How To Run Pricing Experiments

Price testing helps businesses find the best price for their products. By experimenting with different prices, companies can learn how pricing affects sales and customer behavior. This guide covers everything you need to know about price testing, from strategies to real-world examples.

Key Takeaways

• Price testing is essential for optimizing revenue through strategic experimentation with various pricing strategies based on market demand and customer behavior.
• Businesses can utilize four main pricing types: value-based, cost-plus, competitive, and dynamic pricing, each serving specific market needs and aligning with consumer perceptions.
• Ethical and legal considerations in price testing, including transparency and fairness, are crucial to maintain consumer trust and comply with regulations such as the Sherman Antitrust Act and GDPR.

What is a Pricing Experiment?

A pricing experiment is a form of market research aimed at uncovering new strategies or using old strategies and methods to determine how to price your products and services to increase sales and drive conversion for your business.

If businesses can apply the JTBD framework to their customer, they can easily understand the emotional, functional, and social needs their customers are trying to meet when purchasing a product. This can be powerful in helping businesses know the best pricing strategy to boost conversion rates and maximize profits.

Why are Pricing Experiments Important?

Conducting a pricing experiment can be challenging; however, if successful, here are the benefits:

• Pricing experiments help you choose prices that maximize your profit.
• Pricing experiments enable you to preserve your perceived brand value.
• Pricing experiments allow you to find a way to get the monetary value of your products.
• Pricing experiments can help you attract new customers
• It influences market demands for your products and services by helping you understand customer behavior to prices

The Four Types of Pricing?

Grasping the variety of pricing strategies is essential for businesses aiming to refine their product pricing. The primary types of pricing strategy are:

• Value-based
• Cost-plus
• Competitive
• Dynamic

Value-based approaches involve setting prices grounded on the perceived value that customers attribute to a product, as opposed to merely its production cost. This method demands an intricate understanding of customer willingness to pay and their perception of the product or service’s worth.

Conversely, cost-plus pricing establishes selling prices by appending a predetermined markup percentage over the production costs. It is a straightforward tactic ensuring coverage of all expenses while yielding a steady profit margin.

Competitive pricing dictates that prices are influenced by competitor strategies in order to appeal to those sensitive about price points and potentially offer lower prices than rivals. Companies also use this approach when determining how they will position themselves within the marketplace based on current standards for similar products or services.

Dynamic Pricing shifts according to real-time market variables like changes in demand or movements in competitor and software prices. Employing this dynamic strategy allows companies flexibility, enabling them to adjust swiftly with evolving markets for optimal revenue outcomes.

Incorporating these varied methods into business models supports alignment between company offerings and both market benchmarks as well as consumer expectations levels.

Before running pricing experiments, it’s important to understand the key factors influencing pricing decisions. The 5 Cs of pricing provide a structured approach to experimenting with pricing effectively.  These 5 Cs are cost, customer, competition, channel, and compliance. 

How to Conduct Effective Price Tests

Carrying out a pricing experiment necessitates meticulous planning and implementation. Essential steps include establishing objectives, choosing the target audience, and deciding on the specific pricing strategy to evaluate. Definitive targets and a comparison group are essential for gauging the effects of different price points.

Prior to initiating a pricing trial, companies should:

• Identify their desired outcomes
• Elect the product category of interest
• Pinpoint which particular product or service will undergo testing
• Choose an appropriate methodology for conducting the pricing investigation

It is important that selected metrics and variables correspond with larger business goals. Minor adjustments in prices can have profound implications on consumer choices and company earnings, underscoring the importance of exactitude and detailed examination.

The assessment of test results is critical for determining how effective different price points were during experimentation. Through systematic exploration of varying prices, valuable insights into customer behavior patterns emerge. These evidence-based findings assist businesses in refining their overall pricing strategies so they might secure optimal results.

Setting Clear Objectives

Before conducting a price test, it’s vital to define specific objectives, which simplifies the process of making choices and structuring the test. To devise pricing strategies that are successful, extensive market research is required to grasp consumer inclinations and their willingness to spend money. This insight plays a pivotal role in enabling effective decisions regarding pricing that match with the aims of the business.

It is essential for justifying elevated prices by effectively communicating what sets your product or service apart from others. Companies such as Apple, Netflix, and Starbucks have become adept at highlighting their distinctive value offerings, permitting them to set higher price points confidently. Having definite objectives in place ensures that any tests on pricing remain consistent with both these unique value propositions and overall business ambitions.

Selecting Price Points

Determining the appropriate price points is an essential element of any pricing strategy. When considering these, it’s important to factor in elements such as demand levels, how sensitive customers are to price changes, and strategies for maximizing profits. It’s also crucial to comprehend the perceived value of your product or service within its market in order to establish feasible prices.

Observation of competitor pricing constitutes another vital aspect. Points that warrant attention include:

• Examining how competitors set their prices can help decipher standard pricing structures which customers might already be familiar with.
• Presenting a range of different pricing options may steer consumer decisions towards a mid-range option by offering choice.
• Conducting customer surveys on payment willingness and prioritized features provides valuable insights into setting effective price points.

Experimentation with distinct price points can profoundly influence sales volumes. For instance, lowering your prices could potentially increase overall sales despite reduced profit margins per item sold. Creating various tiers of pricing allows you cater to diverse segments within the market while fine-tuning your product offerings accordingly. The goal here is pinpointing the optimal price that not only drives maximum revenue but also effectively converts prospects into buyers.

Measuring Results

Conducting a pricing experiment necessitates monitoring key indicators such as conversion rates, the average value of orders placed, and total sales. The most critical measure to concentrate on is overall revenue. It offers a more comprehensive understanding of financial success than merely looking at the conversion rate.

Leveraging analytics platforms like Google Analytics, Omniture SiteCatalyst, or bespoke internal dashboards can facilitate tracking revenue throughout various pricing tests. Observing user behavior when different prices are tested aids in discerning customer price sensitivity and preferences for certain price points. These analytics tools can help identify an increase in conversions that occurs simultaneously with a decrease in average revenue per user (ARPU), indicating customers’ preference for options at lower price points. Insights into how customers respond to varied pricing strategies may be gleaned by analyzing interactions with the pricing page.

Through systematic evaluation of diverse price levels, significant knowledge about customer conduct and preferences can be uncovered. Utilizing this information enables fine-tuning of different pricing tactics to maximize effectiveness and enhance both consumer response rates and overall sales outcomes.

Methods of Price Testing

Businesses can employ a variety of price testing methods to identify the most effective price points. Continuous price testing is essential as it enables companies to quickly adjust to fluctuations in the market, ensuring they remain competitive. The practice is pivotal for pinpointing the perfect price point that optimizes both revenues and profit margins.

Simultaneously experimenting with various pricing strategies allows businesses to discern the specific influence of each approach and ascertain which mixtures produce maximum revenue or enhance profit margins. There are three principal techniques used for this purpose: A/B Testing, Split Testing, and Dynamic Pricing.

A/B Testing

A/B testing is a strategy that compares different prices to determine which one yields the most favorable outcomes. This technique is both legal and effective when carried out in compliance with local laws and regulations. A vital part of conducting an A/B test involves varying only a single element or variable at any given time, enabling clear insights into what influences pricing.

To pinpoint the optimal price point for revenue maximization, it’s crucial to iterate based on testing results. Nevertheless, obtaining results that demonstrate statistical significance can be difficult and might require substantial time investment. Simplifying customer segmentation as much as possible and establishing distinct goals prior to initiating tests involving sample sizes are important steps.

Rather than experimenting with pricing on identical products, applying various prices across multiple items typically poses fewer risks during price evaluations. The use of specialized tools and automated systems can improve the effectiveness of these tests significantly. Still, companies must remain mindful about potential pitfalls such as alienating customers or harming their brand image through inappropriate pricing strategies.

Split Testing

Split testing involves dividing the audience into control and test groups to evaluate different pricing strategies. This method allows for a direct comparison between an original pricing strategy and a new variation. Key pricing elements to identify for testing include the actual price point, discount offers, and bundling options.

Split testing can help optimize pricing for seasonal sales by identifying effective prices for promotions. Adjusting surge prices during a split test can help manage stock levels and avoid stockouts.

In clearance sales, precise discount percentages and shorter discount durations should be tested to maximize effectiveness.

Dynamic Pricing

Dynamic pricing is a strategy that modifies prices in real time, taking into account factors such as:

• Current demand
• Available inventory levels
• Competitor pricing
• Distinct customer groups

Employing this approach helps optimize the potential for revenue and align with fluctuating customer demands. Notably, companies like Amazon implement dynamic pricing strategies within their online stores.

A prime example of dynamic pricing in action is seen with ride-sharing services. These companies dynamically adjust their fares according to ongoing supply and demand conditions. This method empowers businesses to fine-tune earnings by reacting swiftly to immediate market dynamics such as consumer activity and purchasing trends.

The efficiency of dynamic pricing lies in its ability to maximize profit margins while adjusting seamlessly to shifts in the marketplace. By continuously modifying prices based on up-to-the-minute information, enterprises can stay ahead in a competitive landscape and satisfy evolving consumer expectations.

When To Run Pricing Experiments

Now that you know all about price experimentation and its importance, you are eager to start running one, but you don’t know the best time to run an experiment.

This section will discuss when running pricing experiments can benefit your business.

1. During sales or discounts

When you have upcoming or ongoing sales and discounts can be a great time to run pricing experiments.

2. When you have a new product

Introducing a new product to the market can be challenging, especially if it’s different from what your customers are used to. Running a pricing experiment at this time can help you determine the right value for your new product.

3. When sales are low

If there’s a general downtrend in sales, it might be a good time to run a price testing experiment to see how altering your price points can boost sales.

Additionally, understanding customer behavior during low sales periods can help adjust pricing strategies to meet demand without reducing perceived value.

4. When you want to increase product prices

A good time to run pricing experiments is when you want to increase product prices. This helps gauge how existing customers react to the increase and whether adjustments are needed to maintain customer loyalty.

Testing different price points allows you to optimize revenue while minimizing customer churn due to price sensitivity.

Pricing Experiments: Testing Strategies to Maximize Revenue

Previous studies have shown that the prices of products are influenced by factors like supply, demand, cost of production, policies, competition, economic conditions, consumers, etc.

Since consumers play a significant role in pricing, much research has focused on understanding how consumer behavior can be influenced to ensure that their purchasing decisions are swayed based on pricing.

Below are key pricing strategies that are commonly tested in pricing experiments to measure their effectiveness.

1. Comparative Pricing: Does Offering Multiple Choices Drive Higher Conversions?

Customers don’t evaluate prices in isolation—they compare. Comparative pricing plays on this by showing multiple price points side by side to shape perceived value. But does offering more options lead to better results? That’s what businesses test.

How the Experiment Works:

Instead of showing a single price, companies test variations like:

• Two-tier pricing vs. three-tier pricing
• Adding a “Most Popular” label to nudge customers toward a specific option
• Testing whether placing the highest-priced plan on the left or right of a pricing table influences choices

What You Can Learn:

Consumers often assume that higher-priced options offer better quality, but there’s a tipping point where too many choices create decision paralysis instead of driving upgrades.

A well-structured pricing experiment can determine if offering multiple options increases average order value or if a simpler, more focused pricing model works better.

Netflix, for example, presents three subscription tiers, subtly steering users toward the middle option by balancing price and perceived value.

2. Competitive Pricing: Can You Win More Customers Without a Price War?

Adjusting prices based on competitors’ pricing sounds logical, but it’s not always the best move. Lowering prices to match a competitor may increase sales, but at what cost? Competitive pricing experiments help businesses find the right balance between staying competitive and maintaining profitability.

How the Experiment Works:

Businesses run tests like:

• Keeping prices slightly above competitors while highlighting added value (faster shipping, better support, etc.)
• Matching competitor pricing and tracking whether it increases conversions or lowers profit margins.
• Pricing slightly below competitors and analyzing whether volume increases to compensate for thinner margins

What You Can Learn:

Not all customers chase the lowest price. Some prioritize service, brand trust, or product quality. A well-run pricing experiment helps you discover if lowering prices actually drives more sales or if positioning your product as premium (even with a slightly higher price) attracts a more loyal customer base.

If competitors drop prices aggressively, testing price anchoring alongside competitive pricing can help maintain perceived value instead of getting caught in a race to the bottom.

3. Item Bundling

Some businesses rely on individual product sales, while others bundle related items to encourage larger purchases. But does bundling actually boost revenue, or does it just shift customer spending without increasing total sales?

How the Experiment Works:

• Offering a bundle discount and testing whether it increases total revenue vs. selling items separately
• Testing different bundle combinations (e.g., high-margin vs. low-margin products together)
• Offering a customizable bundle and seeing if giving customers choice increases perceived value

What You Can Learn:

Bundling works in two ways: it increases perceived savings and reduces decision fatigue. Customers might hesitate to buy a $20 phone case, but if it’s included in a bundle with a $200 phone, they may see it as a better deal and justify the purchase.

However, not all bundles work. Some might lead customers to spend the same amount but shift purchases from individual items to bundles. That’s why testing different bundle structures can help businesses maximize profit per transaction rather than just pushing more units.

4. Charm Pricing: Does Ending Prices in .99 Work?

For decades, retailers have priced items at $9.99 instead of $10 based on the idea that customers focus more on the leftmost digit than the actual price. But does this strategy still hold up, especially in high-ticket or premium markets?

How the Experiment Works:

• Testing $99.99 vs. $100.00 on the same product to see which drives more conversions
• Running experiments in different categories (luxury vs. budget-friendly) to see if rounded pricing feels more premium
• Testing $199 vs. $200 and measuring if the left-digit bias impacts buying decisions

What You Can Learn:

Charm pricing isn’t universally effective. Some customers associate rounded prices with quality and .99 pricing with discounts. For high-end products, dropping the cents entirely (e.g., “$500” instead of “$499.99”) may perform better.

A solid pricing experiment can determine whether charm pricing helps your audience or whether a different psychological pricing approach, like price anchoring, works better.

5. Price Anchoring: Can Displaying a Higher Price First Increase Perceived Value?

When you see a strikethrough price next to a discounted price, that’s price anchoring in action. It sets a reference point so that the final price feels like a deal. But not all price anchoring works the same way, and testing different approaches can reveal what resonates with customers.

How the Experiment Works:

• Displaying the original price first, then the discount price, vs. just showing the lower price
• Testing different anchor price points (e.g., Was $300, Now $150 vs. Was $200, Now $150)
• Running experiments where the anchor price disappears after a few seconds to see if urgency increases conversions

What You Can Learn:

Price anchoring taps into consumer psychology—the more dramatic the discount appears, the more tempting the deal. However, excessive anchoring can backfire if customers feel the original price was artificially inflated.

That’s why testing multiple anchor points can help businesses find the right balance between legitimate discounts and perceived value.

In this scenario, $80 is a much lower price than $195, which is the reference point (anchor). Therefore, customers feel they are getting the product at a great price and saving $115.

6. Cost-plus pricing

This can be a good pricing strategy if you are involved in manufacturing your products.

Cost-plus pricing, also known as markup pricing, considers the cost of the product and adds a fixed percentage (markup) on top to get the product’s final price. The added percentage is usually the profit the business desires to make on the product.

This can be a good pricing strategy if you are involved in manufacturing your products.

Cost-plus pricing, also known as markup pricing, considers the cost of the product and adds a fixed percentage (markup) on top to get the product’s final price. The added percentage is usually the profit the business desires to make on the product.

Legal and Ethical Considerations in Price Testing

Navigating the legal landscape of price testing is essential to avoid lawsuits and ensure compliance. In the European Union, for example, price discrimination based on nationality is prohibited, requiring fair pricing for all consumers within its member states. In the United States, price discrimination can be legal as long as it is based on market conditions and does not target protected groups.

The Sherman Antitrust Act and its amendments regulate against monopolistic practices and unfair price discrimination. Businesses must be aware of these regulations to avoid legal pitfalls. Ethically, price testing should prioritize user fairness and avoid manipulative practices that exploit consumer data. Transparency in how data is used is crucial, especially under laws like GDPR.

While price testing is generally legal, it may lead to negative perceptions of fairness among consumers. A major ethical concern is the unfairness introduced by varying prices for different customers. Businesses must balance the benefits of price testing with the need to maintain consumer trust and perceived fairness.

Final Thoughts

Pricing will determine whether or not your business will still be around in the next couple of weeks, months, or years. Thumbs up if you find the perfect price points for your products without much hassle. However, this article is for you; if you are still struggling to find the best price points for your products, this article is for you.

This article describes many pricing strategies you can implement when experimenting with prices. Of course, you don’t have to stick to one strategy at a time while experimenting because the best results could be from a combination of multiple strategies.

Pricing Experiments FAQs