Product Pricing can be tough. But the lessons are all around you.

1. PRICING
LESSONS
EVERYWHERE
Chris Lema @chrislema http://chrislema.com

2. IN A STORE
• In 2009, Cornell found the $ lowered spending.
• The Dollar Bin section & Dollar Store sell for more.
• Buy 1 get 1 free pushes the “bargain” button.
• Limit 2 per customer anchors us on 2.
• Old/Sale price listings anchor & push bargain button
• Easier math on old/sale delta feels like bigger savings
• Smaller font = smaller price (Clark University)
@chrislema

3. IN RESTAURANT
• Stars, Plowhorses, Puzzlers, Dogs – on every menu
• First items in section are most profitable.
• Hard to find often means unprofitable dish.
• Drawing a box around it drives sales.
• Packaging / MealDeals work.
• Free appetizers protect you from “all you can eat
@chrislema

4. IN AN ENTERPRISE
• Yammer - $5/month
• Xobni - $29/once
• DropBox - Free
• Amazon Web Services – $.89/month
The idea is that you can price it for consumers, get
several in a single company to buy it, and then make it a
no-brainer for the enterprise license (which is much
more expensive).
@chrislema

5. IN ECOMMERCE
• Items too close in price drop sales (Yale, 2012)
• Explicit comparisons slow purchasing (Stanford)
• A comma can make things worse (Clark Uni, 2011)
• There’s no discernable drop in sales pre-price bump.
• You can A/B test everything - Amazon. (Optimizely)
• More competition can drive price higher for
premium products by 40% (LBS)
@chrislema

6. IN VIDEO GAMES
• Valve runs Steam, the iTunes of video games
• Continuously running pricing experiments
• Initially found perfect price elasticity
• Then did a huge 75% sale with promotions.
• Saw a 40x increase in gross revenue.
• Assumed temporal shifting.
• Then saw in store sales increase + post-sale increase.
“Our audience [buyers] were more effective than promotions.”
@chrislema

7. IN CLASSIFIEDS
• Check out Significant Objects online
• Rob Walker & Joshua Glenn, 2009
• 100 items were purchased for $1.25 (average)
• All the items were sold on eBay, total of $3,600.
• The narrative adds value.
@chrislema

8. WHAT CAN WE
LEARN FROM
ALL OF THIS?
Chris Lema @chrislema http://chrislema.com

9. ALWAYS TEST
• Every single experiment, and every single result, is a matter of
context:
– The buyer’s context
– The market’s context
– The product’s context
• Don’t copy someone’s move. Copy their motivation.
• Valve’s initial test suggested perfect elasticity. If they’d
stopped testing, they would have missed out.
• Always test! @chrislema

10. NEVER JUST $$
• People choose to buy or not buy a
product, but the price represents more
than just money.
• It’s about Value, Time, Energy & Savings
@chrislema

11. ANCHORS WORK
• “The best place to sell a $3,000 watch is
next to a $15,000 one.”
• With cars it’s the MSRP.
• Arbitrary Coherence
Social Security Number Experiment
(http://danariely.com/the-books/excerpted-from-chapter-1-%E2%80%93-the-truth-about-relativity/)
@chrislema

12. NOT RATIONAL
• You make emotional decisions and
then justify them with your own
form of “logic”
• You’re wildly biased and easily
influenced
@chrislema

13. BEST BET?
USE VALUE TO
PRICE INSTEAD
Chris Lema @chrislema http://chrislema.com

14. RAISE PRICES?
• If you anchor higher prices, then
you’re really “coming down” for
special cases, not “raising them” for
others.
• Think about movie tickets in the
afternoon >> Discount.
@chrislema

15. VALUE IS…
• In the eye of the beholder.
• This means you need to spend time
learning how they see the world.
• Don’t price in a vacuum.
@chrislema

16. VALUE TAKES…
• Tons of work.
• “Marinate in the problem space.”
• This isn’t as fast or easy and looking
left and right. But it’s worth it.
@chrislema

17. Chris Lema
@chrislema
http://chrislema.com
CTO & Chief Strategist
Crowd Favorite
GET HELP!