to know (and love) your brand first.
There are a few other factors to consider when choosing a price, including the fees charged by competitors (competitive pricing) or the cost of producing your product or service and the amount of the cost of profit (cost) plus pricing).
For more information on different pricing strategies, see the Ultimate Guide to Pricing Strategies.
Even if you’ve decided on a pricing strategy that is right for your business, you can’t be sure that each dollar price will bring the maximum revenue.
For example, your pricing strategy may show that a range of $ 50 to $ 60 is best for your product. However, you need to find the “sweet spot” in this area. If you billed $ 50, you might be missing out on the revenue that you could have had if you billed $ 60.
Alternatively, by charging $ 60, you can limit the number of people willing to buy your product. This can also decrease the income that you can generate.
This is where A / B testing comes in. Next, let’s examine how to A / B test your pricing.
How to test your prices A / B.
It’s important to note that many advise against A / B testing your pricing for several reasons.
There are some major disadvantages or pitfalls associated with A / B testing a price. These include:
- It introduces an element of injustice to buyers. It doesn’t seem fair that person A can buy your product for less money than person B, which could damage your brand’s reputation. Also, this could ultimately deter a potential buyer from buying. For example, if a prospect shows their boss a new software solution for $ 30 a month and then logs on to the website and finds that the product is $ 50 a month, it is confusing and they could be frustrated with the price increase prevent you from buying your product at all.
- You have a group of customers who are paying an outdated price for your product. For example, let’s say you ultimately decide to take the $ 30 variant of your test – but you already have 40 customers paying $ 50 a month. What are you doing with them You’ll either need to migrate them to the $ 30 / month plan and possibly process refund requests, or leave them on an outdated model. This can lead to frustration and high turnover rates when these customers find out that they are paying more than others.
- It can be difficult to get statistical significance. You need a certain number of people to purchase both pricing options in order for your test to be statistically significant and not purely random. For many SaaS companies, or companies that work with larger customers or more complex businesses, you probably don’t have enough people to make sure your results are even useful.
- It requires the development of multiple SKUs and other system functionsThis can be a huge (and potentially unrewarded) effort.
However, if you want to test your pricing for A / B, here’s how.
1. Select two different products (or plans) within the same category type.
To make sure you’re ethical and fair with your prospects, you don’t want to test two different prices for the same product. At some point consumers will find that you charge different users different prices, which can permanently damage your brand’s reputation.
An alternative to this is to test two different products or plans within the same category type to see how much people are willing to pay for your product.
For example, if you sell social media software, you can choose a basic plan and bill people $ 50 per month. Under this plan, consumers will receive 10 social accounts and 1 user. Then you can choose your Professional plan and bill people $ 140 / month including 20 social accounts and 2 users.
This way you test how much people are willing to pay for a social management tool and if there is a cut-off. Technically, the Professional plan offers twice the value of the basic plan but charges more than double each month ($ 140 / month for 20 accounts and 2 users can be split down to $ 70 for 10 accounts and 1 user – while a basic plan is $ 50 is for 10 accounts and 1 user).
Then you want to track whether the conversion rates are higher or the same for both Basic and Professional. If there seems to be a drop in buyers for the Professional tool, you may want to cut the prices on that product and see if that can have a positive impact on sales.
2. Find out the price points that you want to test.
You want to determine the prices you want to test within a given range based on a variety of factors, including competitive prices and operating costs.
They hope to measure price sensitivity, or the extent to which demand for a given price changes. For example, if you price your product at $ 100, the number of people buying your product will drop dramatically.
Ultimately, you want to choose realistic price points to determine the highest price you can get while getting the highest number of potential customers.
3. Measure sales to determine price.
One small but important detail: measure sales, not conversions, to see which price wins on your A / B test.
You will likely have much higher conversion rates for cheaper products, but that doesn’t mean you can meet your sales goals. If you rate a product too low, you may still struggle to meet sales goals, even with thousands of additional customers. Because of this, it’s important to measure sales, not conversions.
4. Iterate the results and test two new price points again if necessary.
If you’ve tested $ 30 a month versus $ 50 a month and found that $ 30 a month is the most conversions and potential revenue, consider retesting between $ 30 and $ 40 or $ 30 and consider $ 35.
By repeating your results, you can find a highly specific price that will help you get maximum revenue.
5. Select the price that corresponds to the maximum sales.
Finally, choose the price point that suggests maximum revenue by finding the highest price that converts enough customers to meet your business goals.
Alternatives to A / B testing
If the potential risks associated with A / B testing pricing outweigh the benefits to your own business, there are numerous alternative options for testing the pricing of a product.
For one, you can try A / B testing the pricing page – including various layouts and CTAs – to find the best one for optimal conversions and monetization. Maybe your pricing isn’t the problem, but your landing page is.
Alternatively, if you are releasing a new product, consider only launching the product in one market to gauge the market’s response and performance before launching the product on a wider scale. This way you can optimize your prices or your product before releasing the product to the whole market.
Finally, you can conduct a survey and simply ask potential customers how much they are willing to pay for a similar product in the industry.
For example, if you’re selling a website design tool, you might ask, “What features are most important to you in a website design tool?” and: “When would a website design tool be too expensive?” or “What is the maximum price you are willing to pay for a website design tool?”
Ultimately, pricing is about determining the value of your product or service and how much consumers are willing to pay for that value. It’s an incredibly important factor to consider when running a business, but you can’t A / B test it – at least not without potentially losing consumers or damaging your reputation if consumers are different each time they visit your website Find prices.
If you are interested in A / B testing, we recommend using the process for testing the design of your pricing pages or product landing pages. When you change the way you display your product’s value on a page, you may increase the amount consumers are willing to pay.