The Value Anchor

What's the "right price" for your product or service?

It's a simple question, but it doesn't have a simple answer.

Do you charge "as much as the market will bear", a line you may remember from your introductory economics class?

That sounds reasonable. But how do you know "what the market will bear"?

Knowing that requires not only a very clear definition of the market you are targeting, but often also an expensive research study or what can turn out to be an even more expensive trial-and-error process.

What if you want to charge MORE than what the market will bear?

Luxury items charge prices that are inaccessible to the masses by design: the exclusivity is the point.

And what if you want to charge LESS than the market will bear?

I remember when my Netflix subscription cost just $7.99 a month (with no ads); these days, my monthly bill is $23.99. More content accounts for much of that increase, but not all of it: the lower initial price was to create demand, develop a loyal audience, put the company in a competitive position to negotiate better content deals, and fend off rivals while the empire was being built. Many people likely would have paid more than $8 a month for Netflix when it was first introduced, but Netflix strategically chose to charge less.

(It was clearly the right decision.)

Grocery stores use the "price less" approach weekly. Those "hot deals" offered at the front of the store and featured prominently on the front of the flyer? Those are "loss leader" products that the store intentionally sells for less than people normally pay, to drive customers to the store hoping they'll buy other (fuller-margin) products while they're there.

A lot of research goes into pricing.

Which is why offers like this one make me want to bang my head on the table:

The problem isn't that this isn't a great introductory offer.

The problem is that it's too great of an introductory offer.

And that's a real pricing problem.

When you offer a subscription for $0.49 per week for the first 24 weeks, you clearly establish what your offering is worth: $0.49 per week. Call it the "value anchor".

And so when the promotional period ends and the price increases to more than 16 times the original amount, no subscriber is likely to think, "I've gotten so much value from this product over these past four weeks that I think a 16x increase is completely fair!"

By the time the introductory period is over, you've already established the value of your product or service with your consumer, and once that happens, your price is essentially fixed.

It's not impossible to increase that "fixed price", as Netflix can confirm.

But the streaming service also offers a lesson on how to do it effectively: they increased prices over a decade, increasing the cost of its service by $1-2 each year while simultaneously adding significantly more content to what that monthly subscription fee allowed consumers to access. It didn't attempt what The Globe & Mail tries to do after their introductory period ends, which is to increase the cost 1,531% overnight.

Admittedly, the offer above is not current. Astute readers may have noticed the "Spring into savings" tagline and correctly surmised as much. You might think, "Perhaps they've learned the folly of their ways, and have fixed their pricing problem?"

Sadly, no. Because this offer showed up in my social media feed just yesterday:

To be fair, this offer only increases your price by 808% after the promotional period ends, which is a notable improvement. But it's still a pricing problem.

And it's one that's entirely avoidable.

(If you have a pricing problem you need to solve, this might help.)