In the last edition of the Leading Learning newsletter we asked subscribers to share some of their toughest pricing questions. Here – with a little bit of editing to remove identifying information – are responses we provided to some of those questions.
1. Does a significant price reduction normally enhance sales? Do price reductions communicate a reduction in the product’s value? We’ve experimented with discounts and sales, but have had worries that it devalues the brand of our courses. We have also not seen great results from the promotions we have ran.
The impact of a discount will depend on how “elastic” demand for a product is, and really the only way to find that out is to experiment. (Elasticity is always historical – there is no formula that can predict it reliably.)
In general, be careful with discounting. Don’t discount unless there is a specific strategic aim in doing so. It is highly unlikely you will “make it up on volume” with any discount you run. Conversely, the “zone of indifference” that most buyers have to pricing changes stretches in both directions – you probably have room to raise prices by as much as 10 to 15% without anyone noticing or caring very much. (See our video on 3 Axioms of Pricing for additional explanation of this point.)
If you do experiment with discounting, limit the time and communicate a clear reason for why you are discounting – this will help address your second question above about perception of product value.
Discounting can definitely impact value perception, so be cautious. Indeed, the better strategy often is to keep price the same, but add value in some way – e.g., a bonus for taking action now – rather than discounting.
2. We have a group discount of 20% off for bulk purchases of 3 or more courses (or purchasing a single course for 3 or more people). We’re likely to keep it as is for now, and do negotiate sometimes bigger discounts with organizations.
Discounting should be aimed at driving profitable behaviors – not just increasing gross revenue. Bulk purchasing is often a situation where it works well. Just make sure you do the math. Once you discount 20% – or whatever other level – what volume do you need to be achieving the same margins? Your discounts for bulk purchases should occur at volume levels that keep your margins as close to intact as possible – and potentially even increase them. This may also be a case where you can add some low-cost value rather than discounting, or as a way of discounting less.
3. We are thinking of putting in early bird discounts for sign ups, both as a way to encourage people to sign up earlier so we can better plan for workshops and such, and as a way to take the bite out of some of the price increase. We’re thinking of one big roughly 40-50% price hike across the board to get the change done and over with rather than trying to trickle it in over time.
In general, we advocate going ahead and raising price by whatever level you need to in one shot rather than – as this person puts it – trickling it in over time. That said, there are limits to how much of a price increase customers are likely to accept before you scare off a substantial percentage of them. There are no set numbers – you have to consider the specifics of your situation and be willing to experiment – but as a general rule, you can raise price by 10 to 15% without most customers noticing or caring much – and while your sales volume may decrease, the price hike is likely to preserve, if not increase, your margins.
Once you get into the 20 to 25% range, you should definitely test out the new pricing. And at the 40 to 50% range, you may experience a significant loss in sales.
With larger price increases (i.e., above the 10 to 15% range), be sure you have a plan for communicating the increase effectively. Be clear about when it will take place and potentially provide options to “grandfather” in current customers for some period under the current price.
With respect to “early bird” discounting: Don’t discount all that much for early birds unless it is a brand new product and you need to penetrate the market. Most of your early bird registrants are likely to be people who would register anyway. You need to have enough of a discount for them to pay attention – generally in the 10 to 15% range – but not enough to erode your margins.
4. Do you price products differently based on target demographic? For example, young professionals are often known to be cheap with buying resources, does this mean products targeted at them require lower pricing?
Yes, different pricing for different demographics is very often a good idea. Different customers segments will value products differently. As with discounting, though, you want to have a clear logic for why the pricing is different, and incorporate that logic into how you communicate about the product. Additionally, to the extent possible, vary value whenever you value price. For example, there may be some aspects of your offering that young professionals don’t particularly value, but more established professionals do – maybe a subscription to a particular publication, for example. Remove this from the lower priced offering (or add it to the higher priced offering) to adjust value in accordance with the price variation.
5. I’m currently working on an e-learning program on creativity. I’m a little baffled as how to price my program, especially since there is so much “free” info on the Internet regarding my topic.
The short answer is that you will have to be willing to experiment some to determine the right price – or prices – for a new product. Most providers are not starting from a blank slate, however, when they launch something new. In this case, the providers has very strong credentials as well as a very compelling existing portfolio of products. (Most of which, in my opinion, were grossly underpriced relative the value they offered.)
This is the model situation for analyzing your overall product portfolio using the Value Ramp (see this post on the Value Ramp for an overview and possibly this one on pricing education product with value in mind).
Plot out your products on the ramp from lower to higher value. Along the way, consider whether you might need to adjust price on some of them (in this case, think some of the existing products are very high value and should be priced higher). Then, consider where your e-learning courses fits in the spectrum of value you have created. That will give you an initial perspective on how to price it.
Then, experiment with it. Assuming you have contact information (e.g., an e-mail list) make an initial value added offer to your best customers – e.g., the course plus maybe a live, group Q&A call with you/a subject matter expert, or something along those lines. See what kind of response you get, and use that feedback to help you set pricing for your broader customer base.
6. Going from free to paid, we saw a 40% drop in enrollment in the first year, but as we are coming up to the close of the 2nd year, we’re recovering well and are at about 80% of enrollment compared to when we were free. We anticipate in the next year, we’ll probably be back at the levels we were before we had started charging, but are worried about how a price increase might impact that.
[First, note that this organization was able to make the shift from free to paid – a shift that many organizations fear, but that can and does happen successfully all the time.]
A key issue in this case was that the organization was putting too many hours into each learning experience (more than 20 hours in most cases). There is always an upper threshold beyond which it is difficult to price, regardless of how many hours of content or credit are in it. In these cases, consider breaking your content into smaller chunks, if at all possible. It is very often the case that you can, for example, charge 1..5 * $X a piece for two 10-hour segments, for example, rather than 2 * $X for one 20-hour course. Your market may actually perceive this as a price reduction.
In any event, do anything you can to not tie your pricing directly to the amount of credit or the number of hours offered. This puts you in the commodity market. Credit is credit: there really is no way to distinguish between a unit of credit earned with you versus one earned somewhere else.
7. I’m curious if you’ve run into situations where popular courses subsidize less popular ones in cost. Our goal is to improve cancer care, not maximize revenue, so we want to make sure the decisions we make still support less popular courses about psychosocial aspects, even though enrollment for those is lower and they are not the big revenue generators.
In the nonprofit market, in particular, we see it all the time – organizations have to support their missions, and sometimes there are parts of their missions that simply are not going to break even, much less be profitable. That said, we still encourage clients to do everything they can to make each product self-sustaining.
8. We are also thinking of pricing things based on the nature of the course, rather than the learning hours and credit value, i.e. – workshop vs online facilitated vs online self-directed nature of the course, with workshops and online facilitated being most expensive and self-directed being cheaper. The challenge is some of our self-directed offerings are the most popular
We strongly advocate this approach (see response to #6 above) as it takes you toward marketing and selling based on value. In this case, the organization might consider keeping your self-directed at the same level and charging significantly more for the higher value offerings. Be sure to emphasize what actually makes these other offerings higher value. It’s not a matter of the format; it’s a matter of what the format may make possible, like greater interaction, a more personalized experience, etc. Over time, higher pricing for these products will create “magnet” effect on your self-directed offerings, pushing the “reference price” of customers up and allowing price increases across the product portfolio. (Basically, everything will shift upward on your Value Ramp.)
P.S. – If you are wrestling with questions similar to those above, learning more about marketing and selling education from a value perspective is almost certainly a topic you will want to learn more about. Sign up for the next Webinar in our Leading Learning series -which is about that very topic – at https://attendee.gotowebinar.com/register/8808395821832745218. Thanks to Blue Sky Broadcast for sponsoring the Webinar so we can offer it for free to attendees.