Pricing Strategy for Digital Products

dchuk

dchuk

Senior Botter
Oct 30, 2008
7,044
224
0
San Diego,CA
serpiq.com
I spend a shit ton of time reading about this stuff, and these two articles are just fucking fantastic:

Perfect Pricing Part Deux — More money from fewer sales by @ASmartBear
Will Low Prices Help You Sell More? (Biz Book Friday!) « Unicornfree

The basic idea they're presenting is: Supply and demand does not exist for digital products as there is no tangible product or upper limit to supply (someone buying your ebook or subscription product doesn't reduce supply in the market). As market pricing is dependent on supply and demand, market pricing is an inappropriate model to follow for pricing digital products and you should instead be using Value Pricing models (prices determined by the value the customer derives from the product).

My favorite excerpt from the asmartbear post:

Choosing a pricing strategy based on competition is a natural approach, but also a flawed one. Price competition implies scarcity—supply and demand market forces. There is no scarcity for ebooks because digital files are replicated practically for free. And let’s face it: when learning about a topic, we often buy more than one book about it. I’ve heard from several customers who bought both mine and Sacha’s books. So, market forces might now matter when it comes to pricing an ebook.

Competition on price also implies that the content of your ebook doesn’t matter. Following this flawed assumption, customers would rather buy the cheapest ebook because they just want a deal and don’t care about what’s inside. This just isn’t true; tech professionals are looking to learn about design, not grab the cheapest book available. Every book contains unique ideas and benefits.

If you begin a business by thinking about price, you have already lost. Customers do not buy because of price; they buy because of the value they receive. Without value, the equation is broken.
Click to expand...

Discuss.

Also, inb4 "markets 4 lyfe" and "the market is the sole determiner of value" bullshittery begins
 


It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a 'dismal science.' But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.
-Murray N. Rothbard
 
do I need to point out the irony of using large bold text while quoting "it is totally irresponsible to have a loud and vociferous opinion" or is that what you were going for?

And please, stop with the ad hominem attacks in yet another thread and participate on a level playing field here: I'm arguing for value based pricing. What is your argument against that system?
 
Split test prices and price it where you see best ROI. There's usually no competition when you're selling online - even if it is. Why? Because we ram them hard with good copy and they make the decision to buy there and then. So when I'm pricing my stuff I don't even check competition as far as prices go because I know in advance I'll have to split test a set of different prices anyway to see which price point fits best with my sales process.
 
dchuk said:
do I need to point out the irony of using large bold text while quoting "it is totally irresponsible to have a loud and vociferous opinion" or is that what you were going for?
Click to expand...
"While remaining in a state of ignorance".

That doesn't apply to me on this topic.

dchuk said:
And please, stop with the ad hominem attacks in yet another thread and participate on a level playing field here
Click to expand...
You don't understand what ad hominem is, please do not use terms incorrectly.

But by level playing field, I assume you mean this little tidbit of emotional maturity...

dchuk said:
Also, inb4 "markets 4 lyfe" and "the market is the sole determiner of value" bullshittery begins
Click to expand...

Thou protest too much, mmkay?

dchuk said:
I'm arguing for value based pricing. What is your argument against that system?
Click to expand...
The last 150 years of economic science.

The entire position is reductive, and frankly, tautological. Of course prices are set by value. The values of both the buyer and the seller. That is what a market is. The convergence of values to create a price.
 
Choosing a pricing strategy based on competition is a natural approach, but also a flawed one. Price competition implies scarcity - supply and demand market forces.
Click to expand...
The money used to buy the product is scarce. A transaction involves both parties buying and selling. This is micro 101.

There is no scarcity for ebooks because digital files are replicated practically for free.
Click to expand...
But there is scarcity for customers and their money.

So instead, price should be a consequence of value.
Click to expand...
All prices are a consequence of value. Prices arise when two parties agree on values for exchange. Placing a "sticker price" on something doesn't create a price. That is a signal of the value the seller wants to obtain for the item.

Price formation only occurs when a transaction actually takes place, otherwise people could jizz all day over themselves about a million dollar 3 page ebook they wrote because that is the "price" they put on it.

We understand a product’s value in many ways, but none of them are intrinsic.
Click to expand...
Don't tell dchuk this applies to Facebook stock or his head will explode.

Also, Darrin, I love you. But when we meet, I might have to attack you physically. (with love of course)

Have a nice day.
 
I would say in the end it's all about the copy and landing page what determines the value. Direct response sales, and specially digital products, are based on perceived value, not real value.

inb4 demand-creating-marketing

amirite?
 
I know exactly what ad hominem fallacies are as you practically teach a course on it here Guerilla; anytime your personal values are challenged, the challengers immediately become ignorant or peasants or a variety of other demeaning, low brow comebacks that systematically erode the foundation of your core argument.

I'll let Paul Graham define what you're doing as he does it more eloquently than I:

DH1. Ad Hominem.

An ad hominem attack is not quite as weak as mere name-calling. It might actually carry some weight. For example, if a senator wrote an article saying senators' salaries should be increased, one could respond:
Of course he would say that. He's a senator.
This wouldn't refute the author's argument, but it may at least be relevant to the case. It's still a very weak form of disagreement, though. If there's something wrong with the senator's argument, you should say what it is; and if there isn't, what difference does it make that he's a senator?

Saying that an author lacks the authority to write about a topic is a variant of ad hominem—and a particularly useless sort, because good ideas often come from outsiders. The question is whether the author is correct or not. If his lack of authority caused him to make mistakes, point those out. And if it didn't, it's not a problem.
Click to expand...

How to Disagree

I am honestly passing on some advice to you right now: Personally attacking someone without actually contributing to an argument is a massive sign of weakness and is extremely obvious to all those watching the argument.

Also, it's just not fucking cool.

So stop doing that.

It's your core weakness in arguments in my opinion. You're obviously an extremely intelligent person, yet you've personally attacked me numerous times, and every single time I've asked you to stop insulting me and instead focus on the argument. The fact that I have to repeatedly ask you to stop attacking my character is verging on appalling at this point to be honest. I love to argue, I am very close with people who love to argue, and the golden rule of argumentation is Don't Be A Dick.

The position you're taking in this (and the Facebook IPO debacle) is that since you've studied a lot of economic theory, you are right and I am wrong. Well, I've studied a metric shit ton of product development and product pricing theory over the last 5 years, so I do have points to make in this debate.

The difference between you and I in this debate isn't our level of intelligence or amount of knowledge of the subject,;it's that you drop to personal attack and I do not.

Attack the argument, not the arguer is all I'm asking.
 
FWIW, the WSO of the Day uses the auto-updating buy button. The prices change on every buy, seems to work well. While the product may not be subject to scarcity, the pricing can be.
 
guerilla said:
The money used to buy the product is scarce. A transaction involves both parties buying and selling. This is micro 101.

But there is scarcity for customers and their money.

All prices are a consequence of value. Prices arise when two parties agree on values for exchange. Placing a "sticker price" on something doesn't create a price. That is a signal of the value the seller wants to obtain for the item.

Price formation only occurs when a transaction actually takes place, otherwise people could jizz all day over themselves about a million dollar 3 page ebook they wrote because that is the "price" they put on it.
Click to expand...

See, I agree with what you wrote. But that is in harmony with my OP in this thread still.

The price your customers end up paying for something should be determined between you and the customer, without any influence from other products in the market. It does not matter what other products cost, it only matters what your customer is comfortable paying for your product based on what it can deliver to them.

If you end up with a price similar to competitors then so be it. But you shouldn't be basing your price off of your competitors from the get go.
 
dchuk said:
See, I agree with what you wrote. But that is in harmony with my OP in this thread still.

The price your customers end up paying for something should be determined between you and the customer, without any influence from other products in the market. It does not matter what other products cost, it only matters what your customer is comfortable paying for your product based on what it can deliver to them.

If you end up with a price similar to competitors then so be it. But you shouldn't be basing your price off of your competitors from the get go.
Click to expand...

Agreed. Competing on price is not a sustainable business model.
 
JoseArmando said:
Split test prices and price it where you see best ROI. There's usually no competition when you're selling online - even if it is. Why? Because we ram them hard with good copy and they make the decision to buy there and then. So when I'm pricing my stuff I don't even check competition as far as prices go because I know in advance I'll have to split test a set of different prices anyway to see which price point fits best with my sales process.
Click to expand...

That's only true for direct response interrupt marketing.

When somebody is selling a TV online, music online, hosting online, or even a rank tracker online, they are probably going to get price compared.
 
dchuk said:
I know exactly what ad hominem fallacies are as you practically teach a course on it here Guerilla; anytime your personal values are challenged, the challengers immediately become ignorant or peasants or a variety of other demeaning, low brow comebacks that systematically erode the foundation of your core argument.
Click to expand...
This is all fluff. You can do better. You should do better.

dchuk said:
I'll let Paul Graham define what you're doing as he does it more eloquently than I
Click to expand...
You spend way too much time on Hackernews bro.

Paul Graham also does not understand what ad hominem is.

Ad hominem - Wikipedia, the free encyclopedia

I never did that. In fact, I never claimed your argument lacked any validity because you're clueless about economics which leads to these erroneous conclusions.

Now if I had said, "Your argument is wrong because you're an idiot/christian/male/white guy." then that would have been ad hom.

What I did, was quote Rothbard, and by doing so implied that your lack of knowledge about economics should probably temper the zeal with which you discuss it.

dchuk said:
I am honestly passing on some advice to you right now: Personally attacking someone without actually contributing to an argument is a massive sign of weakness and is extremely obvious to all those watching the argument.

Also, it's just not fucking cool.

So stop doing that.
Click to expand...
This is a cowards' tactic Darrin. No one has attacked you personally. You've been called out for being wrong, and I think it's because you're ignorant about economics.

That's not a personal attack.

Doing this crap where you can't be criticized because you'll claim it's against the man is really weak shit. I have never claimed I am right because I know more about economics than you. I am right because I can form a coherent argument on the subject and I am happy to demonstrate that for you, anytime.

Enough with faking injuries that didn't occur.
 
dchuk said:
The price your customers end up paying for something should be determined between you and the customer, without any influence from other products in the market.
Click to expand...
That's wrong.

dchuk said:
It does not matter what other products cost, it only matters what your customer is comfortable paying for your product based on what it can deliver to them.
Click to expand...
You're trying to define the criteria for value, when you can't. It's an intrapersonal construct.

The Fatal Conceit - Wikipedia, the free encyclopedia

dchuk said:
If you end up with a price similar to competitors then so be it. But you shouldn't be basing your price off of your competitors from the get go.
Click to expand...
These are just assertions. They aren't facts.

Price discovery is part of the entrepreneurial process, as is emulation. It's not up to you or any blogger to decide how prices should arise. This is specifically why we have markets. So we can resolve questions to the satisfaction of the parties involved, questions that have no objectively right or wrong value.

Sure, you can have theories and methods to approach setting a price, but it's all just speculation. Perhaps some slightly better informed than the next, but speculation nonetheless.
 
You must log in or register to reply here.
Top Bottom