To give you an idea of how powerfully pricing can influence consumer behavior, consider the results of a recent study done by three management professors at Yale. The study gave subjects $1 with which they could either buy one of two packs of gum or keep their money and buy neither. When the researchers priced both packs of gum equally at 63 cents, only 46 percent of subjects made a purchase. By contrast, when they priced the packs of gum at 62 cents and 64 cents respectively, 77 percent of subjects made a purchase.
Clearly, even the slightest variation in price can have a profound impact on sales, which is why more and more companies are trying to take the guesswork out of pricing strategy by split or A/B testing price. Split testing can give businesses insight into what to charge and how to display price by revealing how actual customers respond to different pricing scenarios.
However, the marketing industry remains vehemently divided on the wisdom of split testing price. Some say value-based pricing is impossible without it, while others believe it does more harm than good. Below, we explore the arguments of both sides on the issue. (more…)