Time and Price Sensitivities
Everybody is different. So are their Price Sensitivities
Probability Pricing allows store owners to charge different prices to different customers depending on their willingness to pay.
Customers who are more price sensitive will play longer in order to receive a higher discount. Because they are provided the possibility of earning a higher discount, they get converted into sales.
Customers who are less price sensitive will play less and purchase your product at a lower discount, thus giving you higher margins.
Very Price Sensitive:
Jane is a struggling actor who lives on a tight budget, most of which goes to pay her L.A. rent.
Jim is a family man who lives in the Midwest and mows his lawn every weekend.
Not Price Sensitive:
Chad works at a hedge fund and owns a second home. He doesn't have time for discounts.
Fixed Discounts Lose you Money
With a fixed discount, every customer, regardless of their price sensitivity, will pay the same price.
Probability Pricing, however, reveals the minimum discount each customer would need to purchase a product.
You increase margins with less price sensitive customers by offering smaller discounts.
You improve conversions by offering higher discounts to more price sensitive customers.
Up here are all the customers who left your store and went to Amazon because your discount was not high enough.
Down here are all the customers who would have paid more but didn't. That's money down the drain.
This graph shows a one-size-fits all pricing strategy that guarantees losses.
Using Time to Unlock Price Sensitivities
With Probability Pricing, each customer independently determines how much time they want to play the game.
Less price sensitive customers spend less time and purchase at lower discounts (which means higher margins for you).
More price sensitive customers play longer. They will only make a purchase if offered a higher discount (which means more conversions for you).
More price sensitive customers (who would have left your store) get higher discounts and are thus converted.
Less price sensitive customers get smaller discounts and improve your margins.