Jun 20, 2023
CRO Conference Recap: Testing Pricing, Shipping Rates, and Discounts
In case you didn’t have time to tune in to last week’s CRO conference to hear co-founder, Drew Marconi, speak, here are some key takeaways.
The importance of value-based pricing
At Intelligems, we like to think of pricing as a process of continuous optimization. Today, lots of companies are still taking a very scientific approach to pricing: estimating their prices, iterating, and relying on customer feedback to change prices & test new messages.
Intelligems takes the guesswork out of pricing and delivers data-driven insights to help you optimize your profits. At its core, pricing is really just figuring out how much your customers are willing to pay, and then assigning a value to your products. However, there is a lot more that goes into pricing than you might think.
The above e-commerce site mockup has implemented different pricing, shipping, subscription, and discount offers all over their landing page. While it may seem easy enough to implement these options, it's important not to overlook the data that makes them effective.
Why you should be constantly testing prices
Pricing is an extremely powerful tool when done correctly because any gains go straight to your bottom line
If you can believe it, the average brand that is not regularly testing its prices is leaving over 5% of incremental profit on the table
Intelligems sees the value in experimentation and making data-driven decisions, and we have run over 700 AB tests that have unlocked 130M+ in incremental annual profit
Addressing common fears
People are often worried about changing prices for fear of losing customers
What they don’t understand is that most companies can often handle a lot more impact to demand (leading to increased profits) than they think
When you are conducting a price test it's essential to look at revenue per visitor – which is often more important looking at than your conversion rate
Once you find the right balance of AOV and conversion rate, you don’t need to worry about losing customers (at Intelligems we tend to understand profit - or gross margin - per site visitor as an even better metric)
Product Price Testing - A/B testing your prices is the best way to ensure that you are optimizing your profits. If you're looking looking for a way to start enhancing your business, experimentation through these tests is the right way to begin.
1. Test at a collection level or at hero SKU
a. Let's say you run a clothing brand. When you first test your prices, never do so for a single product, as this could lead customers to other similar products you offer and skew your data – this is known as the substitution effect. Instead, test a collection of things. In this case, try testing the prices on pants or shirts.
b. Test three groups to start - this is known as a straddle test. We recommend pricing one group higher, one lower, and one control. This is an optimal strategy to see how your customers react because it lets you better understand your price elasticity.
c. In terms of magnitude, it's worth taking some swings. We usually advise making changes around 10% - big enough to make an impact, but not so large that it could seriously affect your spot in the market.
2. Iterate based on initial results
a. Say your 10% higher group worked really well - now you can move into 5% higher or 15% higher to find your sweet spot
b. Also, try testing bundles/multipacks/ discounts, etc.
3. Dial in on the details
a. What do your customers prefer?
b. Do they like seeing prices listed as $99, $99.00, or $99.95?
c. Should you show a comparison price?
Shipping Rate Testing - Once you've begun the process of fine-tuning your product prices, the next step is to optimize your shipping rates. Finding the right balance between product price and shipping cost is a critical part of price optimization as it allows you to get a better understanding of your customers.
Decide on your rate structure
a. Free shipping?
b. Free shipping over a certain threshold?
c. Everyone pays?
1. Once you decide on a structure, test
a. If you offer free shipping on orders, try implementing a threshold (we recommend starting right around/above your AOV)
b. If you already have a threshold implemented, try testing higher and lower ones. Or test the rate charged when customers are below the threshold.
2. Again, dial in on the details
a. Rate names: test copy/shipping speed promised at checkout
b. Premium offers: test rates of premium shipping options (like tracked, express, or safe/secure shipping guaranteed
c. Combination testing: test increasing prices and include free shipping vs. lowering prices with paid shipping
d. This step is all about what your customers want and feel is worth paying for, which is why experimentation is critical
Discount Testing - Price optimization doesn't end with product price and shipping rate tests. Discounts are a powerful tool when used correctly and are informed by data. By implementing strategic discounts, you can unlock a great deal of additional profit.
1. When you run a campaign, hold back 10-15% of traffic. This lets you:
a. Measure the difference between the audience who received the discount and the audience who did no
b. Track how much extra conversion, revenue, and margin you gain from the group that received the discount
c. See if the discount is effective - or if you gave away profits for no reason, don't get stuck in the discount hole!
2. Volume discounts
a. Set up different tiers
b. Help boost your AOV
c. Play around and implement progress bars and other merchandising
d. Since people have to "earn" their discounts, this keeps your brand intact
3. Gift with purchase
a. Try different thresholds or gifts
b. You are in control! Opt for a cheaper product, one you have too much stock of, or even one you want customers to come back and order in full size
4. Iterate, iterate, iterate!
a. What works for your customers?
b. Percent off? Dollars off? Tiered thresholds?
c. This kind of fine-tuning comes with many iterations of tests that help you understand your customers
If you're thinking that any of the above tips might be relevant to your business, go look at your data. What are your most and least profitable customers and orders? How is your gross margin? Which products have the highest and lowest AOV and which have the greatest cart abandonment? How are you presenting pricing and where can you improve it? At Intelligems, we have the most qualified and experienced team of A/B testers, and we are ready to help you optimize your business by maximizing your profits. Start testing today.