Why price elasticity testing is a MUST over the holidays . . .

During the holiday season when retailers are at peak-spends to drive traffic to their websites, squeezing every nickel of profit out of each sale is crucial.

Back in the early days of web marketing (2002 to be exact) we managed website conversion testing for a site called Wholesaler’s Handbook.

The product was aimed at EBAY sellers to provide access to wholesale product sources, and was priced at $49.95.

Around this time we’d begun experimenting with “Price Elasticity Testing”, which was originated by an economist in 1890.

By applying this methodology, we nearly doubled the site’s profit margin in about 2 weeks . . .

Price Elasticity Testing measures the impact of product pricing, on product demand.

For Wholesaler’s Handbook we picked new price points and split test them to see how sales would fluctuate vs. demand:

  • $49.95 – Variable A Control
  • $39.95 – Variable B
  • $19.95 – Variable C
  • $9.95 – Variable D

After ~ 3500 visitors saw each price point, here were the results:

From the above, you can see that there was clearly a lot more demand at the $9.95 price point than the other variables, and it won handily at conversion rate.

But – when you include the “gross profit” column, $19.95 was the clear winner in terms of total sales:

So out of those four price-points, $19.95 drove the highest overall gross profit rate.

Since they ran with primarily fixed CPC costs (oh for the 2002 days of $0.05 a click again!) this was a huge win and was incredibly simple to set up.

Stuff you should begin testing right away . . .

Although many of our clients require more complicated calculations to determine net gains – such as lifetime customer value, or variable product costs – here are a few tests that consistently produce interesting results:

  • Experiment with different pricing for different sources – for one of our clients, the sweet-spot for selling his product to Facebook users is $29.95, but for his Google Adwords traffic he generates the highest profits selling at $34.95. Think switching pricing on your users is is unfair or clumsy? The biggest ecommerce sites in the world have been doing it since the turn of the millennium!
  • Odd numbered pricing – ending your product pricing in odd numbers – particularly 79, 95, & 99 – outperform even numbers. This could mean $29.79, or $279, or even $79 alone. It’s worth testing all three of those iterations.
  • Set an outlier price double the price of your control price point – you know you want to! We’ve actually run tests where doubling the price has doubled conversion rate.
  • Try “two’fer” pricing – as in get 1 for $15, or 2 for $25. This works, sometimes even for eBooks (eg – buy one for a friend).

As always the crucial element is always-be-testing, drop us a line if you’d like to see why our clients call us their secret weapon – we’ll drive up your profits, guaranteed!

We’re looking forward to hearing your feedback about this post – what’s working for you? What’s not?

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