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Raising prices

We're about two months away from our v2.0 release.  Everything is going very well on the technical side, but a large sword is hanging over our heads regarding pricing.

In short, we seriously underpriced our product for v1.0.  After doing a post-mortem on the marketing research leading up to that release, we realize now that we need to move prices up on the order of 300% or so (into the $300 range for the stage I product and ~$500 for the "pro" version).  This is simply necessary for financial reasons as well as to eliminate the "cheapness" perception we run into when trying to sell into larger businesses and schools.

I'm hoping that there are some nuggets of wisdom floating about that might help us with this transition.  We'll be offering very inexpensive upgrade prices to existing customers, which will hopefully alleviate some of the pain they may feel, but I'm sure there must be more we can do to manage people's perceptions.  Any suggestions are welcome.

Chas
Monday, June 09, 2003

You don't want to kill off the current user base, so why not allow for reduced pricing for existing customers to upgrade and raise the price for version 2 for new customers only.

As time goes forward, new customers don't have to know it was once priced low. If they find out and ask, tell them the
first release was more or less a beta version.

The older customers will not only balk at the higher price, but may jump to a competitor and bad-mouth your company at the same time. Try to keep your current users happy with lock-in pricing. Call them the loss leaders. As the number of units sold climbs (one hopes) the original low pricers become a small percentage of your total sales.

old_timer
Monday, June 09, 2003

I agree with old timer. We did a 50% increase from 1 to 1.5 and are going to go up again for v2. Of course v2 has three times the features and value of version 1.5.

Techniques:

* Initially offer a big discount on the new price so that it is the same as the old price - for 30 days or so. This can give the introduction a nice sales jump as well.

* Maintain a system of discounts for folks in special situations like teachers and students and people buying many copies

* Keep all the old users happy so they recommend the product to others. Make sure there is no reason for them not to upgrade to the new version. Charge them less than the difference in cost between the two versions.

* #ifdef out all the new features (but not the bug fixes) and call this the 'lite' version. Sell it at the old price. make it available free, with the bugfixes, to all the old customers so they don't get mad about having to pay for features they don't want just to get needed bug fixes.

Do it this way and your current customers will be thrilled that they got in early and got a good deal.

X. J. Scott
Monday, June 09, 2003

Oh, I also wanted to say that it's a little known fact that you can increase sales by increasing prices. If something is underpriced, people don't want it. Finding the right price is critical. Free stuff in particular only appeals to a small segment. Most people would much rather pay for something than get it free or for less than they pergieve its value should be.

X. J. Scott
Monday, June 09, 2003

In response to X. J. Scott:

Better sell my RedHat stock now...

Li-fan Chen
Monday, June 09, 2003

Why sell the stock?  Red Hat makes money by charging more money for something you can get for free.  By this logic, you should be *buying* Red Hat.  :)

Phillip J. Eby
Monday, June 09, 2003

X.J.:

As to your final suggestion, we had considered it at one time, but we became concerned that having three tiers of product at this time would simply be too much to handle in terms of support and mindshare (for lack of a better term).  We'll definitely be giving existing customers a "free ride" to v2.0 though.

Chas
Monday, June 09, 2003

Exactly! hardly anyone gets Linux for free - most people would rather pay for it. That's the whole argument behind why people should bother creating open source in the first place - you are hoping someone will give you money. Surely you are not saying that Red Hat gives their distributions away for free? On the contrary, they charge about as much as other OS companies on the single-license level.

X. J. Scott
Monday, June 09, 2003

Sounds good Chas.

One advantage of creating a product 'family' is that instead of customers spending mental energy deciding if they should buy your product or your competitors, their mental energy is  spent trying to figure if they should be the Lite, Family, Home, Classic, Pro, Office, or Enterprise edition of your program.

People want choice. They want to comparison shop. Give them the option of comparison shopping among competing products at your own store, rather than forcing them to comparison shop at the competitor's store.

It takes time to creata a product family strategy but is worth the effort. Even if you never sell the alternate editions, but just sell 99% copies of the "pro" edition, your sales numbers will still benefit.

X. J. Scott
Monday, June 09, 2003

Our current plan is to have two tiers.  Tier I will be the base product, costing around $300, and Tier II being a "pro" version in the $500 area.  Our strategy is to have the "pro" version target specific, high-demand verticals, with the number of pro editions growing with the number of verticals we want to target.

I would love to have a Tier Zero, consisting of a stripped down version of the product.  I said before, we don't have the resources to support three different levels of product; obviously the hope is that will go away as a roadblock, but it's the unfortunate reality now.  I suppose it would be acceptable to offer such a build to existing users only for upgrading purposes as a free lunch with the hope that they'll be enamoured with v2.0 that they want the tier I product.  That would seem to play into your point of making sure that existing customers upgrade, no matter what.

Chas
Monday, June 09, 2003

May I suggest four price points:

1. Professional version. Multi-user. $5xx.xx

2. Commercial version. Single-user. $3xx.xx

3. Home version. Noncommercial home use only. Single-user. $129.99. Same software as the commercial version.

4. Starter version. Free. 50 file limit.

The "home version" use would be enforced by license restrictions and possibly a different splash screen noting that it's not licensed for use in a job or something like that.  Maybe home users would have to pay something substantial to upgrade to CityDesk v3 and would not be entitled to free support beyond installation help.

The current $79 home version suffers from the 500 file limit. I personally would be very hesitant to buy such crippleware. Just when the program becomes indispensible in your life, you run into that arbitrary limit and are forced to pay tribute to keep using the software.

It's true that some unscrupulous commercial users might buy the $129 version, but most reputable companies would just pay the $3xx rather than risking heavy sanctions if they got found out.

My analogy is the "Office XP Standard for Students and Teachers" package, which sells for $150. From what I could tell, the enforcement of that limit is purely by the terms of the license.

If you buy that $150 package and use it yourself, Microsoft will probably never be the wiser and might even be happy to have your $150. But most companies wouldn't do that for fear that some disgruntled employee would feed them to the BSA wolves.

Larry Prince
Monday, June 09, 2003

Chas, may I offer one scenario to consider? I'm not sure if it applies to your product, but I've been bitten by it:

1) Find product, evaluate it for enterprise-level web project. Pricing is $90/server. Product meets all required criteria, purchase approved.
2) Buy one copy, commence development.
3) Three months later, ready to deploy
4) Go to buy deployment copies of software, find the vendor has changed pricing schema - it's now $100/website, or $250/server. Since our deployment covers two servers each having multiple domain names, a $180 projected deployment cost just became $500.

My suggestion - if someone emails you after your price increase with this kind of situation, offer them the original pricing and apologize. The goodwill you build will be more than worth it.

Philo

Philo
Monday, June 09, 2003

I agree with Philo.

Announce loudly to all your existing customers & on your website that you're raising prices and they should order now to lock in the new app at the old prices. Let them know what their options are up front. Let them know that people who are existing customers will be offered a discount on future purchases for 3 months (or whatever) beyond when you raise the price.

I saw an app do this several years ago and I appreciated the upfrontness. I don't remember if I ended up ordering the product though.

www.MarkTAW.com
Monday, June 09, 2003

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