How the presence of lower priced version affects your profit?

Take a look at these pre-order numbers on Amiigo Fitness band. The product has not launched yet and is a project that is fully funded on Indiegogo.

 

The black version, offered at $99, sold (claimed?) almost seven times as many as the color versions offered at $119.

Can we see this as an indication of the market demand for wearable fitness devices?

Can we conclude $99 is the sweet spot for pricing such devices?

The answers are no and no.

Two data points do not make a valid demand curve. And the fact that this product is now targeted at a very narrow segment that believes in funding such projects on KickStarter or Indiegogo we cannot say they uncovered the right price point.

What we can say however is the effect of lower priced version on the sale of higher priced versions.

Let us be assured that whatever justifications Amiigo folks may give us there is no cost difference in making black vs other colors. So the additional $20 they charge is pure profit. There is nothing wrong with that. I am all for profit maximization. If customers perceive higher value from a color other than black (or turned off  by black) then it is fair to capture a share of that value with higher prices.

What we see here is a possibility that for wearable fitness devices like Amiigo, customers do not see color as a value dimension that is worth paying more for. This is like the case of Strawberry and Raspberry yogurt pricing.

It is likely that the total demand would have been the same had they simply offered all colors at single price point of $119 (note that we don’t know if a higher price point is ruled out). But the presence of $99 black Amiigo made even those who would have gladly paid $119 for the device to choose it over the $119 version, resulting in lower overall profit for Amiigo.

That is the effect ill-conceived lower priced versions.

The bigger question remains – what is the right price point for such devices? Is it $99 or $119 or higher? We don’t know. It starts with customer segmentation and customer job to be done. Launching a product through any of the crowd-sourcing platforms does not allow you to find your customer segments or the jobs they are trying to get done.