One point that I rarely see made in this type of valuable articles, is how pricing affects your ability to do paid advertisement.
Let's say that for your particular niche, you pay on average $1 per click. These are the expected conversion rates to break even, depending on the price of your product.
$1 - 100%
$2 - 50%
$4 - 25%
$8 - 12.5%
$16 - 6.25%
$32 - 3.125%
$64 - 1.563%
$128 - 0.781%
In general, it's far easier to convert 1.5% of your visitors, with a product that costs $64 than it is getting 50% of your visitors to pay $2, 25% to pay $4, or even 12.5% to pay $8.
So in my experience, charging a premium has practical implications when advertising, that go beyond pricing as a quality indicator.
The lifetime value of a new customer must justify the cost of paid acquisition channels, and leave room for profit.
This is true with assumption that both products are offered in same segment of the market where cost per click is same. Often, products with $2 pricing are offered to much wider demographics than products with $64 pricing. For lower priced product there can be bulk targeting strategy as well where word of mouth and viral sign ups can also be seen. Also as pricing increases you go into B2B sales where complete different marketing/sales strategy needs to be adopted.
Let me try challenge that. For every iPhone app purchaser that bickers over a $3 price, a fairly pricey iPhone has been sold. Those are the same human beings but acting in different ways depending on the combination of perceived value and price. They're the same demographic, the same B2C target market.
Apple sold a seriously expensive (especially initially) device to people who would later complain about 2 bucks. They owned word-of-mouth and viral. Any Nokia user seeing their friend using an iPhone would immediately calculate the months to the end of their phone contract. There's been so much free marketing that it can't possibly be calculated. But the product is not cheap.
Our challenge is to find out how to harness that for our own software/services. First step is to avoid boxing ourselves in, e.g. by price.
Let's say that for your particular niche, you pay on average $1 per click. These are the expected conversion rates to break even, depending on the price of your product.
$1 - 100%
$2 - 50%
$4 - 25%
$8 - 12.5%
$16 - 6.25%
$32 - 3.125%
$64 - 1.563%
$128 - 0.781%
In general, it's far easier to convert 1.5% of your visitors, with a product that costs $64 than it is getting 50% of your visitors to pay $2, 25% to pay $4, or even 12.5% to pay $8.
So in my experience, charging a premium has practical implications when advertising, that go beyond pricing as a quality indicator.
The lifetime value of a new customer must justify the cost of paid acquisition channels, and leave room for profit.