Strategy : The Price Is Right … or Is It?

Price-test your way to bigger profits

October 2008 By Mark Everett Johnson

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Direct marketers can use the same principle to create a perceived price point based on installment payments. Here are a few actual price tests to stimulate your thinking along with profit-building results:

• Twelve issues of a gardening magazine at 99 cents a copy versus one year for $11.97. The per-issue pricing pulled 10 percent more orders while giving up a mere 9 cents per order ($11.88 versus $11.97). A dollar per copy has been another successful price point for many publishers, especially in tandem with a two-year term.
• Fifteen copies of a consumer newsletter for $1.97 each, versus 12 regular monthly issues plus three free special editions for three installments of $8. The per-issue price results in 23 percent more revenue per order ($29.55 vs. $24). Net response fell 10 percent, an acceptable outcome given the price breakthrough.
• A self-help book for three installments of $8.99 ($26.95 total) versus three installments of $8.32 ($24.95 total). The $8.32 price point arose from an earlier test showing that installment billing significantly outpulled the mention of full price. The book was initially priced at $24.95 in order to stay below the $25 barrier. But it turned out that the new price barrier was at the  $9-per-installment level. The test result was virtually no change in response at the higher price point, but $2 more revenue per sale. The extra revenue was pure profit.
• $127 per year for a B-to-B newsletter, versus $97. Conventional wisdom suggests that breaking through an obvious price barrier such as $100 should have a profoundly negative impact on response. In this case, the higher price actually boosted response by 11 percent. Apparently, the higher price raised prospects' perceived value of the product very significantly. Compounded with the 31 percent higher price, this lift delivered 45 percent more revenue, a blockbuster of a result.

Price Tests You Might Have Overlooked
One of the most successful direct mail formats of the past decade is largely driven by price. The professional discount voucher is the control for many mailers, including The Wall Street Journal and Reader's Digest, a pair of publications that one would think could market more successfully with a long-copy approach. Yet for these and many other publishers, a format that relies on a highly discounted price is the hands-down winner.

Perhaps it's obvious, but any marketer using a price-driven marketing program should test very frequently to determine the ideal price point.

Dr. Marlene Jensen of PricingStrategyResources.com is one of the foremost authorities on direct response pricing. Author of "46 Ways to Raise Prices without Losing Sales!," "The Tao of Pricing" and "Pricing Psychology Report," Jensen has discovered many instances when test results defy conventional wisdom and create profit-building opportunities.
Tests suggested by Jensen's research include:

• Test different prices in different market segments. This can be done with techniques as simple as offering a discount to one segment and withholding it from another.
• Test whether your customers react to "magic numbers" in prices. Testing a price ending in a seven versus one ending in a five ($19.97 vs. $19.95) may sound trivial, but test results have shown up to a 10 percent variation.
• Increase your published price, and offer a discount.
• Test the consumer's favorite price point - FREE - by adding a premium to your offer.
• Test a "beat the price increase" offer. This works great when you've announced an actual price increase on a date certain. But it can also work to say, "Our costs are increasing, and we can't guarantee the current low price indefinitely. Order today while you can still lock in today's prices."

Of all the variables that go into the success or failure of any marketing campaign, price is perhaps the easiest to test - and often proves to be the easiest way to boost profitability. In an economy where almost everything seems a lot harder than usual, this is a great time to be testing prices.

Mark Everett Johnson is a freelance direct mail copywriter and author of one of the most successful letters in the mail today with more than 3.6 million units sold. He can be reached via e-mail at mark@copy.pro.