Ask HN: Better deals - ruder customers?

[bilch]

This question was triggered by something http://news.ycombinator.com/user?id=david wrote: "The better deal you offer someone, the more demanding they get and the more they are convinced that you're ripping them off." I keep reading and hearing this.

It might be a) the result of some cognitive bias, i.e. not quite true, or b) the result of your feeling undervalued and underpaid, which in turn makes you more likely to perceive what is actually an usual amount of problems as unusually annoying, or c) true, which raises the question, why?

[SwellJoe]

In my previous company, as it was reaching the end of its life (I was becoming burned out on the idea and the business) I made dramatic price changes over the span of a couple of years. I increased the prices by about 50% every six months, and made minor tweaks to the model lineup to make them more profitable even without the price changes. The result was generally happier, but more demanding, customers. As tptacek mentioned, it was a filter...we got a different kind of customer with the price changes. They were less educated about our products, Linux, and technology in general, but were more enthusiastic about the benefits we provided for them, especially our unlimited technical support. We also made more money; sales volume didn't decline remarkably, but the revenue per unit sold went up. Nonetheless, the hours I had to put in to support those units increased. If I had kept that business running I would have needed to raise prices even more or stop offering unlimited support (making support a paid for option has always seemed somehow wrong, to me, but it works for many enterprise companies).

With Virtualmin, we started out charging 50% the price we knew (and everybody else also knew; it was listed as being "on sale") we would eventually charge. I did find that the number of customers demanding even lower prices dropped to almost nothing when the 50% off discount ended. Those customers simply weren't in our market segment, and went back to second-tier products that cost dramatically less and offer dramatically less capability. And, I suspect, but don't know for sure, that cPanel and Plesk customers became more likely to migrate to Virtualmin after the price increase. But, I believe that has more to do with perception of value in an existing market with existing price expectations, rather than any particular price point.

Anyway, I believe the rule of thumb is roughly true. Cheaper products certainly attract a buyer that has weaker loyalties (as soon as they find a better price, they're gone). They probably are also more demanding.

We have a range of prices from $138 to $998, and I would wager that the $138 buyers are at least twice as likely to ask for support as the $998 buyers. I don't know how to make that more fair for us or the $998 buyer, however, since the pricing is based on usage, and a natural result of using the product more is being more familiar.

The point of all this rambling is that I don't think there are any hard and fast rules, but I do think charging more is worth an experiment for most companies. You can always revert your prices (and refund the "suckers" who bought at the higher prices) if things go badly. At worst, you'll learn that lower prices were a better position for you.

[m_eiman]

Very interesting, and a good lesson for startups.

Paraphrased: if price is your selling point, you're likely to attract customers who care only about price and tell you they want it even cheaper or they'll go somewhere else.

The infamous race to the bottom, which is a place where very few companies thrive.

[tptacek]

Because price is a filter; the more restrictive the filter, the more valuable your product actually is to your customer, and therefore the less likely they are to squander the relationship.

[cperciva]

Also, people who are able to pay more are generally more likely to be mature and good communicators.

This is also a well known phenomenon in the web hosting industry.

[ErrantX]

So true - the other thing is it attracts more serious customers too.

My on-the-side consultancy initially was charging silly low rates to get some custom. It kinda worked but we ended up with demanding customers looking for a good deal at a low rate.

Now we feel established enough to raise rates the customers are a LOT better and the sites are rolling out a lot more smoothly all round!

[tallanvor]

In my experience (supporting 3 very different types of products with 3 very different companies), the amount of money a customer pays is somewhat inversely proportional to how demanding they are.

My guess is that companies that pay more for software also tend to hire people to manage and provide tier-1 support for the applications they use. They also tend to take more time making purchases and thus better understand the capabilities and limitations of the software.

That's not to say that large customers (or customers that have paid more money) can't be demanding, but they're usually more understanding and less likely to be unreasonable when they contact us, and have more reasonable expectations around resolution times.

[dcx]

Because if you offer competitive deals, that opens you to market segments who purchase based on price. That often means they are lower income, meaning a lower hourly rate, meaning spending time haggling may be rational for them.

Also low income is correlated with low education/working class demographics, which have associations with being more demanding, rude, etc.

Your situation sounds like consulting/contract work so this is probably quite painful. But it's the right segment to target for mass market and volume products...

[mhmt]

Another point is they think that if one company has a low price on some thing it can go even lower. Furthermore, they think they should get lower prices for all other products, too.