I don't think we know enough about the OP's market and competition to be able to agree with the title's conclusion...as others have pointed out, the OP may have just been underpriced to begin with.
An obvious counterpoint: I doubt higher prices has any correlation with sales numbers in the iOS market. And while there are successful high-priced games (Minecraft at $6.99), that's because they are high quality games. I think Minecraft would undoubtedly sell more units if it were at $2.99.
Another thing to consider is the psychological "anchor effect"; Dan Kahneman (Nobel Prize in Economics) conducted a famous experiment in which college students were influenced by a number they knew to be completely random:
Amos and I once rigged a wheel of fortune. It was marked
from 0 to 100, but we had it built so that it would stop
only at 10 or 65. We recruited students of the
University of Oregon as participants in our experiment.
One of us would stand in front of a small group, spin
the wheel, and ask them to write down the number on
which the wheel stopped, which of course was either 10
or 65.
We then asked them 2 questions:
1. Is the percentage of African nations among UN members larger or smaller than the number you just wrote?
2. What is your best guess of the percentage of African nations in the UN?
The spin of a wheel of fortune – even one that is not
rigged – cannot possibly yield useful information about
anything, and the participants in our experiment should
simply have ignored it. But they did not ignore it. The
average estimates of those who saw 10 and 65 were
25% and 45%, respectively.
I think Minecraft would undoubtedly sell more units if it were at $2.99.
I disagree, because Minecraft is already a strong, developed brand. The $6.99 price point is actually cheap when compared to the price point of the PC version ($26.95). Anchoring at work.
I'm the OP - I specifically mention the App Store as a counter example - my article is focused on business and developer oriented software - a completely different audience.
Higher price is justifiable from a developer point of view as long as the support is included. There are gazillions lines of crappy code out there. A general rule in software management is “try to reduce your dependency as much as possible.” Not because of the price of dependency, but, because of the maintenance costs that the dependency will create for you later on.
If your bottom line is gross revenue, why not just A/B test your pricing?
In an app store this is really simple. Pitch the app at a different price tier every week (ideally during a stable period with no major public holidays or obvious seasonal variations). One week will make more money than most. That's your price.
Real A/B testing would mean to simultaneously show to different users, different pricing for the same product and I believe in some jurisdiction this could get you into a trouble legally speaking.
Back in the real world of things, I ran an experiment recently with t-shirts, and created a 'Premium' design to sit alongside my existing design which I renamed 'Classic'.
The new tees were priced at £35 instead of £25, and I was expecting them to increase sales of the Classic tees, but actually the Premium tees sold waaaaaaay faster.
This isn't just related to software. I remember reading a few years ago an interview with Henry Juszkiewicz, the CEO of Gibson guitar (here http://usatoday30.usatoday.com/money/companies/management/20...) The quote is
"I said we are going to increase prices. Prices were ridiculously low. And people said, the price has been decreasing 20% a year, how can you reverse that? I said I'm just going to double the prices on a lot of models. I actually tested it and got an inverse price curve. Basically it showed that every time I raised prices a certain amount, volume would go up."
Not sure how many people play guitar here, but Gibson's quality has slipped a lot since then, yet they are still raising prices, and I imagine volume is still increasing because of it.
Well anecdotal story, one of my side businesses is in selling direct-downloads to zipped content (ala megauploads). We doubled our prices so we're now twice as expensive as any direct competitor and sales went up, not down.
I think in many cases prices act as a signalling factor as to quality.
All that this tells me is that they were underpriced to start with.
In any market where I sell a product and other people can sell an equivalent product, the market settles around a value that varies only as much as reputation allows. If company X has been around for 15 years and you've already bought several of their products (at your current company or a previous one) and found them reliable, that's worth a premium. Otherwise, not so much.
Software components are an even more challenging product to sell, because your customers are sometimes also your biggest competitors; if I see a vastly overpriced component that I know would take me two and a half days (max) to code and test, I'm not going to pay through the nose to buy from an unknown vendor. Add to that "not-invented-here" syndrome, misplaced management concerns about ownership and support, and you end up with components being a hard sell in some orgs.
So, like I say, I can only assume they were underpriced to begin with, and I'm glad to see they're doing research to find their correct price point.
OP here - the main point is that most indie software is underpriced, mostly because the developer fears not making sales. We have thousands of publishers on our platform, and 99% of them underprice their software. I was giving an overview of why they shouldn't
You also have to consider another point altogether, because it applies to your platform. Developers might underprice their software because they do not want to spend time supporting it, but still want to make money off of it. It sounds crazy, but I have yet to meet a developer who is crazy about customer service. By increasing prices, they are also increasing the amount of customer service they might be obligated to provide.
The consensus seems to be that this strategy backfires: often the most cheapskate customers are also the most demanding when it comes to support. The only real way to reduce your support burden is to make your money from fewer customers, which means raising prices (whether by a flat increase or by charging for support - the latter works well in some markets where you can release the code for free and make support the thing you charge for).
"Do you think that raising your prices by 50% will hurt your sales by 50% or more?"
For an article claiming to treat pricing like a science, this sentence stood out. If you raise your prices by 50% (to 1.50 of original) and hurt your sales by 50% (to 0.50 of original), you'll only have 0.75 of your original income.
I actually have a datapoint from one of my SaaS products showing the exact opposite conclusions from this article: Doubled prices, sales dropped to ~25% of their previous levels. Dropped prices back, sales came back.
But don't make any decisions based on that either. A few years earlier, I doubled prices for that same product and didn't see any sales change at all.
So go ahead and experiment with different pricing, but be sure to wrap it in an A/B test. Look at the actual numbers and let that make the final decision for you.
The article discusses products and not services, which are a bit of a different animal in more ways than one (especially in the one-time purchase vs subscription). On the other hand, a recent HN submission concerning a service showed similar results - http://www.extendslogic.com/business/what-i-learned-from-inc...
But I completely agree - each case should stand on its own and you should test different pricing.
Very interesting article. I think it can even be extended to other kinds of software.
I've faced this question on the App Store, which is, of course, a totally different market My experience is that pricing an in-app purchase at 0.99$ or 1.99$ does not change anything as long as it brings a significant added value to the app.
It clearly is important not to lower our prices too much. I think the TV industry (Panasonic, Sony...) should be a reminder that we can not indefinitely lower prices.
My biggest concern with reducing prices is that it in turn pushes retailers to find a way to reduce the quality of the products they are offering (they don't want to operate at a loss and when they can't achieve the massive scale they need to justify the price cuts they need to do something about it).
The short term effect may seem that the customer is getting a good bargain but in the long term it can only hurt him.
To give a better context (software related), I often look at the price estimates certain software development shops are giving in Elance/Odesk/Freelancer.com to potential customers and their very low pricing can only make me wonder if they'll be able to deliver a quality product.
You should raise your prices in order to give a better product and a better service.
When considering pricing for software, it's important to consider more than just the initial sale. It needs to be a comprehensive view of customer lifetime value.
One of the critical things in my current business is the upgrade path for customers. We have many customers who start with one license but quickly scale to 5, then 25, then 50 and beyond.
Having a lower price point to get people into your product can be a very effective strategy if there is a clear upgrade strategy for each customer.
I guess it can work but don't go too high. We love cable TV but dropped it because it was too expensive. Why pay extra for HD when it's free over the air? Paying for the features they can provide that you can't get with free over the air, ok makes sense. Paying for something that's already free? We grew tired of that. That and all the charges getting added in recent years that made no sense whatsoever.
You may also like Don't Just Roll The Dice [1], which is about software pricing. And it's worth reading. But to be honest, Nagle et al is better and much more complete; it's worth paying for.
An obvious counterpoint: I doubt higher prices has any correlation with sales numbers in the iOS market. And while there are successful high-priced games (Minecraft at $6.99), that's because they are high quality games. I think Minecraft would undoubtedly sell more units if it were at $2.99.
Another thing to consider is the psychological "anchor effect"; Dan Kahneman (Nobel Prize in Economics) conducted a famous experiment in which college students were influenced by a number they knew to be completely random:
From "Thinking Fast, and Slow" http://www.amazon.com/gp/product/B00555X8OA/ref=as_li_ss_tl?...The summary: there is room in setting initial prices to convince people think they should be paying a higher price.