Planning, Startups, Stories


Tim Berry on business planning, starting and growing your business, and having a life in the meantime.

Pricing is Magic. Stranger Every Day 0

Pricing is magic. There are no good algorithms. No best practices. Grab a theory — competitive pricing, value-based pricing, scientific wild-assed guess pricing, you name it — and stick with it. If it works, stick longer. If it doesn’t change it.

Some reflections on pricing: 

  1. Yesterday I bought a short story,  off of Amazon.com for $0.99. I bought it and read it while waiting for lunch at a sandwich shop. We used to have to buy an album for $10-$15. Now I buy tunes on a whim all the time.
  2. I regularly buy tunes off of amazon.com for $0.99. Choose, click, and done. I just bought Bonnie Raitt’s new album for $5.99 because the album was cheaper than buying half of its songs. Nowadays I get sample chapters free, read them, and half the time buy the book. I’m not reading more now, but I’m sure buying more.
  3. I paid $695 for Lotus 1-2-3 in 1983. Wordstar was $295, and dBaseII $495. They were all mainstays of early PC software (and those last two started on CP/M, before the IBM PC and DOS.
  4. How much did the DrawSomething people make with a simple app? Zynga bought the company for $250 million (or so). The app had a free version, and cost $0.99. I saw somewhere that they’d had 350 million downloads. But that was a couple of months ago.
  5. Back in the 1990s we almost acquired full rights to a software product (name omitted on purpose) from a company that had been selling a few hundred copies a year at $1,000 per copy. We didn’t because that software did less for its users than our own Business Plan Pro, which we were selling to tens of thousands of people at $100 a copy.
  6. Is it not strange? Everybody thinks $2.99 is really expensive for an app now. Reviews often dock the good apps because they expect much more as such a high ($2.99) price. Wait, what?

Hypothesis: 

Whatever else is going on with pricing, it’s microeconomics turned on its head: low price doesn’t cause high volume. High volume causes low price.

Corollary: the optimal price is inversely proportional to the size of the market.

Second corollary: whoops! There I go trying to make order out of chaos. Pricing is magic. If it works, hooray, and if not, experiment.

(Image: bigstockphoto.com