3 Counter Intuitive Pricing Experiments
In the complex world of business, pricing emerges as a central pillar to focus on. Many companies overlook the significance of pricing, postponing contemplation until they can't evade it any longer.
However, the path and mindset is to continuously fine-tune your monetization strategies. But hold on, don't be quick to assume that it involves altering the price tag every quarter. In truth, the art of pricing extends far beyond the digits on the tag.
So, let's delve into three counterintuitive pricing experiments that can help your revenue trajectory.
Reviving the Dormant: Extracting Value from Overlooked Features
Past Result: ~15% increase in MRR
Within the realm of your features that customers value but don’t use is an untapped opportunity.
Most of these fall into one of the 2 buckets:
Undiscovered by most users but used heavily by a small set of users.
Resonating deeply with a specific customer persona.
These untapped gems can exponentially boost your key metrics, all while requiring a fraction of the development effort.
As the Product Manager start by grouping each of your features into these 4 categories and rank them by adoption and perceived value:
Once you’ve identified which features fall in the top left quadrant that’s where your initial focus should be.
Let's illustrate with an example from the dating industry. This specific feature fell in the category “resonated deeply with a specific customer subset.” We had initially started to sell a premium package that included all the people that have liked you since you’ve started swiping. We found our users that had adopted this subscription had very high retention and LTV. An opportunity emerged: users unwilling to invest in steep subscription fees were willing to "unlock" a select number of their likes at a fraction of the cost. Bundling four “likes” into an affordable package introduced a pricing strategy that incited "whale-like" behavior. The result? A 15% monthly revenue surge, backed by minimal development efforts because the feature already exists it’s just about repositioning it.
Prices that Prevail: Extending Proven Success to Existing Users
Past Result: ~30% in MRR (dependent on user base, price increase and the segment it is impacting)
Once you've validated new pricing models or experiments for new users, we tend to forget to test the new pricing strategy on existing users as it tends to be sensitive. We experimented with this and the key learning was to identify the right customer segment. This usually tends to be the one that are highly engaged and already finds value in your product. Tip: don’t include the segment that has mediocre engagement as they are likely going to churn.
Here’s how we did it:
Step 1: Test the Waters: Implement new pricing on a subset of existing users to gauge real-world impact. Pick 5% of our existing user base
Step 2: Monitor Churn: Observe churn rates among this group, waiting for their next credit card charge.
Step 3: Quantify Gains: Crunch numbers to calculate net revenue gains, considering churn.
Step 4: Global Rollout: Armed with insights, decide whether to apply the new prices across your existing user base.
This experiment unlocks a seamless transition from making a success into an even larger success.
Elevating Revenue: Increase Prices on all packaging tiers vs just one
Past Result: ~10% in MRR (dependent on the price increase and the segment it is impacting)
An important point here is increasing price on one package can cause a package mix change or have users that would normally purchase churn from the purchase flow. If you raise prices on all packages it makes the decision making process easier as the relative price differences between packages stay the same.
When the max price for a paid package is reached, signals to monitor include decreased conversion rates, higher customer churn, increased complaints about pricing, and the revenue curve starts to flatten out. A fine balance between value and affordability is key.
These slight adjustments can lead to significant revenue gains and require minimal to no development costs.
Conclusion
Remember, one size does not fit all. Embrace the need to adapt and tailor these hacks to suit your unique challenges and opportunities. Share your thoughts, feedback or hacks in the comments section, and let's continue learning from each other. If you would like to receive further growth hacks, subscribe to our newsletter.
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