Pros and Cons of "Act Now" offers


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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. :-)

Pricing

asked Dec 24 '11 at 04:09
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Umassthrower
458 points

3 Answers


2

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!".

answered Dec 24 '11 at 11:11
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Joel Friedlaender
5,007 points
  • Well, it's not a contract where we are giving them a promotional price and then raising it mid-contract and requiring them to stay on the service. It's more like... the value we envision 6 months or a year from now will be X but right now we acknowledge that our current offering is only worth X/2 or X/3 so our early adopters should definitely not be expected to pay for X when it's only worth X/2 or X/3. – Umassthrower 9 years ago
  • Also, giving it away "for life" at the reduced price is silly. I could see reengaging with the early adopters when the price goes up and letting them know "hey we're giving you the reduced price for an additional year as a thank you for being an early adopter". But the fact of the matter is if the offering really is 2X to 3X more valuable, and sales are good at the higher price, reduced price for life just seems like bad business. I also hate the idea of putting in place arbitrary restrictions to make the full-offering worth more relative to the version the early adopters are using. – Umassthrower 9 years ago
  • Did you actually want advice, or only if the advice matched what you were already wanting to do? – Joel Friedlaender 9 years ago
  • Actually your advice does match what I already was going to do when in the end you say "for a limited time all prices are XX% off". Remember I titled this pros and cons of "Acts Now" offers which implies "for a limited time". So I guess I would say paragraph #2 is basically what I was thinking of doing, but paragraph 1 just seems silly to me because it contradicts paragraph #2 and where else do you get to lock in the original price for life? I started by paying $40/month for fios back in 2007 and now it's 60 with arguably worse speeds and very little extra value at all. – Umassthrower 9 years ago
  • In this case I'm literally talking about a product that is actually getting better rather than fios which just got more popular. I just don't want to end up getting netflixed where netflix came out with a $9/month DVD plan, turned it into something with arguably more than 2X the value, and then when they tried to sell it for 2X the price they got nailed in a "how dare you try to get paid more for the increased value of your service". I guess I, and your 2nd paragraph, both just don't see the things you mentioned in paragraph #1 being a problem with this "for a limited time" offer. – Umassthrower 9 years ago
  • As you mention, it didn't go well for netflix. I suspect that is because people don't like the prices being put up. I think you are looking for a way to avoid the inevitable, annoying your customers when you charge more. If it was me, I would grandfather existing customers to stay on the lower price. So what if your software now has more value, they took a risk on you and got in early... reward them. Unless it's going to break the bank why not? I assume your early cheaper price still runs at a profit, so why annoy them? – Joel Friedlaender 9 years ago
  • Yes, it didn't go well for netflix... who didn't price in the way I am proposing. It's not inevitable to get netflixed. Losing 2% of your customers in order to price better is an acceptable loss, 25% not so much. I think the key is to either slowly slide prices up over time (a la verizon) or, in the early stages, run a early-adopter special that is understood to be a trial price and not the actual price. Netflix got netflixed for keeping prices low in the interim years between when they had very little value and when they had 1.5-3X the value. Then when they tried to price better, BAM. – Umassthrower 9 years ago
  • I'm giving you a +1, not for your answer, but because I think this subsequent discussion, and your participation in it, has been useful. Thanks. – Umassthrower 9 years ago

1

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.

answered Dec 29 '11 at 17:34
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Matt
2,552 points
  • " 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. " This would be a good point if I thought there was even a 1% chance of the act now price higher than the actual price. Good point though, it's bad to pretend its a limited time only offer when you plan on it actually being the price. I don't think that's what I'm talking about here though. I'm talking about a situation where I expect the price to go up in X months. – Umassthrower 9 years ago
  • an actual legitimate limited time offer I guess – Umassthrower 9 years ago
  • Ah, but that's rather what I was trying to get over - no matter how real it is, I think we all tend to perceive them with a huge dose of cynicism that it's merely another marketing ploy. Of course I don't know your user base, but I'd still tread carefully – Matt 9 years ago
  • I was simply addressing "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." I understand the cynicism, in fact i am one of the MOST cynical when it comes to limited time offers, but your statement seemed to be warning me to not put a fake deal up there... which I'm not. – Umassthrower 9 years ago

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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.

answered Dec 29 '11 at 04:13
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Umassthrower
458 points

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