Luke Brown Marketing Blog

Archive for October, 2009

A common dilemma among business owners concerns how to price a product or service. Price it too low and you won’t make enough to be profitable. Price it too high and you may make very few sales. Here are five pricing principles to help solve your dilemma.

Pricing Strategy 1: The Goldilocks Factor

Some clients have sold information products which converted online at about 1.8% when priced at $14.97, yet had almost zero sales when priced at $9.97 and $19.97.  By rotating in the middle price, the project went from a near-write-off to a tremendous success as people perceived the value to be exceptional.

In the testing phase of 60 day periods, sales at $9.97 were just over $800, sales at $19.97 were about $1,150 and sales at $14.97 were $18,000!  Hence the name, the Goldilocks Factor where your offer is one of the three beds. One price is too high, one price is too low, and one price is just perfect.

Your job is to get your Goldilocks prospect into one of the three ‘beds’ when they’re ready to buy and see which bed is most comfortable. This is the least important of the pricing strategies, because it’s difficult to know which three prices to test (all three prices could be too high or too low). It’s a good idea to test more prices after your first Goldilocks test, but only if it doesn’t conflict with pricing strategy 5, below.

Pricing Strategy 2: Start By Flooding Your Store

This may sound counter-intuitive, but it’s not in your best interest to set the first price for a product or service which will make you the maximum amount of profit. Chances are, it could cause you serious financial harm. Here’s why.

To maximize your profits usually means setting your price reasonably high.  This results in fewer customers making you more money. That is what you want – once you’ve been in the market awhile and experienced up to 1,000 transactions.

The reason you don’t want that price right up front is you’ll drastically reduce your buyer volume, which means you’ll drastically reduce:

- the speed at which you can finish testing other elements of your sales system, like headlines, guarantees, bullet points, copy, etc.

- the speed at which you can optimize your pay per click ads for profit per impression, a powerful metric which gives more insight into what ppc ads really cost than almost any other.

- the speed at which you can get customer feedback about your product.

- the speed at which you can grow your buyer list.

- the speed at which you can develop referrals from satisfied customers.

The value of all the above is far greater than the extra profit you’d generate if you priced for optimum visitor value immediately out of the gate. Early on is when you’re bound to have product issues which need to be fixed. Often, these are issues which only buyers can point out to you.  People are more likely to be aggravated with these issues if they’ve paid $100 for an item compared to $30.

Bottom line: start  prices low for high volume and a flood of customers so you’ll have a real business with lots of buyer feedback. You won’t keep prices low (see pricing strategy 2), but long term it definitely pays to start there.

The safest thing is to perform a Goldilocks test at about, a little below, and a little above the lowest serious competitor you have. If your main competitor is priced at $59.99, you might test $49.95, $59.95, and possibly $77.  If your product fails to sell, you can be pretty sure it’s not the price.

Pricing Strategy 3: Notify and Reward Your Loyal Customers

Once you’ve been through your first 1,000 transactions and you’re confident in your product and sales system, start methodically raising the price. Keep in mind:

- Make sure to let your customer list know about the impending price increase.  This is a courtesy seldom practiced by most marketers. Those who have been considering your original offer will appreciate your transparency.  Some will be angry when you tell them but more will be angry if you don’t. You can’t please everyone.

In the end, if what you’re offering is actually beneficial and has value, and you firmly believe your customers will be better off with your product or service, then the flood of new customers, driven by the sense of urgency, will be good for everyone.

- If you’re providing a monthly service, make sure your prospects can lock in the current rate. Reaffirm to them that their rates are locked in and protected.  This way, you reward your early adopters and you actually build more loyalty, not only because they’re grateful you’ve locked in their price, but because they don’t want to leave and come back at the new, higher rate.

- In many markets, particularly those with a lengthy follow up sequence, there will be a high volume of prospects “on the fence”. You’ll find it preferable to raise the price gradually, in increments, to take maximum advantage of the “fence sweeping” phenomenon.  This gives you more time to continually improve your product, customer service, etc.

Pricing Strategy 4: If People Say Your Price Is Too High…

…It simply means you have yet to convincingly build up the value in your marketing materials and presentations.

This is where everything begins to tie together.  It’s also the most important reason not to have hard and fast prices. Price is perceived in the complete context of your overall marketing efforts.  Which means an offer from pay per click advertising will perform differently  than endorsement traffic, referral traffic, organic search, direct mail or email marketing.

The more value you build into your free content and follow ups means less marketing effort down the road. Price is also very sensitive to how you’ve built value in other aspects of your business, such as customer service and guarantees.

Pricing Strategy 5: Test Where There Is Money

For maximum conversion, the classic saying is “always be testing”. That’s true, but only to a point. If you were always testing, you could be testing and doing nothing else. There is a cost associated with testing, whether it’s time, money, effort, or morale (like when testing shows a negative result).

The realistic answer is you never know if $29.99 or $29.95 is going to be the Goldilocks price (one marketer did a test in 2007 using those 2 prices and the difference in conversion was over 65%!).  If you reach the point where you have a substantial number of front end buyers, you’ve done a few price increases, and now you see opportunities to expand your lifetime value for each customer several fold by developing your back end, then it makes no sense to test!

Seriously, a lot of marketers go overboard when it comes to testing. Don’t make the same mistake  Testing can give you the illusion you’re in control of a world which is chaotic by nature. That’s why it’s very important to know how to do it – and when not to.

I welcome your comments and experiences.

Michael Jackson’s This Is It, a documentary of the King of Pop’s rehearsals in the weeks before his death, offers not just musical entertainment but delivers some superb business lessons as well. As Mike Searls said in his webinar, you can find business ideas and inspiration away from your desk. This movie does just that.

Michael Jackson was a unique and complex man, a once-in-a-generation entertainer whose personal and professional lives couldn’t have been more different. Set aside your feelings about his personality, his personal life, and his music to see how his business acumen was probably far greater than most people realize.

Have A Goal and Dare To Dream Big

Many aspects of Jackson were larger than life and this movie showed how this concept was applied to the stage performance. The special effects, visuals, and sheer magnitude of any one song was more spectacular than 99% of other performer’s entire shows.

Jackson commented late in the movie about how he felt it vital to give the audience something they’d never seen before. Even though he formed his set list around songs his fans requested, he was willing to update something as tried and true as Thriller. That takes courage and supreme self-confidence.

More important than just daring to dream big is to get everybody to buy into the concept and act as one for the good of the greater whole. Musicians, dancers, singers, wardrobe and all others showed a sincere belief to sacrifice for the big picture. If your business can pull that off, you’re going places in a hurry.

Thank Those Who Help and Contribute

Jackson knew exactly what he wanted and communicated his desires to cast and crew. After explaining his desire, he’d give someone a chance to do it to achieve the result he sought. When they got it, he sometimes said, “Thank you”, and other times, “God bless you.” Now that’s sincere!

Though Jackson was clearly in charge, he didn’t come across as a pompous, unfair, or bullying boss. If it took several tries to get something right, Jackson’s patience was seldom tested. He still thanked people and didn’t do it in a gratuitious manner. How many times has someone said something like, “It’s about time you got it right!”. Jackson didn’t act that way. He treated others as he wanted to be treated.

Make Your Mistakes In Rehearsal

There were at least two instances when a song finished and Jackson was unhappy with the results. To convey his message, he broke it down by mentioning what was done, then describing what he wanted instead. When it was understood by all how it should go, Jackson simply said, “That’s why we rehearse.”

The same concept applies to business. It’s easy to spot someone who is completely prepared at a meeting or presentation. It’s also easy to spot someone who is going through the motions or ad-libbing. Though people will seldom know if you actually made a mistake, your self-trust improves when you overcome mistakes in practice and then perform at your best when it really counts.

Have A Passion Beyond Business

One song had a message about the destruction of the Amazon rain forests. Jackson was passionate about this issue and wanted to encourage his fans to explore the issue. While Jackson’s legacy will undoubtedly begin with his music and dancing, his efforts to contribute and give back to others is to be applauded.

Details Matter

Very little escaped Jackson’s eyes or ears. Whether it was the slightest pause at the completion of a song or the feeling of playing a note in a specific manner, Jackson mentioned it and insisted on it. He wouldn’t let a small detail be overlooked when, even in the overall scheme of things, very few would notice.

These details, when added in layers one upon the other, showed how each could contribute to the whole and make it stunning. Jackson didn’t have himself emotionally married to the details and was willing to change to make it better, no matter how much effort it took. That kind of attitude can grow a business by leaps and bounds, if you have the courage to implement it.

Not Much Beats Hard Work For Achieving Success

Michael Jackson was 50 years old during the filming of this movie yet had the energy that people half his age seldom have. Physically and mentally, he pushed and pushed, demanding as much from others as from himself.

Jackson worked hard his entire professional career. There are stories which mention how his father was relentless in the pursuit of perfection when Michael was a member of the Jackson 5. That same work ethic is evident in the movie and is shared by many self-made millionaires.

A common statement told to the authors of the book The Millionaire Next Door, was: “The harder I work, the luckier I get.” Michael Jackson’s success certainly had elements of luck but more of it was due to the fact that he simply outworked everybody. You can knock that concept if you want, but Michael Jackson is the epitome of how that hard work can pay off.