This post on Lifehacker got me thinking about an idea I had for a while. The post compares the advantages of bootlegged movies over buying a legit copy. FBI warnings, movie previews, etc that you can’t skip.
It’s so true.
Nothing strikes this notion more than sports gear. A replica NFL jersey (a replica!) costs about $80 ($80!). Knock-offs cost $15-$20.
I bet any amount of money that they would sell more than 100% more if they cut that price in half. They’d probably sell 10x the jerseys if they sliced the price to 1/3.
The demand for the counterfeit gear should sound alarms. Not the counterfeiters fulfilling the demand!
They would not only get more people to buy who would have passed on a jersey all together, but they would put a serious cramp on the counterfeiters. Instead of playing whack-a-mole with Asian importers, they can compete on price. And sell a ton more–not only recapturing lost sales to counterfeiters.
Pricing is a funny thing. I used to work in the casual games industry. The going rate for a game when I started was $19.95. That’s getting up there. This was a free trial model. The conversion rate from free trial to buy was extremely low (a small fraction of a percent low). We ran a test once, and slashed prices in half. We more than doubled sales. More revenue when charging less! hmmmm Still though, I thought there was more room to cut. I thought $4.95 was the magic number. Where there is little or no cost resistance. Almost competing with the cost of a premium cup of coffee. At that rate, I bet there would have been 100x the sales.
I wonder how many companies do a true price sensitivity analysis.
Why punish your best customers?