While talking with companies about how to set a price at launch, I frequently hear the following comment, “We need to start high because it’s harder to raise prices than to lower them.” In fact, this comment passes my ears so often it needs addressed.
First, it’s true in some situations. For example, if we have a recurring revenue stream, like DirecTV, nobody complains if we lower our prices (except our shareholders), but try increasing prices and we hear from far too many customers.
However, most markets are not like that. What if our product is such that people buy it once and don’t purchase again for a long time (say more than a year)? Those who purchased at one price may not remember the price they paid when they go to buy it again. But even more important, new buyers typically have no idea that you once offered the product at a lower price.
Customers won’t complain if they never knew about your lower price or if they don’t remember the price they previously paid. In these situations, which are far more common than recurring revenue situations, raising prices after launch is not hard at all. Of course, if you have a big splash product, like the iPhone when it first came out, your prices are reported all over news and many people are watching. Raising prices then is hard.
Now let’s revisit recurring revenue business. When we raise prices, it will likely cause pain with our current customers. However, we don’t have to raise prices on everybody. What if we held the low price for everyone who signed up early, but raised prices for new customers. New customers rarely know there used to be a lower price. Even if they do, they are typically forgiving because they didn’t sign up earlier when those rates were available.
This is not an argument for pricing low at launch. In general I’m a huge fan of higher prices. However, this is an argument for not over-emphasizing the difficulty of raising prices later. You want to be forward thinking in your launch pricing decisions, just don’t limit your possibilities.