tech-company, business-planThis may sound a bit out there, but it’s in the context of a startup company.
Assume I had two version of my product (let’s call it a paid version of StackExchange).
One was plagued with Comic Sans, colors, etc. It looks casual and is priced casually, like 5$ a month. (Imagine an Amazon Fire tablet - costs 40$.)
The other feels premium. The site is stylish and looks and feels expensive. For that the customer would pay a setup fee of $100 followed by $20 a month membership. Yet the inner workings are the same; it is still just a paid StackExchange. (Imagine an Apple iPad - costs $500.)
Would a potential client look at both sites and pick the “premium” one just because it looks and feels premium?
(Any reading on the subject would be greatly appreciated as well!)
How cow. There is a Huuuuge correlation between product pricing and customer perception of the product (and vice versa).
As both a longtime serial entrepreneur, marketer, and behavioral economist - I can tell you that there are a series of Nobel prize winning studies on this. And at any time you can see the results, every day, all over the web. Something as simple as, the choices presented to you for choosing a subscription: (e.g Free - a reasonable subscription - and a ridiculously high price).
A great (probably apocryphal) case is when the owner of a touristy boutique store, was going on vacation, and she wanted the languishing stock of inexpensive $5 costume jewelry to sell quickly while she was away. She quickly scrawled a note saying to reduce the price to $1.00 each.
When she returned. All the jewelry had sold out! a nice surprise. An ever better surprise was the PILE of cash the store made. Tens of thousands of dollars! It turns out that her handwriting was bad, and the manager instead marked the price of all the costume jewelry at $100 each.
All the customers had a new perception of the value of the product. It was no longer cheap tourist junk… it was a semi-precious memento from the trip.
And it gets even more interesting. You see - for the tourists, buying jewelry for $1 or $5 meant parting with precious CASH (tourist customers usually want to minimize trips to the ATM). But a $100 item is a credit card purchase - much easier.
Anyway - their perception of the product, it’s value etc … all changed due to the pricetag.
Now - in high tech. Aside from citing you vast research, let me give you a real example from personal experience:
Many many years ago (during the PC software boom era) my company developed a software product that rivaled the mainframe products being sold to fortune 500 companies.
Our product was more modern, had better features, more features etc… and it only took us a few months to develop and market. At the time, PC software like this might sell for $400, or in that ballpark.
When we were trying to sell our software to the Fortune 500 corporations, for the first year, NO ONE would ever consider buying our software. It was perceived as a cheap toy. There was No Way would they consider replacing their mainframe software (that probably cost $10,000 per YEAR) and bet on a $400 product.
(remember the mainframe software took years to develop, was much older, but the capital costs were high. We used modern PC software techniques to duplicate and then outshine all the feature/functions. Our capital costs were minuscule compared with our big competitor)
So, we raised our price. We changed our pricing structure etc etc. We changed the name of the software (so we had a small business product and an enterprise product). Once we did this, the Fortune 500 corporations looked at our product differently. Doors opened. Purchase orders flowed, and we made millions$$
Product perception matters!
There are all kinds of customers, so you will get some in each category:
There are probably other categories of people, too. I’m sure they’ll be mentioned in the comments.
The question is what percentage of people fall into each category. For that, I don’t know the answer. But the premium site in your example makes significantly more income than the less expensive site, so it needs significantly fewer customers for you to make the same amount of money.
When I was a boy my dad sold horses. One week he placed an add in the paper. “HORSE for sale 300 dollars” . Nobody called. He took the add down and put up a new add 2 weeks later “HORSE for sale 1000 dollars”. It sold the next day. When I asked him why someone would pay 1000 dollars but not 300 his reply was. “To a poor man 300 is a lot of money to a rich man 1000 is a bargain”.
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