The Psychology of Pricing

The following is an email I sent to the founder of a new subscription-based newsletter. He’s highly-regarded within his industry and I’ve purchased his products before. The introductory price to join the service is less than $3.00 a month.

It’s a discussion on the psychology of pricing.

{Email starts below}

I got your email announcing your new newsletter.

Glad you’re finding more ways to leverage your expertise. I will join in May. Hopefully, I’ll be able to join at the introductory rate….even after you read this email.

I don’t like holding my tongue on matters like this, so I’ve got a suggestion: raise your monthly subscription price significantly.

You already made mention of future price increases in your email, but the sooner, the better.

You could raise your rates to somewhere in the eight, nine, even five-dollar range and be much better off than the current introductory rate. Not just because you’re making more money per subscriber, but because your target market is more likely to take the content seriously. When something is priced cheaply relative to its competitors, people start looking for what’s wrong with the product.

I wrestled with the “how much to charge?” issue with my book. At first, I considered going in below $10. I’m a first-time, unknown author competing with thousands (millions?) of other books in the non-fiction space. I need to separate from competing titles, and a low price might entice readers.

Makes sense, right?

But once I remembered what I already knew about the psychology of choice and did more pricing research, I settled on a price closer to $20—a number comparable with many new non-fiction books.

To someone with little knowledge of the field and an inability to discern who knows their stuff and who doesn’t, price is often the biggest criterion for purchase. With all the free material floating around, the (small) minority of people willing to pay for information might balk at paying for a monthly service, even one that cost less than three bucks.

To the people who know the quality of your work, it’s a great deal. There’s little concern that you’ll continue to deliver good work.

But what of those who don’t know you? What separates you from the sea of “experts” out there?

I’d use this analogy:

If I went to Best Buy and bought a brand new PS4 game for $20 (when it retails for $70), I’d feel like a got a great deal.There is a certain level of quality expected from a big-box store. If anything was awry, I could just return it.

I’d be much more hesitant to buy a $20 game from some lesser-known party. “Is it a pirated copy? Does this actually work?” I’d be waiting for the other shoe to drop.

The free samples of your work help your cause, but a lot of folks don’t want to take the time to research every single purchase.

Something like $8.00 might be best. The “.99” pricing is so common that people automatically round up to the nearest dollar— $9.99 pushes you over that ten-dollar edge. People don’t think much about sub-$10 purchases and think even less about $100 spread over a full year—especially if they don’t have to pay it all at once.

You could even make a case for going above that $9.99 threshold–your stuff really is that good–, but because of the subject matter (it’s not a capital-intensive activity like real estate) and sea of free competitors, I wouldn’t recommend it.

There are a contingent of bargain hunters who might take a longer look because of the price (odds are, they’ll just hunt for free material on the internet instead), but those are probably some of the folks likely to take advantage of your Money-Back Guarantee policy. They have a hard time understanding the difference between being a spendthrift and paying for value.

Not the type of people you should think about.

There is a huge psychological leap from “free” to even a $1 online purchase for internet users. The difference between $1 and $9, however, is quite small.

You should honor the introductory rate for anyone who has already signed up and any other early adopters, but consider what I said for the future.

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