You can. But should you experiment with pricing?

Price experiments are the norm, whether you decide to do them or not. Contrary to popular belief, they are not just a cheap way to milk a few dollars out of your shoppers, but one powerful optimization technique in your skillset as a CRO, marketer, or developer that can help you discover and solve business pain points.

We should give consumers credit and recognize that dynamic pricing is already happening

Examples of price experiments we accept: 

• Grocery stores need to sell perishable goods at high discounts at the end of the day or risk throwing them out
• Airlines and card companies build customer loyalty and offer better rates to return customers
• One product for different prices around the internet because it’s being sold by resellers and affiliates

In fact, as Vlad Rashkovetsky noted in a live discussion about pricing that Kameleoon organized, we all pay different prices for the same product. “In the US, there is a different sale tax by state, so offering the same price for the same product across different states may not be quite fair for customers,” says Vlad.

The problem isn’t price differences, but that the differences are arbitrary. 

As CROs and experimenters, we encourage companies to experiment with product, place, and promotion to solve their business problems. Yet, we hit a block when talking about experimenting with the most important marketing element. Every business uses a pricing strategy, but only leaders use experiments and data to test their strategies. Price experimentation is a move away from arbitrary price differences.  

CROs should get involved with decision-making across the business. 

As much as we ask, “Should we experiment with price?”, we should ask “Should we experiment with contact scripts?” said John Trimble, Digital Analytics and Experimentation Manager @ Talk Talk. In other words, you should not experiment with price in a silo. “It’s the evolution of the industry moving from just pure digital experimentation to experimentation, period.”   

As a business, you can’t justify experimenting with 3 marketing Ps without touching the fourth. Emma Travis, Experimentation Strategist @ Speero, says “price experimentation doesn’t just mean increasing or lowering the cost.” They also include how prices are communicated and displayed. 

You can use pricing to improve the customer experience rather than annoy users.

Price is the main barrier in making a purchase. 

However, experimenters cannot just go to stakeholders and tell them that prices are too high or too low. “We have to be more intelligent than that,” Emma said. “We need to do deeper research to understand what it is about the price. It’s never just price—is it that customers don’t perceive the product or service to be of value?”

If you build pricing based on sex, ethnicity or class, expect MAJOR (rightfully) problems.

Yes, discriminatory price experiments and price-fixing are illegal e.g. giving a certain price to ethnicity, sex, or class. In fact, it’s these kinds of tactics that make people uncomfortable around the topic as a whole. However, these are not the kinds of experiments anybody in the industry is advocating. 

Consumers are not hostile to different prices, per se. 

As Trimble noted, “people see “people expect different prices at the end of the day, and people see them more often than we probably realize.” They just want to know why a price is different. E.g. Everyone loves discounts. These can be based on past purchases, whether a user is an email list subscriber, or something else. 

How to experiment with price

Organizations should start with the reason they’re running a price experiment. 

It’s not about milking one ZIP code or customer demographic out of money. Start with your business problem, then see how price experiments can solve it.

• Are you failing to build customer loyalty by improving the product alone? You can try giving discounts to existing customers.
• Is mobile adoption lagging for your platform? Experiment by offering discounts to mobile shoppers. 
• Does your software have low upsell rates? Remove and add features in the pricing table to discover what your positioning should focus on.

“There is a difference between giving some people a better deal as opposed to making some people get a worse deal—it depends on your intent,” said Craig Sullivan at the Live Session chat. 

If you’re being transparent, it changes the conversation. 

Customers can bounce around and compare prices easier than ever before. There is so much competition that they’re the ones in control—you shouldn’t feel as if you’re duping them.

 Emma gave an example with Booking.com, which uses mobile-only pricing. “Once I saw ‘mobile-only price’, I didn’t question that [price] at all,” she said. “In fact, I booked it because it was a significantly lower price.”

 As Andre Richter noted at the event, “transparency is going to change customer behavior. They will start deleting cookies, trying different browsers, etc., just to see if they can get a better price.”

You will need a strong commercial framework. 

Work with your finance teams. When testing prices, your optimization will affect things like EBITDA and trading supplies. Product placement plays a huge role as well. Can you calculate the projected LTV? There might be some products you have to push harder with a lower price depending on C-suite goals related to finance. You have to be commercially aware. 

Always test to learn. 

To illustrate the point, think about pricing tables. For software companies, these provide tons of opportunities to use techniques like anchoring and decoys. However, they should also be used as an opportunity to assess your positioning and strategy. E.g. Try adding and removing features in pricing tables. This will show you what features your customers are actually willing to pay for and which they don’t need. 

This article is derived from key takeaways from the Live Session by Kameleoon: Should you experiment with pricing.