Pros and Cons of "Act Now" offers

Do any of you have experience with what I like to call "Act Now" pricing, or pricing which implies that the current price is a discount from the "real" price? I'm releasing a SaaS tool that has a feature set X and I'm considering charging Y (subscription model). Naturally we have a million idea for how to make the product better so I'd like to charge more, say 2Y, once the product actually has more value, say 2 - 3X. One way I was thinking of doing this without getting Netflixed would be have the pricing of the initial release be portrayed as being a deal compared to the real price and then when we can deliver the value to justify the "real" price, we're simply ending the promotional offer.

The added bonus is also that this should give the buyer the sense of urgency when buying, as long as our "promotional" offer doesn't last for years instead of months. (which is an entirely different problem.) I should mention that it's difficult for us to price via an a la carte model, and each of the services that we would be offering in the a la carte model we intend to get better and better, even relative to the competition, over time. So...

Should we go with the promotional pricing as a strategy to price better when we have more value? If the concensus is no, then there will be a follow up on how to not get netflixed. :-)

I imaging people will be reluctant to sign up to a low price if they don't know how long it is going to be low for. They will be suspicious that you just put the price up whenever you want. I think for this to be a viable option, you would need to grandfather the users that sign up at the low price (ie. they stay on the low price for life, only new people pay the higher price). This would make it compelling to start on the lower price.

I don't see a problem with the strategy, just be careful on how you market it... obviously "we will put the price up when we have more value" isn't the message you would use. Something along the lines of "Opening Special - We're excited to have launched XXXX, and for a limited time all prices are XX% off!".

Two observations

"Act Now" offers are terribly overused, especially on the internet, and in the main we're terribly cynical and jaded towards them (That's ignoring the ebook/internet marketing fields where they seem compulsory). I've lost count of the number of special one-time "golden" deals I've had, only to see the same price, or better becoming the standard just weeks later. All that breeds is resentment for those who signed on to the deal. Likewise multiple different regular deals can leave people waiting around for the "good one" to roll by again. To be blunt, we've been well trained on the web not to believe such scarcity.

Better to have a deal for early adopters, or some lead-in special offer - perhaps making it clear that as you're using subset of features it's a special early adopter price - in return they get a guaranteed xx% off whatever price you roll at when you're "finished". (Not that these things are ever finished, but you get the idea)

Or maybe rather than keep rolling out the new features for all your userbase, perhaps it's better to keep some advanced areas back whilst developing, in anticipation of creating a service+ offering - which you could then launch for a premium price point. Then you can be pricing based on standard and gold.

Lets restate the problem. How do you price appropriately when the value of the product has changed significantly, without receiving client backlash? Presumably in the later stages of the product lifecycle value is not increasing dramatically. In fact, relative to competitors, the value of your offering can often times be decreasing as you rely on your existing success while young upstart competitors innovate. But sometimes, usually in the early stages, your value maybe be increasing dramatically in a shortened time period. The value of your product at the time of your initial release can end up being 1/2 or 1/4 the actual value of the product a year down the road. So how do you sell this early product while still being able to price appropriately when you are delivering much more value down the road.

If people signup for something, thinking that the price they're paying is the final price, then large positive price perturbations will cause people to be... perturbed. As I've been putting it: "how do you keep from getting 'Netflixed'?" Netflix introduced a product that did well based on its value vs. the competition (Blockbuster, et al.). Then they added value to the product over time, while keeping the price roughly the same throughout that period. Once they had 2 legitimate products being offered for the price of 1 they decided to split them and effectively, nearly, double the price of their existing product offering. Even though they were still deliver much higher value than competitors, and relatively the same amount of value relative to their product offerings from 3 years ago, they got nailed for the huge price increase.

So I submit that the early adopter special is a good way to price your initial offering because it enables you to price low enough to get customers when you're delivering little value while still leaving room for price increases when your value has increased significantly. As JF points out ANY change in price will have some negative affect on some portion of the customers, but similar to how a company like Comcast advertises $19.99 broadband and then charges $49.99 6 months later, if that initial price is understood to be a promotional offer... the human psyche does a better job of not having a visceral reaction. I suspect this is related to the fact that the price change was expected. They don't feel duped, they feel like they got a deal at first and are now paying the actual price.