Goldilocks and the 3 Price Points

“Only offer three price points.” I imagine you’ve heard this advice many times as well. Customers naturally pick the middle option. It’s just right – not too cold (de-featured and cheap) and not to hot (unnecessary bells & whistles for a lot more $). Earlier this year, we confirmed this marketing maxim – and used it to significantly increase new subscription ARPU (average revenue per user) at Ning.

In July, 2010, we made a major pivot at Ning, moving from a freemium business model to a subscriptions model. We introduced three subscription levels differentiated by features, support level and storage limits. Ning Mini ($2.95/mo.) targeted teachers and families, Ning Plus ($19.95/mo.) was our “best value” plan, and Ning Pro ($49.95/mo.) targeted larger organizations and brands who required deeper integration and customization. The number of customers who migrated from free sites to the new subscription plans exceeded our expectations. We continued to acquire new customers and successfully rolled-out a price increase in July, 2011. By the end of 2011, we were approaching 100,000 subscriptions.

The only problem was ARPU. Our lowest price point was too low – encouraging too many new customers to use Ning Mini ($2.95/mo.) to start out. And the tendency of customers to pick the middle plan resulted in a high percentage of Ning Plus subscriptions at $24.95/mo. Subscriptions were growing but not ARPU.

Early this year, we decided to test a hypothesis – if we made Ning Pro (now $59.95/mo) our middle plan, would more customers choose this higher price point? To test the hypothesis, we relegated Ning Mini to a small link at the bottom of our pricing page. Then we introduced a new Ning VIP plan and positioned it to the right of Ning Pro on the pricing page. Ning VIP has a list price of $1000/mo. and includes a premium SLA and 24/7 IT support.

The results of our test surprised us. We saw an immediate 10 percentage point shift in mix from Ning Mini and Ning Plus to Ning Pro. Moving Ning Pro to the middle price point clearly changed customer preference for this plan! We didn’t sell many Ning VIP subscriptions at $1000/mo., but that wasn’t our main objective. Callers who winced at the high price point could be easily sold on the new mid-priced Ning Pro plan.