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Price Testing with Google Website Optimizer

Wednesday, February 9, 2011 | 9:49 AM

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Google Analytics Certified Partners play an important role in Asia Pacific’s web analytics ecosystem. They are the Google Analytics implementation and reporting experts, and they partner closely with organisations to help them achieve their web analytics goals. Over the course of this year we are delighted to showcase a series of articles contributed by our valued Google Analytics Certified Partners.

Rachit Dayal is the Principal Consultant at Happy Marketer Singapore and manages projects involving Google Analytics for enterprises and small and medium businesses across Asia-Pacific. This article is an abridged version of a live presentation given at the Google Analytics Master Class 2010 in Singapore and Kuala Lumpur. You can view a video of this presentation. - Ed.

One of the biggest dilemmas businesses struggle with is pricing. Most businesses work hard to find that perfect price - a value that balances demand and maximises revenue. In fact, ever since the prehistoric trader wondered how many pails of grain he had to give away for a sheep, finding the perfect price point has been the holy grail of sales and marketing.

Large companies rely on expensive market and consumer research, strategy analysis, and price testing to arrive at the right price point for their products. Small and medium sized businesses, which are often strapped for time and money, don’t have access to the same expensive studies. That’s where free online tools, like Google Website Optimizer, can help. Google Website Optimizer is a free tool that allows you to test variations of your website to boost traffic and purchases.

With this tool, we’ve developed an easy way to test different prices for your product online. To explain how this works, I’m going to walk you through an example from a company we worked with called Genometri in Singapore.

Online Price Testing Case Study: Genopal
Genometri was looking to launch a software product for graphic designers called Genopal. While the product, which allows designers to manage colour palettes, had received rave reviews from industry experts, Genometri weren’t sure how to price it. As a start-up, they didn’t have the resources of a large company to conduct expensive market research or testing, so they decided to try online price testing with Google Website Optimizer.

Genopal’s website is a standard e-commerce site with a three-step buying process:

  1. A set of descriptive pages that highlight the product’s features
  2. A “Buy Now” page that lists the price and availability
  3. An e-commerce checkout flow that ends on a “Thank You” page

For the test, we modified the price of the product for different users using multivariate testing. On a random basis, different visitors to the site saw three different prices when purchasing the product:
  • S$24.95
  • S$29.95 (original price point)
  • S$39.95
To be fair to all customers, the actual amount charged to them was only S$22.95 regardless of which price they saw initially. Everyone who came to the site during that period got the same low price. Moreover, when they checked out, all customers were informed of this discount and their participation in the test.

After running the experiment for a number of weeks, we measured the conversion rates at these different price points. Google Website Optimizer ensured that returning visitors always saw the same price they had seen on their first visit, so they didn’t see two prices for the same product.

Beyond Numbers - Interpreting The Impact on Profits
Interpreting the result of such a test can be tricky. While Google Website Optimizer does a great job of tracking the number of conversions (such as sales) per price point, it doesn’t measure the actual profit (price of goods minus cost of goods) on the item sale - which is what really matters. We needed to export the results into a spreadsheet, and then factor in costs and margins (net sales minus the cost of goods sold) in order to determine the profit.

For Genopal, here’s what the test results showed:
  • Increasing the price from S$29.95 to S$39.95 resulted in a drastic 90% reduction in sales volume (we had expected a much smaller drop of 40-50%)
  • Decreasing the price from S$29.95 to S$24.95 resulted in an additional 100% increase in sales (2X the sales for a S$5 increase, something we hadn’t expected)
  • At S$24.95, our profit margin increased by 66% (and the sales volume increased by 100%) compared to our initial price of $29.95.
For us, the implications were clear: by reducing the price of the item from S$29.95 to S$24.95, we could increase both sales volumes and profits significantly.

We are often asked if it is worth taking the effort to test prices in this manner. It was for Genopal. Even if we could have squeezed out a 10% increase in profits from getting the price right, that would have been a bonus. Instead, we saw a 100% increase in sales and a 66% increase in profits. While your results may vary, we think it’s an effective way to find that perfect price, which balances customer demand and sales supply. Happy testing!