RS041: The Psychology of Pricing Strategies

Today Dave and I are diving into the psychology of pricing.  And not just any pricing conversation, but freemium, and incentives early in the lifetime of a customer.  Several Silicon Valley startups have seen this trap nearly claim their businesses.  We go through several ways to avoid this, and allow your pricing strategy to let your business thrive from the beginning.

Dave’s updates include FINALLY moving the majority of their support documentation off of his plate, and beginning to build out processes and procedures for someone else to begin handling support of his WordPress plugins.  This was something we talked about a lot in previous episodes, and will allow him to really grow his businesses.  

To round out business optimization for the plugin businesses, Dave has been moving his updating and fulfillment to Easy Digital Downloads.

Craig has seen a surge in business lately thanks to a few mentions in The Next Web, Huffington Post, and Inc.com.  Good to see that the personnel development efforts of the past few months are paying off now and the team is able to handle several new shows a week without adding undue stress to their workload.  

Also it’s time to find out some more about the newly acquired 4,000+ additions to the PodcastMotor email list.  Craig is planning to send out a short, 5 question survey to the new segment of the list to learn some more about their podcasting experience, goals of their shows, and what areas of their podcasting lives are being underserved.  This will almost entirely drive product development for either software of info products going forward.  

Today is all about Pricing.  And not just any ole pricing discussion, but aggressive strategies that some startups employ to get customers easily by deeply discounting their products or services.  The downside of this is that after this initial draw of new customers into the funnel they’re finding the vast majority churn out after a short period of time.  

Often changes in pricing, whether it’s from freemium or deeply discounted is that the psychology of buyers is vastly different between those interested in free or cheap products than those interested in feature rich, highly valuable services.  You just end up attracting very different types of customers with those two different value proposals.  

This often manifests itself in your business as a canary in the coal mine as to the biggest weakness of your business.  Josh Pigford of Baremetrics just went through a similar experience with offering a free tier to their analytics service.  In his case it was server load and customer service issues.  On a service business this could be poor expectations as to timeframe, deliverables, or quality details.  Regardless, stressing your business model may provide insights into ways that you can bolster your infrastructure ahead of that growth happening organically.

What issues with regards to pricing have you run into?  Drop a note in below and let us know how you handle pricing, pricing based incentives, and how has it affected your business?