Good points on Mark Suster’s blog, bothsidesofthetable.com, on pricing.
He’s talking to Gregg Spiridellis from JibJab about pricing:
How did you determine the right price points for your product?
Like many companies they experimented with many pricing models. The first did a “purchase credits” model like iStockphoto where you then burn down the credits you bought. They realized for them this was dumb because people didn’t want to use up their credits so viral adoption wasn’t happening quickly enough. They switched to a flat rate model and sharing went up immediately. They tried lots of price points – $13.99, $9.99 per year – and nothing was amazing. When they increased price from $9.99 to $12 conversion went up!
Gregg says at $9.99 there was no frame of reference for the value. At $12 / year he was able to frame users with the thought, “Am I getting a dollar of value per month from JibJab? Sure, of course I am. Sign me up.” Awesome. Counter-intuitive. The kind of thing you only learn by doing and testing. My key take away – frame of reference in pricing is important.
The concept of pricing with a frame of reference is a heady one. It doesn’t have to be based on a calendar, but you’ve got to look for something important to the customer and contextualize it for them. Kudos to folks who iterate like this.