Oh, the question thou fear the most:
What price should I offer my new product X at?
Determining right price for your product is perhaps one of the most difficult tasks when you are launching a new product or service. 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.
But for digital goods with no cost of production, it is not that simple. This zero cost of production complicates pricing decisions because then you need to price the product according to how much the market values your product. At the core, idea is quite simple: higher you price, lower the demand is. However, if your price it too low, you won’t make a lot of money even though you might sell a lot. Similarly, if you price it too high, you won’t make a lot of money even though each unit sold brings you greater amount of money. This is the basic principle of price elasticity of demand.
So, as you can see in the graph above, increasing price by 10% reduced quantity bought by 15% which reduced total revenues. Every product has a price point in the graph at which revenues become maximum. Price more than it, revenues will fall. Price less than it, revenues will fall. Of course, you can’t sit over coffee one evening and draw this price-demand curve for your product. It has to be discovered. Your market determines this curve and A/B testing is an excellent way to find out which price-point maximizes the total revenue.
Theoretically, the price-demand curve is infinitely long. Price runs from zero to infinity (Y axis) and so does demand (X-axis). But, of course, practically you need to have a price range in mind which you think is suitable for your product. For example, if you are selling an eBook you need to see if $15 gets you more revenue than $9. And you would probably be wise enough to avoid testing selling it for $100. The key question here is: how to set initial price range for price testing?
The answer is: don’t just roll the dice. I’m pointing to an excellent, short guide on pricing software [PDF]. Even though it says on the cover that it is about software pricing, I have found it applies to many types of digital products. The basic gist is this: look for other similar products in the market and also look at the value your product is delivering. Set a price range accordingly. Once you have a price range in mind (say $50-$150), next step is to use A/B split testing to determine the exact price which maximizes revenues.
Price testing is definitely one of the most difficult projects you can undertake. There are so many things that can go wrong. Consider this worst-case scenario: an influential blogger (say Mike from TechCrunch) is trying out your product and somehow gets to see that you are doing price testing. He writes about it on the blog (because, hey, it is fun to write about something controversial). Your customers read the post and get angry at you. Worst-of-the worst, one of the customers turns out to be idle lawyer and sues your company. It is a worst case scenario but quite plausible.
To avoid OMG, we got sued due to price testing, you should be doing price testing according to following rules (which I classify as the good, the bad and the ugly — in reverse order).
Yes, you read it right. This is perhaps the way many companies do price testing but you should NEVER show different prices to the visitors for exactly the same product or service.
It’s illegal and can lead to huge potential lawsuit.
This is a less nefarious version of plain-old price testing. Instead of showing different price points for the same product, you show different price points for slightly different product offerings. You can vary product offerings tested at different price points by adding or removing some trivial features. I will give you an example, if you are selling a backup service you can create one version where you offer 5 GB storage for $20, in another version you offer 5 GB storage + SSL (trivial feature) for $30. So, practically both offerings are similar but technically there is a difference and if anyone ever questions you, you have grounds for justifying the difference in price. After all, you are offering different products (no matter how trivial the difference is).
But I consider it immoral. Yes, you can evade potential lawsuits but anyone will know that you are fooling people.
This is the most ethical way to do price testing. Ideally, you should offer completely different product plans at different price points. Taking backup service as an example again, if on your pricing page lowest tier offers 5 GB for $20, test a version where you offer 10 GB for $40 and 2 GB for $8. You are trying to gauge sensitivity to price here. If your conversion rate 10 GB is same as that for 2 GB, this means your service is so compelling that people want don’t care if it is $8 or $40. So, in the next update you ramp up price as $40 for 5 GB (while still grand-fathering old customers). This way you would know what is the best price point for your service.
Of course, not all digital products have luxury of offering pricing plans. What if you are selling an eBook? In that case, you need to add some extra value (e.g. 15 minute consultation with author) if you are trying to test a higher price and remove some value if you are trying to test a lower price (e.g. shorter version of ebook).
The key lesson for using A/B testing to determe ideal price is this: offer different value at different price points to gauge price sensitivity of target market. Then whatever price offers maximum revenue, start offering your main product at that price point (while grand-fathering old customers).
I have suggested it earlier in the article but will make it clearer here. During price testing, you should measure revenue (not conversion rate). Because even though you may end up selling less (hence lower conversion rate) at higher price points, your total revenues may actually be higher.
Visual Website Optimizer lets you measure revenue by integrating with Google Analytics and Omniture SiteCatalyst. So, if you are measuring revenue in one of these analytics tools, you can easily see which price variation resulted in maximum revenue. (Even if you measure revenue in internal dashboard or excel, it should be quite simple to measure it for different variations)
Let me know your comments and feedback on the strategies I guess. If you need help setting up a price testing using Visual Website Optimizer, will be happy to discuss it with you. Just leave a comment below or email me at paras@wingify.com
Through his website SixPackAbsExercises.com, personal trainer Carl Juneau teaches men the best ab exercises for getting six pack abs. Carl heard his top competitor doubled his sales after he started to use video to market and demonstrate his products so he decided to use Visual Website Optimizer to test video on this website. Carl carried out three split tests which conclusively proved that videos increased conversions on his website by as much as 46%.
In first split test, he tested two variations of the “call to action” on his sales page.
Variation 1 of Carl’s sales page. Call to action: “Next Page Watch Video Preview.”
Here are the results for this test (goal being click on call-to-action and go to next step in funnel). Both calls to action that hinted at a video significantly increased the number of visitors who clicked to the sales page (step 3). The best-performing variation (variation 1) increased conversion by 14.18%.
In second split test, Carl tested one variation of the sales page:
Here are the results for test #2 (goal was to go to next step of funnel). The video sales page significantly increased the number of visitors who clicked to the price/guarantee page by 46.15%.
Third split test was a follow-up test. In it, Carl tested:
To his surprise, the video-only page won. Here are the results. Adding the long salesletter below the winning sales video significantly reduced the number of visitors who clicked to the price/guarantee page by 35%.
Carl couldn’t explain these results. He shared his best guess:
I’m guessing visitors were intrigued by the sales video and clicked through to the price/guarantee page to get more info. They may have been turned off by the long salesletter when I added it to the video and lost the excitement created by the short, punchy video.
Video converts! It did so when mentioned in a “call to action” (a 14.18% increase) and also when used to sell (35% and 46.15% increases in two different tests).
As more and more surfers have broadband Internet and powerful computers, video seems to be slowly taking over the web. Carl increased his conversions with video… why not test it and see if it increases yours?
Carl also submitted feedback on his experience with Visual Website Optimizer:
I carried out these test using Visual Website Optimizer. Before switching to Visual Website Optimizer, I had one solid year of testing under my belt (63 tests) with Google Website Optimizer.
Between the two, Visual Website Optimizer wins hands down. It’s easier to use, faster, and more user-friendly.
When you signup for a 30 day free trial (or purchase a subscription), you install a piece of code on each of your test page. Once the code is installed, you can perform as many tests as you want. You don’t need to re-install a new piece of code for every new test. This was the case in Google Website Optimizer, and it made testing cumbersome.
Visual Website Optimizer’s website itself is faster. It loads in a flash.
Creating tests is intuitive, quick, and easy. It’s done through a “visual” interface. In short, Visual Website Optimizer loads the page you want to test. You then select the sections on your page you want to test. For each section, you specify different versions using the what-you-see-is-what-you-get editor (FrontPage style). You also have the option to edit the HTML directly. When you’re done, you can preview each version before you start the test. It’s that easy, and results are available right away!
One last word on customer support: in two months, I’ve emailed the team 26 times. On average, I’ve gotten a response the same day. VWO team is smart and dedicated. This level of customer support is unheard of.
As you might guess, I strongly endorse this service.
Full disclosure: I’m in no way linked to Visual Website Optimizer, except that I use the software. I’m not being paid for this review.
Carl Juneau
http://www.sixpackabsexercises.com/
Editor’s note: we had a similar case study last week where the call to action ‘Watch the video’ increased conversions by 28%. These two case studies make a strong case for testing a video on your website. It may probably do wonders to your conversions!
We’re big fans of BigCommerce, a hosted shopping store solution that makes creating and running online stores a really simple job. In fact, just like our motto “World’s easiest A/B testing tool“, their motto is “Easiest way to sell online“. That is why we decided to produce a step by step tutorial on how to integrate Visual Website Optimizer with BigCommerce.
Bigcommerce is also one of our customers and they love Visual Website Optimizer and recommend it to their users!
First, the obvious steps. If you haven’t signed up for Visual Website Optimizer or BigCommerce yet, please do so. Both services offer free trial (without requiring a credit card) so all you need is to fill a short signup form in order to get going.
Once you have your BigCommerce store ready, next step is to create A/B split test using Visual Website Optimizer. Our A/B test designer offers WYSIWYG editor and drag-drop resizing & moving features. Additionally, you can always create a multivariate test too. See screenshot below on how test designer looks like (with BigCommerce store loaded):
After creating the test, you get a simple code snippet such as below:
Now, all you need to do is to copy-paste this code to HTMLhead.html file of your BigCommerce template. See an example below:
That’s it. You are all set to run the best A/B testing tool on your shopping store!
Following are some of the salient benefits of using Visual Website Optimizer on your eCommerce site:
I hope you like this new integration of Visual Website Optimizer with BigCommerce. In case you are looking for ideas to kickstart your A/B testing, have a look at our eCommerce case studies (in some cases sales have been increased by as much as 20%).
We recently rolled out new updates on Visual Website Optimizer which has made A/B testing easier than ever. In fact, we have made it so easy that you will be able to create A/B tests with your eyes closed. Don’t believe us? Watch the video below:
OK, so the claim of being able to create A/B tests with eyes closed was bit of an exaggeration but you can see just how incredibly easy we have made the whole processes of designing and creating A/B tests. Amongst numerous updates we rolled out, following are salient ones:
These updates now allow you to change your original landing page or webpage in a variety of ways (moving, resizing, editing, hiding, etc.) to create totally different variations. Isn’t that cool?
Additionally, we introduced some new kinds of tests that you can see below:
As you can see above, now you can create 5 different kinds of tests in Visual Website Optimizer:
Phew! Aren’t they lot of updates? If you are VWO user, we would love to get feedback on these new features. If you are not, we encourage you to Signup for Free Trial Account (no credit card needed) and start doing A/B testing on your website in less than 5 minutes.
Last week we ran an A/B test contest where you had to guess which button increased newsletter signups by 28%. Was it ‘watch a video’ or was it ‘get instant access‘? We got a total of 51 submissions (tweets + blog comments) and would you believe it: 51% said ‘Get Instant Access‘ would win while 49% said ‘Watch a video‘ will win. This is incredible and clearly demonstrates how hard is it to guess what is going to work on your website!
Before announcing the correct answer, we’d like to announce the winner of $3000 worth Visual Website Optimizer subscription. Please join me for the drum roll… and the winner of this contest is: Stephan Schubert and here is the winning tweet. Congratulations, Stephan!
I recently interviewed The Social Man (one of the Visual Website Optimizer customers) on their successful split test. As you will read, this test is typical example of how a single change (in call-to-action) can result in significant increase in conversions. Almost all our case studies make the same point about A/B testing which is worth repeating twice: (seemingly) small changes can increase conversions on a landing page. So, you should always be testing.
Here is the full interview:
1. What was the conversion goal of the split test?
To convert visitors to email newsletter subscribers, and to get them to see a video about how a guy can learn to “talk like a ten”.
2. On which page did you run the test?
http://www.becomeunbreakable.com/1/talk-like-a-ten/indexVWO.php
(Please note – this is a different page than the original, but keeps all the same content. We track lead sources and use different landing pages for traffic from different sources)
3. What is the traffic source? Organic, direct, PPC, etc.?
Cold traffic from a dating website – CPM. We tested a lot of different bids and were very surprised about the most profitable bid price.
4. Which part of page did you select for the test and what variations did you test?
We initially ran a test with three different variations each of headline and sub-head. Once we found the best combination for those, we split the “Submit” button on a whim. One said “Free Instant Access” and one said “Watch The Video”. See images below:
Version A: Get Instant Access (11.9% conversion rate)
Version B: Watch the Video (15.3% conversion rate)
Editor’s note: so now you know that ‘Watch the video‘ increased conversions from 11.9% to 15.3%. A total increase of 28%!
5. Why did you think that the variations you created had better chances to beat the original? What were you actually testing in this test?
Pushing for the action of “Watch The Video”. The subhead that won (“Get The Free ‘Talk Like A Ten’ Video Now!!!”) also mentioned that they could “get” the “video”.
6. What results did you get? Were you surprised by the results?
15% opt-ins for cold traffic off this particular site is amazing – We’re running ads/offers into a few very nichey demographics on that site that generate huge CTR’s (.300-.400; in comparison, the CTR on this campaign is .086 for our best creative) and haven’t beaten this conversion for any other squeeze page.
7. Any lessons which can be derived from your test?
I’m reminded of the parable where an old friend of Henry Ford’s said “Henry, why don’t you ever buy any bolts from me?” to which Mr. Ford replied “Heck Joe, you’ve never asked!” It’s always worth including action verbs like “get”, “watch”, “download”, “enter” etc. in tests.
8. How valuable was Visual Website Optimizer for this test?
It’s so much easier – and more powerful – than Google’s website optimizer. We’re finding it to be an indispensable tool that made me excited about running tests again.
9. Short background information about your business.
The Social Man is in business is to make men awesome. We have a variety of products and coaching packages that cover everything from flirting over text messaging, to how to be sexier, to overcoming social anxiety. I previously ran an enterprise software company, and feel very blessed to be doing something I love that’s employs passionate people and has helped so many men. My business, Turnseven, Inc., manage a few other niche brands in addition to The Social Man.
