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Price testing and price barriers--are they real?

Many newsletter marketers probably don't do as much price testing as they should. And, when it is done, it often isn't undertaken in the most effective manner.

In the first place, if you are going to do a price test mailing, structure it so you do learn the limits of the marketplace. I've seen price testing done using prices of $67, $77, and $97. Add $147 to the mix; be sure you've learned the limits of your market.

Business publishers also worry about the size of their markets. "My universe is small enough that if I do any extensive price testing, some of my active subs (paying $242) are bound to get the $197 offer and ask me, 'What up with this?'"

At Washington Business Information Inc., the late David Swit had a standard answer to that question. "We're doing some price testing. We'd be happy to honor your renewal at the lowest price offer you received."

Here are the results of one of the more dramatic price tests in which I have been involved. It was a straight A/B test of 10,000 names and two prices, $287 and $377. (At the time I thought $377 was a bit of a reach; I might have settled for no more than $347.)

Are price points real?

But permit me to interrupt my narrative with a price-barrier anecdote. Sometime in the spring of 1968, after LBJ announced he would not seek his party's nomination for reelection, and before Simon and Garfunkel hit the top of the pop charts with "Mrs. Robinson," I sat in the Red Lion bar near 21st and Pennsylvania Avenue in D.C. I listened while the founding partners of Capitol Publications argued over whether the price of a planned launch "had to" be under $100.

They concluded it did, both for "psychological reasons" and because they thought a lot of the middle-management prospects they were targeting probably had spending authority up to $100 off their own bat, but they would need approvals from upstairs to spend more.

Here are the results from the test I mentioned above:
 $287 $377

Gross orders 72 31
Paid orders 55 21

Not only did the lower price bring in more than twice the total orders and just about twice the net profit ratio, but the percentage of pay-ups was higher. Evidently the orders received at the higher price were somewhat "soft" and less likely to pay up. And, it's hard to argue with the conclusion that in this instance $300 was definitely a price barrier.

A few years back David Foster had a similar experience at IOMA. At the time they had many monthly business titles priced in the $177-$197 range. They decided it was "time" they went up to over $200. Renewal rates went into the tank faster than they could say, "Goodness gracious, perhaps price point are real." They retreated.

But they got over it. I recently checked the IOMA website, and of the first dozen monthlies listed, 10 were priced between $259 and $279. Two had gotten out of the box and are already at $357 and $369, but I guess the debate over "Can we go over $300?" is coming up for them in a couple of years.

Get your subscribers used to it. To quote Dave Swit twice in one article, "My subscribers are business people. They are used to the price of everything they buy going up every year."

He had a point. If your 2004 price was $242, and you go up just three percent a year, by 2009 it will reach $282 almost imperceptibly. But if you "hold the line," suddenly four years from now, a $40 jump looks pretty big.

In closing, here are a couple of insights from NL/NL advisory board member Marlene Jensen's book The Tao of Pricing:

* "Products paid for by employees, with company money, can be priced higher--unless they are bought by purchasing agents."

* "A 'reasonable' price is dependent upon the category of the product. Therefore, wise marketers position their products in most-favorable categories.

"Example: A newsletter costing $495 is an expensive publication--but cheap business advice."
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Title Annotation:DM Notebook
Author:Goss, Fred
Publication:The Newsletter on Newsletters
Date:Mar 17, 2005
Previous Article:Do You Speak American?
Next Article:What business are you in?

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