Last week I asked your opinion on how a company should handle a price increase on a web application that they host. I also wrote this as an experiment to see what type of responses I would get if I didn’t mention the company’s name and not surprisingly the responses were very level-headed.
The web application that I was specifically talking about was Basecamp, by the ever-popular 37signals. In January of this year they raised the pricing of their packages and for the most part not too many people in the comments seem to mind. However, I was a bit surprised that there really wasn’t any talk about this within the blogosphere since the higher tier packages saw huge increases.
Depending on the initial price of the service, a 25%-100% increase may or may not be a big deal. I think the key is finding the number that is at the upper end of the “not a big deal” spectrum. Service costs $10 a month now? Ok, raise to $14 a month then. Not a big deal. Service costs $5 a month? Raise to $10 a month. Probably still not a big deal, as long as the customer knows why the increase is occurring.
That’s the key… the customer needs to rationalize the increase in price by correlating it to an increase in utility. If you can announce the addition of 10 new features, even if the customer didn’t necessarily ask for those features, they can say “Oh, ok, well I can see why it’s a little more expensive now.”
Very good point here by Davidson. If your package is priced at $10/mo and you raise it 20% to $12/mo that probably won’t be that big of a deal to most people. However, going from $39/mo to $49/mo or $59/mo to $99/mo seems like a much bigger deal to me. Now to 37signals credit, they did grandfather the pricing for current customers till March 30, but why not keep them at the initial rates to begin with and have the new pricing only effect new customers?
Is that bad business? They did increase the amount of projects you can host on the Pro package so that probably helped some of the Premium members.
By revising all the plans at once, we’re ensuring that we won’t need to revisit pricing again until 2006 — at the earliest.
After reading about the pricing increase does this statement make you feel any more secure about sticking with Basecamp? If not you really have no choice, but to either start all of your project from scratch with another system or stick with the program because Basecamp has no way for you to export your data (to my knowledge at least).
Now this is not a knock against 37signals. We have a Basecamp account setup over at Business Logs so I am not here to complain about the service. I am more interested to see if you think they handled the pricing increase properly or would you have done it differently. I only ask because I have a couple of ideas with regards to web applications that I might pursue in the future and believe that this would serve as a good case study.
And now that 37signals has been mentioned I would like to keep the comments as civil and intelligent as they were in the last post.
Originally posted on May 10, 2005 @ 12:47 pm