Pricing experiments for CRO
Part three of our Lessons in CRO Mini-Series (3 of 10)
This mini-series covers 10 lessons we have learned from some of our favourite recent experiments (and the results). If you're facing similar challenges and want to understand why some things work better than others, or you simply want some new ideas to test, we hope these lessons help guide and inspire you with your next experiments.
Here’s lesson three:
Lesson #3: Pricing is critical to profitability - don’t neglect to test it
- 12% decrease in lowest-value package sales
- 14% increase in second-tier package sales
- £97k in annualised additional revenue
This client provided one core service at four different levels. The lowest-value tier represented 56% of sales but was significantly less profitable than the others. 30% of sales then came from the second-tier package. Shifting a greater % of visitors into that tier had proven challenging.
What we did
We started by asking whether they had ever tested their pricing. The answer was No. And this represented a significant opportunity to increase profitability in two ways.
Firstly, an increase in the price of the lowest-value tier could increase its own profitability.
Secondly, increasing that price could drive more visitors to consider Tier 2. This was already a more profitable service for the business.
We increased the cost of the lowest-tier package by just £1 - a single-figure % of the overall value. That extra £1 represented a pure-profit increase.
This drove the package split down from 56% to 50% but increased the profitability of each sale.
The second-tier package then saw a significant bump in sales, rising from 30% to 34%.
The reasons it worked
Pricing affects choice in a comparative sale
Raising the price of a lower-tier package decreases its appeal comparative to the tier above. This can result in visitors believing that the additional cost of that higher tier is now a worthwhile value exchange.
Your next experiment?
Consider how your pricing could influence visitors to buy a more profitable product.
Comparative sales mean that you can positively influence sales of one product tier solely by altering the others.
Are you testing with a revenue goal or a profit goal?