Simple pricing sells

By: Mark Stiving

Date: 28 July 2011

Simple pricing sellsThe New York Times recently announced its new pricing strategy. Several people have pointed out that it is way too complex for mere mortals to understand. And when pricing is complicated for customers to understand they are less likely to purchase. A great example of a company committed to simple pricing, meanwhile, is Apple.

However, this does not mean that you should not segment on pricing. Let me rewrite that sentence without the double negative. You should still segment on pricing. The lesson from the New York Times and Apple is that we want to present simple pricing to our customers. When customers see simple pricing they are more likely to make a decision, resulting in a sale. When they see complex pricing they are less likely to make a decision, meaning no sale. However, presenting simple prices and price segmentation are not mutually exclusive.

Even though Apple's pricing appears simple, they are still segmenting. Apple is clearly segmenting on price using the versioning technique. They may also be segmenting in ways we don't see. Are they offering bulk purchases to some companies at discounted prices? Are they offering lower (or higher) prices in other regions of the world?

Think about shopping for something on Amazon's website. What you see is the item and a price. It looks very simple. Amazon may have extremely complex algorithms that look at their customer's purchase history, their postcode, maybe even the credit limit on their credit card to determine what price to charge each customer, but in the end Amazon shows only one price to their customer. Complex segmentation; simple price presentation.

The New York Times seems to have violated this keep it simple stupid (KISS) rule for their pricing. The lesson we should learn is that we need to follow KISS when presenting prices to our customers. But don't take the wrong lesson. Continue to segment on price.

Mark Stiving, Ph.D. is a pricing strategist, runs Pragmatic Pricing and is author of Impact Pricing (due out Autumn 2011).