Pricing and Stickiness in Consumer Behaviour online

All merchants online know pricing is absolutely critical to their bottom line. Plain discounting of products seasonal or in general is a merchandizing skill that is learned by all merchants when they’re trying to push sales online. Given the ease with which prices can be compared from one store to another and the popularity of price comparison engines. It is imperitive for all merchants (big and small) to understand how to price their products effectively to ensure that consumers purchase and “stick”.

The way you set prices doesn’t just influence demand it also effects consumption: ie. the extent to which your users actually use your service or you products that they’ve paid for and if they come back for more.

Let’s take this example: 2 friends: Jill and Jane get a membership to a local gym. Jill gets a monthly membership at 100USD/month and Jane pays a 1000 USD for the yearly membership upfront. Now, fast forward 6 months later: who is more likely to remain committed to their exercise schedules? Given the motivations of both J’s is the same, there is a higher likelihood that Jane (yearly membership) drops off her regimen first. Psychology tests have shown that Jane in an attempt to extract the most value from her higher one time payment will peak at a certain time and stop exercising as frequently at the gym. Jill on the other hand continues to use the gym and is happy with the value that she is gaining from her purchase. Jill eventually sticks on with her monthly plan for another 2 years at the same gym.

The lesson learned above is that not only is it critical to price correctly so that you target the Jill’s of the world to purchase today, but, it is also critical to make these one time buyers “stick”. Whether it is a one time purchase of a chair online or a discounted golf club bought online it is important to price correctly for “that” consumer and personalize the visit to an extent that the consumer has subliminally been affected positively.

The first and foremost step in this process is to “price correctly“. To effect the behaviour of the user positively a simple dumb discount that treats all visitors alike is just not going to cut it. This is the precise problem we’re tackling at Runa: understanding how to enable merchants to make better discounting decisions in real time for individual consumers that visit their sites and to increase lifetime value of these customers while at the same time maximizing their profit margins.

I’ll be writing about some basic techniques on how simple dumb discounting can help your bottom line and then provide some measurement of how you can further optimize this $ value by using Runa’s SaaS campaigns (I’m talking about a 200% increase in profit by using Runa in some cases :) ).