The thing I love about pricing is it is all around us. Each week I plan on sharing some of my pricing experiences during that week. Hopefully, you will find them interesting and entertaining.
Last week, I had two pricing experiences that got me thinking about how to price. One was a scam that was effective. The other ended up feeling like a scam and was ineffective.
The first pricing experience started with a message on our home computer indicating a virus was attacking our computer and that we needed to fix it immediately. This was unnerving and so I took immediate action. I tried to get Norton Antivirus going and as I initiated it, I was not getting any results. Meanwhile, the virus message kept popping up, and then a solution was offered. It said it was “free” – there was a free antivirus program that would fix the problem. But, I could not find it. Every time I tried to get the “free” solution a message popped up saying that for $59.95 I could buy the antivirus software and fix the problem. I was very tempted, and more than a few times almost went for it. Fortunately, I did not, because what I later found out was the solution was actually the problem. The message asking me to pay $59.95 to solve the “problem” was actually the virus itself. If I had paid the $59.95, then it would have immediately gone into in some offshore bank account and I would not have gotten a solution to the virus message which was hype intended to get me to spend the $59.95. What a scam!!! Both brilliant and evil.
The “free” alternative is the hook. It appears legitimate and then when you can’t find the “free” option and keep getting messages saying that your computer is being attacked you are ready to buy just about anything to fix the problem. I suspect they have tested this scam many times over and have found the introduction of a free option significantly drives up conversion.
The other question is what is the magic of $59.95? It appeared like a reasonable pricing point, but it was still a lot. I wonder if I would have behaved differently if it had been a onetime offer of $19.95? I wonder if they have built a forecast estimating that the conversion rate between $59.95 and $19.95? Maybe they have a pricing strategy? Each scam tends to have a short-lived lifespan. As people catch on they tell their friends. So hopefully, I am not helping them out with my musings.
The other pricing strategy was shown to me by a colleague. He received a direct mail piece from his internet and cable TV provider offering a deal if he bundled the two. The price was $25 a month. The next day he got the exact same direct mail piece but the offer was $20 a month. Apparently, they had a slight variation in the spelling of his name and thought he was two different customers. This is an example of poor price execution. This type of message undermines the pricing strategy of the organization and leads customers to negotiate more aggressively as they are never confident they are getting the best offer. No wonder the amount of churn is so high.