Information Product Pricing
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Today I’m going to jot down some thoughts about Information Product Pricing. In a former career incarnation I owned a traditional picture framing business. In that business product pricing had a lot to do with costs and margins.
Now that I’m getting close to releasing my first info product, I realize that the rules for pricing are slightly skewed due to the fact that there are only up front production costs [would be the equivalent to tooling up in my old business] and after that I can produce an endless supply for virtually nothing [the only costs being bandwidth and follow up support].
Let’s go through the standard pricing factors:
Competition: I guess the less competition the higher the price you could get away with, would be a general rule for this factor. In my case there is no direct competition that I’m aware of. The information I’m selling is freely available on the web, but not in nice neat step by step package like I am presenting it.
Customer Sensitivity: This means how sensitive are your target customers to pricing. If your selling BMWs the price sensitivity is less than with Toyota Yaris buyers. For me this one is an issue. My target market for this product is people who would likely start a blog on Blogger, so they are used to getting something similar for free.
Price Elasticity: This is the simple higher price = fewer sales and lower price = more sales debate. If we take all other factors like “value for money” out of the equation it can be true that it is easier for most people to spend $5 than $50…the reason is simple, more people have $5 as toss-away money and there is much less risk in a $5 purchase.
When we add “value for money” back into the debate things get really interesting. Here’s an example from How Marketing Plans Work:
An established restaurant that had just started getting fresh seafood daily from the coast (which was about a four-hour drive away) and was charging eight dollars for a typical seafood dinner entree. They couldn’t sell it at all. Rather than lower the price or drop it from their menu, they decided to raise the price to $12.95. The fish sold like crazy. The moral of the story is that people are leery of cheap seafood.
Fair enough. If McDonalds sold the same meal would the price need to be lower? Almost certainly. Would anyone buy it at McDonalds no matter how low the price was? Maybe not.
So pricing is a more complex issue than I thought and it really has to do with two factors if I boil it down.
1.) Customer Centric Factors: What is the perceived value or benefits of purchasing the product.
2.) Business Centric Factors: How does this product fit into the overall plan of the business.
I’ve touched on 1 so let’s go into number 2. In my case this is a new product in a completely new direction for my business. Making a profit on this product is almost irrelevant.
A lot of Internet marketers will actually sell a product for $0 by giving affiliates a 100% commission, for the purpose of building up a list of customers. They know that they have more excellent products to sell and that people who have purchase one product are very likely to continue to buy if they are presented with other high quality offers.
The other business centric factor is how good is the business at presenting “selling” or “marketing” the benefits to potential customers. If you suck at selling and marketing then you will likely need to price lower. Currently I’m unsure of my abilities in this area. My affiliate site does okay, but I haven’t sold any of my own products via the web yet.
The other thought that I have and I can hear people thinking it as they read this is “why not split test” a variety of prices. My answer is that it just seems tacky. I can understand split testing to find out which copy converts better, but to split test on price doesn’t seem fair to the customer.
In conclusion, given the factors above, I’m leaning to a lower price. Price sensitive audience and wanting to build a list of customers being the primary determinating factors.
I should have a preview video for you in the next day or two.
Jon