daily articles for founders

A/B testing product price  

Some excellent advice from Paras Chopra about how to go about testing price, starting with a point that will come as a surprise to many:

... you should NEVER show different prices to the visitors for exactly the same product or service.

It’s illegal and can lead to huge potential lawsuits.

Instead, he recommends varying and splitting your price plans (e.g. turning a $20/5GB offer into two plans, at $8/2GB and $40/10GB, then, if the $40 sells, offering $40/5GB later) to determine the price sensitivity of your users and find a sweet spot.

Another point worth making on this topic is that, when doing price testing in person or via an online survey, you should never offer people several prices and ask them to choose the right one - they'll always pick a lower one, because you've just put them into negotiation mode. Instead, offer a single price and measure the purchasing rate.

Update: Reader Chris Schneider did a bit of research and found some links about whether price testing is really illegal:

From the first link, the following extract is relevant:

First, the Robinson-Patman Act covers commodities, in other words tangible items. Value transactions that substantially involve services or licenses to intellectual property such as software are not subject to the terms of the Robinson-Patman Act. As the US economy increasingly becomes a service economy rather than a manufacturing economy, the jurisdiction of the Robinson-Patman Act over transactions decreases.

So, it appears that SaaS startups are covered.

More from the library:
Acquiring startups for a living
Startup sales: #5: Follow-up meetings
Doing more by doing less
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