How To Price Anchor

Want to know why charging $12 / year converts higher than $9.99?

2. How did you determine the right price points for your product?

Like many companies they experimented with many pricing models. The first did a “purchase credits” model like iStockphoto where you then burn down the credits you bought. They realized for them this was dumb because people didn’t want to use up their credits so viral adoption wasn’t happening quickly enough. They switched to a flat rate model and sharing went up immediately. They tried lots of price points – $13.99, $9.99 per year – and nothing was amazing. When they increased price from $9.99 to $12 conversion went up!

Gregg says at $9.99 there was no frame of reference for the value. At $12 / year he was able to frame users with the thought, “Am I getting a dollar of value per month from JibJab? Sure, of course I am. Sign me up.” Awesome. Counter-intuitive. The kind of thing you only learn by doing and testing. My key take away – frame of reference in pricing is important.

Boldfaced emphasis added by me.

Clever. And makes me understand why when Hulu was saying they’d be charging, I said I’d go for $12/year myself.

The trouble, of course, will be that many services will do this. Suddenly that $1/month thinking is everywhere and you’re looking at a total of $20-$40/month for services.

1 Comment

Filed under Pricing

One response to “How To Price Anchor

  1. Brilliant! I had the same reaction you did, though. It works when you take the service in isolation, but when you end up with 20 of them it starts to add up.

    Thanks for sharing this.

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