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Dynamic Pricing for Digital Goods
« Previous | Next » Wednesday, November 18 th, 2009

We decided to sell the WordPress template of our own site. The problem we had to solve
was not “why?” than “how much”? After a long back and forth we decided to try
something new: Dynamic pricing. Here is how it works: Start selling at the lowest price
you’d go for. If sales increase at a steady clip, the price goes up. If you find sales slowing,
bring the price down. Smart or silly? Let’s see.

1. What Digital Goods Can Be Sold?

The fact that you spend time creating and prepping your product for public release is not
enough reason to ask for money. After all there is a lot of free stuff out there that needed
packaging and development. No one really cares how much time you spent creating your
product. You can only sell digital goods that:

1. result in a clear financial profit for your customer

2. save your customer a lot of time or
3. are a lot of fun

In our case 1 and 2 clearly apply; also, after announcing the intention to sell our template
we got quite a few impatient requests (about 30), which is a good sign. The question
remains: How much? So let’s look at the pricing logic…

2. How Much?
The question, ‘How much are people willing to pay?’ is really: ‘How much money are
people ready to risk to potentially make/save more money in return?’ I figured USD
$99.- is a pretty fair price as you’d easily have to pay a 100-fold for a custom WordPress
template of similar quality. But then again, for private use 99.- seemed high.

Comparative Pricing

How much are other comparable WordPress templates? Many are around USD $60.-,
some are higher, but few are made by known web designers with a track record. In other
words, few come with a sweet brand.

Common wisdom is to add features and price it close to a similar product. For software
this translates into: Make it easier to use and price it close to a similar
product. Close means: Find a psychologically more interesting number.

Innovate

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iA » Dynamic Pricing for Digital Goods http://informationarchitects.jp/dynamic-pricing-for-digital-goods/

What if we simply admit that we don’t know how much? Given that the demand-supply
logic doesn’t work for digital goods, what about a new pricing model, where demand
literally dictates price?

3. Dynamic Pricing!
I figured that I should sell the template at maximum profitability, which means: sell as
many as possible at as a high a price as possible. Maybe the right price is three
Dollars, maybe it’s 600. If I sell 10,000 at USD $3.- per a month it’s way better than
selling 10 at USD $99.- Where is the sweet spot? Let’s look at some parameters:

1. Given that the digital products have almost no marginal (distribution or packaging)
costs, we should aim for a big number.
2. Apparently, the rule of thumb for online sales is that 5% of your online visitors can be
turned over if you have a really sweet offer.
3. Given that we have roughly 5,000 visitors on our site per day, and we put the sales
button on every page, the maximum we’d sell is 250 packages a day.

I’m sure that we could get 25 per day if we offered it for free. But this is not about
marketing iA, but finding a new way to sell digital goods. Hm… Is there a way to test the
price? What if…

1. We start selling it at 33 Dollars. The lowest price we’d go for right now.
2. If sales increase at a steady clip, the price will go up.
3. If we find sales slowing, we bring the price down.

So here you go: Dynamic pricing. Might be the most ridiculous idea in the history of
e-commerce. I’m also pretty sure someone tried this before. But I couldn’t find any
reference to this kind of model, so far. Even if there were any references, I want to see
with my own eyes how this plays out. If you’re interested, here is more information on
the iA³ template.

iA3 WordPress Theme

The iA3 WordPress Theme
Available Qty: 85

Price: $39.00

Add to Cart

4. What about Losing Uniqueness?

Oh and what about losing the uniqueness of iA’s design by giving our own design away?
Think about it. Visual uniqueness is overrated. And if you use our template: We’re
the original, you’re the copy. As long as you don’t act like us, pay for your copy and
acknowledge that we’re the author I have no problem whatsoever with spreading good
web design.

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