Iterative Pricing

June 16, 2004 | View Comments (7) | Category: Web Business

Summary: A discussion on iterative pricing, supply & demand, and video game consoles.

Make your best guess based on the competition's pricing and internal business knowledge and throw the pricing out there. Be prepared to listen to customer feedback. Modify the pricing according to feedback and your business needs. Test it again.

— Jason Kottke

This is in regards to SixApart announcing another pricing structure to MT.

When I first read what Kottke had to say I admit to thinking what a great idea that would be. Something along the lines of what Business Logs is saying in regards to having a transparent company that openly allows customer feedback and actively listens. Due to this feedback it seems the masses are much more pleased. However, would this model always work?

What if the majority were still not happy or the ones who weren't were the loudest to speak? Would a company then change the pricing structure until everyone is quiet? If that is the case what wouldn't stop the group from trying to drive the price down to zero?

Another consequence with constantly changing the pricing is that the perception of the company becomes unstable. Were they just trying to gauge the prices or thought that their product was so superior in nature that we would be willing to pay a premium (this is in general and not in reference to SixApart)?

Of course iterative pricing already exists due to the laws of supply & demand. If that is what convinced SixApart to adjust their model well then they could possibly be in some trouble because it would show that the damage done by the original fiasco hurt more than they would have liked. But then again I believe many people will only use blog software if it is free so SixApart would not even target this audience.

Finally the problem with thinking that it is acceptable to constantly go with iterative pricing is that customers will tire of it. In the video game console industry it is a given that over a certain period of time the prices will drop so some people will wait years before purchasing a system. It has been happening for over a decade so it is accepted practice. If you are offering a product like MT, customers expect a solid pricing structure and not one that will fluctuate on a monthly basis.

I am glad to see SixApart adjusting the structure and to be honest hopefully this is the last time because if it happens again I feel the image of the company will be completely destroyed for most people if it hasn't been already. What this example does show however is how being opening and listening to feedback can better the company. Kind of like listening to criticism of your designs and maybe improving upon them.

Trackback URL: http://9rules.com/cgi-bin/mt/mt-tb.cgi/265

Comments

#1

I think the price fluctuations are hurting Six Apart personally. I know that wasn't the main point of your post, but that's a good example to use so I'll go with it.

To me it makes them look like they don't really know what they're doing... Not only did they blow it with the initial announcement, now they are waffling around and can't decide what to charge for their products. They would be more professional and "together" in my eyes anyway if they stuck to their guns. It appears to me they are being bullied around by their customers. And actually most of the vocal complainers aren't even considering being customers because they won't pay anything for blog software.

But that's just my impression of the whole let-your-customers-run-your-company thing. :)

Derek (http://www.twotallsocks.com/)

#2

I have to admit, when I heard they had adjusted pricing again, I fell into the group that was thinking this could be very bad for 6A. My thoughts were "they're unstable" and "they're doing some serious damage control." I guess it carries over (for me) from being amazed at their
temporary solution a few weeks ago.

Don't forget the people that were early adopters and spent the money, only to find out the pricing/licensing has changed a month later.

Of course, this happens with all technology (i'm pissed I got that laptop only to have a newer model released the next day), but the rapid-fire techniques 6A has chosen to use kinda scares me.

Let's hope this one sticks for a while.

Lance E. Leonard (http://www.solarfrog.com)

#3

Is this not the essence of the free market system? Constant change to remain at the top of your niche. Is a sale of over stock merchandise bad pricing policy because it didn't sell? I don't think this is a sign of weakness for Six Apart I think it's a sign of a company that produced free software decided to free market there product and upon jumping in, landed a little hard with both feet. It took some guts to make the change, thankfully it's not a going out of business sale.

Rick Blanton (http://www.horsetown.org)

#4

I think the image of instability comes from the pricing changes happening so rapidly within one month timeframe. Maybe if they were to wait 6 months then the image would not have hurt as much, but I definitely agree with doing 3 changes in a matter of weeks can make the image of SixApart a little unsettling.

Scrivs (http://businesslogs.com)

#5

A lot of this has to do with the nature of humans, or at least in my opinion. I think this is a great example of what I call "satellite radio syndrome."

This is when people have been getting something for free for a prolonged period of time, and have a hard time adjusting to the concept of paying for it. Personally I would never pay for radio, because to be quite honest, no matter how many stations you have, there's never anything good on. Plus I have been getting FM free all my life.

However, with Movable Type, there is going to be a transition between those beliefs. I have been using Movable Type for free for about 2 years now, and right now, paying for it is not at the forefront of my mind, but as the price balances itself out, and it develops further, my opinions will change.

Everything like this requires a transition period. Drastic changes in anything always take a while for people to get used to, but in the end it typically manages to balance itself out.

Ryan (http://worldoneweb.com)

#6

First of all, in essence they didn't adjust their price "down" per se. If anything, the price points barely changed at all. The pricing structure changed significantly.

Essentially, they just expanded their options based on how their customers used the software. They solicited feedback and came back with softer rules for each of the different tiers.

I don't see this as hurting Six Apart at all. I'm sure it was a painful process for them to go through, but I think in the end they handled it much better than most companies would have.

Additionally, it's not unusual for companies to offer educational, non-profit, or volume pricing. This was essentially the largest change in their pricing.

Garrett Dimon (http://www.yourtotalsite.com)

#7

Price, like other characteristics of a good, can be considered a feature. And like other features, it can be constructed in such a way as to provide the greatest possible advantage to the seller.

Many groups selling physical goods do a fair amount of research as they attempt to set a price for their goods. (I'm not suggesting that Six Apart did not, I have no way of knowing what they did or did not do, and I haven't tried their product.) Price testing is often a key component of this research, when products are new (or newly charged for). A firm may choose three or more test markets, and introduce their product in each of the test markets with a different price. Or they may be more stealthy about it and simly ask folks in the test markets how they would respond to one or another of the test prices. This is true of price structures as well.

Often it is not the case that the lowest price tests the best; an unreasonably low price can detract from the perceived value of the product.

This work is usually done before a full-scale release. Naturally this is tough when you can't easily isolate portions of your market geographically, but there are other ways to crack this nut.

Iterative pricing could work, but it would likely have to be thoroughly planned prior to the release of the product, and you'd have to take into account the effect on market sentiment of the price movement. You'd need to plan before launch the pacing and number of your pricing or pricing structure changes, the subsequent price points, and what margin/volume/sentiment criteria you would use at every step to decide whether or not to move to the next point. And even then the customers may behave in ways that you hadn't considered, knocking your whole "live test" into a cocked hat.

The key, I think, when you can't or won't or didn't learn something important before launching a product, is to consider the possible outcomes and plan your responses before releasing your product.

And! It really isn't about finding a price point.structure/both that silences the complainers. It's about finding a price point/structure/both that optimizes the business, encourages a healthy but not unmeetable level of demand, provides the right amount of profit, encourages steady growth in market or share of market, etc.

There are books...etc.

Jon Plummer (http://misterjon.com/)

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