The Price of Free - How to approach pricing with new customer acquisition.

Getting new customers to purchase your products is quite a game. There are multiple factors that play a role in whether or not a user is willing to become a customer. Today, we are going to focus on different pricing models and how they can play a role in customer acquisition costs.

When developing a new customer acquisition strategy, the most important variable is going to be price. But what I would argue is it’s not just price - but how you present the price. 

For explanation purposes, we are going to utilize an example of a protein bar variety pack. This specific variety pack was designed explicitly for new customer acquisition and included 12 bars with multiple flavors at an affordable price. The company hoped to generate a revenue of $12 off this variety pack – we helped them consider the multiple ways to present this item to potential new customers:

• Order our variety pack today for $12 shipped! or Get 12 bars for $1 each shipped!  
• Order our $24 variety pack today with 50% OFF + Free Shipping
• Order our FREE variety pack today! Just pay shipping! ($12 for shipping)

Clearly, all three pricing strategies produce the same revenue - $12. But the psychological perspective changes based on what offer you’re providing. 

Order our variety pack today for $12 shipped! Or Get 12 bars for $1 each shipped!  

With this offer, you are being clear and straightforward with your potential customers. There are no gimmicks. They know exactly what they are going to pay. This will allow the customer to immediately decide if the value of your variety pack is greater than $12 to them. If it is, they will buy it. If it isn’t they won’t. 

Order our $24 variety pack today with 50% OFF + Free Shipping

With this offer, you are letting potential customers know that typically this item costs $2 per unit but it currently is priced at 50% off. 30.9% of US online retailers reported that a percentage discount was the most effective form of discounts. (trinity.one) Discount strategies can be a great way to increase the effectiveness of your introductory offers. 

Order our FREE variety pack today! Just pay shipping! ($12 for shipping)

Lastly, with this offer, you are getting the benefit of the term “free”.

In 2013, in celebration of Dubai being announced as the site for the World Expo 2020, Baskin Robbins declared that everyone in the United Arab Emirates could get a free scoop of ice cream. The crowds, as you may expect, were huge. The queues spanned for blocks, with lines for indoor mall outlets spilling outdoors. Why people were willing to withstand these mobs for hours just for a $3 scoop of ice cream? Why are we so drawn to free things? This irrational urge towards getting free stuff is called the zero price effect.

The zero price effect is the principle that items with a price of zero are not accounted for by a linear utility model. In a linear model, a decrease in the price of a good would correspond to a proportional increase in utility and demand for the good. With the zero price effect, the increase in demand when the price drops to zero is much higher than at other prices.

In other words: “free goods have extra pulling power.” (thedecisionlab.com)

There is a huge pulling power with the term free and utilizing this could drastically increase the effectiveness of your new customer campaigns, reducing customer acquisition costs. HOWEVER - It is worth noting that there is a significant percentage of customers who may abandon their cart once they find out that the item is not truly free. 

Keep in mind, all of these offers can be supercharged by including phrases such as “for a limited time” or “while supplies last”. Adding urgency to an offer drastically increases the likelihood of a consumer purchasing. 

All of these concepts should be A/B tested to see what works best for your brand. Run three campaigns changing only one variable, the three offers. Be sure to run them for a long enough period to determine their true effectiveness, in my experience, I stick with 90 days minimum. You should after this time period, have a clear leader. 

Now go and grow.

J