By Mary Jaksch
One of the best ways to create an income from your blog is to create your own digital products, like eBooks, software, online courses, podcasts, or videos. The great thing about digital products is that – once they’ve been created - production and distribution costs are near zero.
If you’ve ever created a digital product, you’ll know that its a labor of blood, sweat, and swears. Not only do you have to imagine it, create it, and launch it – you also have to come up with a price.
So, what’s an appropriate price for your product?
You’re in the dark, right? The strange thing is that not only are you in the dark, your potential costumers likewise don’t know what your product is worth. (Unless you give them a context, as I explain further down).
As Oliver Reichenstein says in his article The Value of information
We have difficulties spending money for digital information because at the end of the transaction we neither save time nor do we hold anything concrete or limited in our hands. It feels like buying air.
.
‘But’, you may want to whine, ‘I worked so hard to produce it!’ Well, the truth is: nobody cares a flying fig how much time you put into creating your masterpiece.
How to create a price context
As Dan Ariely – Professor of Psychology and Behavioral Economics – point out in this book Predictably Irrational, there is a fundamental economic truth: most people need to see a product in context to get a sense of its value.
In order to select a possible price point, you need to see create a context – both for yourself and for your client. To find out more about pricing context, let’s look at the restaurant business for some answers.
Why top restaurants use decoy pricing
Top restaurants and their menu consultants have mastered the art of creating a context for their costumers, based on a simple fact: what humans regard as ‘big’ or ‘small’ is dependent on what we compare it with.
That’s why many top restaurants use ‘decoy pricing’. That is, they’ll place a really expensive item at the top of the menu, so that other dishes look more reasonably priced. Research shows that diners tend to order neither the most nor least expensive items, inclining toward the middle.
7 tips to help you to determine your pricing
Tip #1: Determine the size of your potential market.
You can define your number of potential customers by using a search-based keyword tool such as Google’s Keyword Tool . Find out how many people are searching monthly for the keyword term related to your product.
As a rule of thumb, imagine that your potential customer base is 5% of people searching globally for your keyword each month.
The size of your potential market share has bearing on potential pricing. If your potential costumer base it huge, then you could afford to set a low price point because even a small share of a huge market will give you a good return.
Tip #2: Research your competition and determine your USP
Check out what others are charging for products in your niche. List your information in a spreadsheet for easy reference. What you need to determine is your unique selling proposition (USP). That is, you need to express what makes your product different from others in your field.
Tip # 3: Create multiple price points
As I mentioned above, people find it difficult to compute the value of different options. You can make the decision easier for them by offering multiple price points.
For example, for a product I’m preparing for Goodlife ZEN, I’m going to offer three options:
A) Low-cost (eBook)
B) Mid-price (eBook plus videos, podcasts and workbook)
C) Premium price (eBook, plus videos, workbook and 2 hours of personal coaching).
Research shows that given three choices, people will most often choose the middle option.
If you create multiple price points, make sure the one you actually want to sell is in the middle.
Tip #4: Use decoy pricing
In order to create a context for pricing, it’s a good idea to include a premium product – even if nobody buys it.
What this does is to give the buyer a price context. If the premium product is way more expensive, then the cheaper options appear to be a specially good deal.
Another way to use decoy pricing is to create a no-brainer deal. Let’s say you have three price brackets, A, B, and C. If you want to sell more of B, then use a price point that’s close to A. Take a look at how that would play out if you want to sell an eBook plus upgrades:
Product A – Platinum option: eBook, videos, podcasts, bonus workbook PLUS 2 hours of personal mentoring for $277
Product B: Gold option: eBook, plus videos and podcasts, as well as a bonus workbook for $29
Product C: Silver option: eBook only for $27
In this example, Product C makes B look like a no-brain option because there is hardly any difference in price, but a huge difference in perceived value.
Tip #5: Experiment with prices
On of our students in the A-List Blogger Club, Jules Clancy, who runs a cooking blog recently wrote a fascinating case study about creating a full-time income with her Stonesoup Virtual Cookery School.
She experimented with pricing and came up with some interesting answers. Here is her pricing:
A. $198 – print version of the book, enrollment in the 4 week cooking class and Ebook version
B. $119 – enrollment in the 4 week cooking class and Ebook version of 5 Ingredients 10 Minutes
C. $37 – Ebook version of 5 Ingredients 10 Minutes
Jules says:
When I launched the e-cookbook I had quite a bit of feedback from my readers that $37 was too much for an ebook. So I decided to test whether this was the case and launched the book in a by-the-chapter format for $4.50 each. This way people could pick and choose for a small outlay. I also created a premium version of the book with links to videos of the recipes.
To my surprise this second launch actually boosted sales of the middle option, the ebook for $37 with a few sales of the premium version and the by-the-chapter offering selling only about half the number of units as the standard.
What you can see in action here is the value of giving costumers a context. When she relaunched, Jules framed her preferred product with two other decoy options.
Price experiments are important because they can give you hard data on which to base your price decisions.
Tip #6: Bundle your products
Once you’ve created a digital product, the cost of production and delivery is exactly zilch. One of the ways to leverage this, is to bundle your main product with others in order to make it more attractive.
In fact you can give away older product as bonuses. Just make sure you tell people how much each item is worth, so that you can tell people what they’re saving through buying the bundle of products.
Tip #7 Use under-the-radar pricing
Some marketers believe that sucking a high price out of their thumb and sticking it onto their product will make people think it’s valuable.
There are quite a few courses out there that have a price-tag that’s somewhere in the 2k range. The thinking behind setting a high price is that if you tell people something is valuable, they will believe you and fall over themselves to buy it.
I don’t think it works quite like that.
I’ve spend that kind of money on two courses, Teaching Sells, created by Brian Clark and Sonia Simone, and Product Launch Formula by Jeff Walker. In both cases I was confident I would earn the money back through the training provided. I was right.
My point is that high price points only work if the creator can show convincingly that the skill learned will allow the participant to earn the fee back quickly.
I prefer under-the-radar pricing. This works especially well for membership programs. For example, Leo Babauta and I have kept to a price of $20 for membership of the A-List Blogger Club – even though members regularly tell us to increase it. As one member said, “To pay only $20 a month is to smuggle yourself into a goldmine.” The reason this particular price point works is because it’s under-the-radar. As a blogger who commented on my guest post on Problogger How to Create a Membership Program that Rocks, said:
Using the A-List Blogger Club as an example: $20 per month can easily be seen as a worthwhile investment. It can be rationalized as a legitimate running expense for a blog.
Why zero is an expensive price option.
What about offering something for free as a taster? It seems like a great idea. But there is a flaw. As Dan Ariely said in an interview with Stu McLaren: Zero is such a tempting price, it’s very hard to escape. Once you start offering things for free, it’s very hard to get out of it.
Leo Babauta and I have tried zero pricing (because it feels so nice to offer it). We offered the first week of our last six-week A-List Blogging Bootcamp for free. Over 1,500 people piled in to our program. But the final conversion wasn’t worth the sleepless nights that the huge amount of extra work demanded.
A more elegant way to use the allure of FREE is to offer bonuses in addition to your product.
Is the freemium model doomed?
A pricing model that’s gaining attraction – but not traction – is freemium. It means offering a basic product for free. But you offer a premium version that people pay for. Some blogs and other online media are heading that way.
It’s a nice idea but it has one basic problem: FREE is so attractive to people that the chances of moving them to a paid model is very low. Two years ago an article in Mashable described freemium as one of 5 Business Models for Social Media Startups. But in these last two years the great freemium revolution hasn’t really happened. Lately the discussion has hotted up and bloggers are wondering whether The Future of Blogs is Paid Access.
So, what’s the take-home lesson here?
When we set prices, we usually work from the premise that people make rational decisions. We imagine that a prospective buyer makes an informed decision, motivated by an accurate idea of the value of your product.
In fact, what happens it that our decisions are mostly irrational. As Dan Ariely points out, the forces that shape our buying behavior are emotions, social norms, and relativity. Once you understand how the mind works when faced with buying decisions, you can shape your pricing accordingly.
If you want to sell a product at a particular price, create a context that gives your prospective customers an idea of the price ‘landscape’. Offer them different versions and upgrades of your main product so that they can see your pricing in context.
But no matter how well you set your prices, ultimately it’s important to create and sell something of real value. Which means that whatever you create has to fill a real need and be insanely useful.
Join Leo Babauta and Mary Jaksch in the A-List Blogger Club. Two of our seven training tracks are related to creating products: Make Your Blog Pay the Bills, and How to Create Products That Sell. In addition, we offer over 400 articles, training videos, and podcasts for all blogger levels. Click below to find out more:
Photo: Elspeth Collier
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