In our recent discussion of pricing, we really didn’t explore one of the most interesting aspects of the science of pricing – packaging. In the context of pricing, a package is the goods and/or services included for the price. Surely you’ve seen this: In your local supermarket, there is a long section of beer. You can buy one bottle, six packs, 12 packs and larger multiples, depending on the type of container (bottles, cans, quarts, etc.). At your favorite restaurant, there is a sticker on the menu that says if you order their premium cut rib steak, you can get a salad and a desert for just $2 additional, tonight only. When you go on a vacation, you can buy the cheap, no frills option, but the bright colors and smiling faces in the brochure tell you that self-esteem and happiness are only available with the smart traveler package. Other creating more choices and confusion – what is the motivation for all these different groupings and prices?
I was reminded of the power of the right package to maximize revenue by a recent article by Nathan Barry in A Smart Bear that included the results from three different packaging strategies for technical ebooks. The author of the third, and most successful, strategy links to articles written by his fellow authors about their results and contrasts them with his own. These are widely divergent strategies, but they represent some of the inherent choices that any entrepreneur must consider when arriving at a price that will support a scalable business model.
Nathan actually tried three different tests. As he explains in his article, against his peers attempts to maximize returns by pricing high and by providing a packaged choice, his first test was to adopt a strategy of doing both. He used what he felt was a high price for his ebook and then added still higher prices for packages that included additional resources, tools and licenses. His results, over 48 hours, show that although he sold less units of his complete package at the highest price, he doubled his revenue over the book alone.
For his next book, he tried raising the package prices again but leaving the book price the same. Part of his strategy relied on the fact that these are instructional books, information people can make money from. He priced according to the value of the information received to professionals, not against prices of ebooks broadly. And he also tried changing the order that the packages were presented to the buyer. He found that although he might have lost out on some sales by leading with the highest priced package, he made more high end and middle tier sales which more than made up for any loss in low end sales.
The increase in revenue over these tests is quite dramatic. With a little more attention to the price spread, it might have been even more, but the point is – pricing is part of marketing. It has to be consistent part of the story that marketing tells or buyers will become wary. There are different strategies that will work better for certain business models, but it is part of the business model that can and should be tested.
Risky? Perhaps. But any business is a risk and it can’t grow without a solid return.