What’s the best price to charge for a product? How about, what’s the best price to charge for a product that’s not even developed yet?
Market price-testing is a simple concept: It’s mostly about finding the price that makes the most money.
For example, if you market test the prices of $50 and $100 for the same product, you might expect to make more money on the $100 price. However, if you sell more than twice the amount of the same product by charging $50, then the lower price would be the most profitable one.
Of course, you really have to analyze this against all your costs, to reflect your overall return-on-investment (ROI) of producing, marketing and delivering the product.
Although in another example you may very well sell less of the same product at $100, as long as you make more overall profit than selling a larger quantity at $50, then the $100 is the way to go.
Oh! Of course, from a business perspective, sometimes it’s best to select the price that creates the most customers, regardless that it may not generate the most profit, simply because more first-time customers means greater opportunities for increased sales later on.
And just to make things more interesting, there are examples of selling a product at a higher price that results in a larger volume of sales than offering it a lower price.
Still, the more pertinent question for this article is how do you determine what’s the best price for a product that’s not even developed?
Market Testing For The Best Price
The accompanying flow chart illustrates a simple way to test 4 different prices via online pay-per-click advertising (in this case, using Google Adwords). This particular example is also constructed to determine if the product in question should be developed at all. (In this example, what is being tested is a potential information product).
An important purpose here is to spend a small amount of advertising money upfront – before creating the product – to determine if the product will be profitable enough to bother developing in the first place.
Another important purpose of this test is to determine the response levels of four different prices. The responses are then evaluated to determine which price is the most profitable. Of course you would also evaluate the results against your business intent:
- Do you want to use the price that generates the highest ROI?
- Or do you want the price that generates the greatest number of responses with an acceptable ROI?
Price Testing Flow Chart
In this flow chart the four prices are rotated and displayed to searchers looking for the keywords specified for this product. (The same keywords are used for all four ads).
Google Adwords allows rotation of the ads to searchers and provides good metrics to evaluate the responsiveness of each ad. (Which, in this case, is simply how many clicked on the product landing page).
If this were solely a “Price Test,” this campaign could be simplified by ending the test at the landing page to reveal which ad generated the greatest response. However this flow chart depicts a test which goes further by also seeing how many respondents would click on the “Buy” button.
If you were testing different prices with a product that was ready to be delivered, then anyone who clicked the “Buy” button could be charged the indicated price and the product delivery would be executed.
However, in this flow chart example, the product has not been developed.
Hence, each visitor who clicks “Buy” is directed to the Registration Page, informed that the product is not ready, and is given the opportunity to be notified as soon as the product is available.
Of course, not everyone who lands on this page will enter their name and email. For example, those who would want the product immediately will probably continue their Internet search to buy what they’re after. However, any visitors that do add their name and email would be categorized as “hot prospects” in a database.
So in addition to using this test as a way to determine the best price, it’s also a way to generate potential buyers. (Of course a number of the hot prospects will have been introduced to the offer by any of the other four prices than the price they originally clicked on, so not all “hot prospects” will buy the product in the end with a different price).
From a testing perspective, the amount of visitors who click the “Buy” button represents an important metric, since it would be the best estimate of what percentage of visitors would result in a purchase.
Once the results of the test have been evaluated and the price determined – and in this case, the decision made to even develop the product – then the hot prospects can be sent a series of emails offering them the opportunity to buy the product when it is ready.
In this way, some of the advertising money may be offset by some initial purchasers.
This would also be the time to ramp up all of your marketing efforts to sell this product in volume at the best price.
Future Price Testing
Once a product is developed, price testing for the exact same product can be repeated from time to time, as the market evolves and changes. Some of the conditions that might indicate an opportunity for a higher or lower price could be accounted for by more (or less) competition, an increase in your brand’s prominence, a greater (or reduced) demand for your product, or even a different business intent for the product itself within your company’s overall business goals.
Of course if the results of the test demonstrate that it won’t be profitable to develop the product at all, then the next step is to abandon this product and test your next product idea.
By the way, it’s worth emphasizing that this article is about “Price Testing,” especially to determine the viability of developing a product. However, there are other types of testing. In fact, testing is an ongoing proposition. For example, once you have determined to develop a product and have determined the best price, a larger body of testing would be directed towards improving various aspects of the ad copy and the landing page presentation, to make the sales process MORE profitable. For more information on this topic visit this link on Internet marketing testing.