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.

Amiigo Versions

 

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.

 

If you already have a publishing career,like Seth Godin does, you likely will also be successful on KickStarter

Seth Godin had runaway success with the KickStarter project for his book. His stated goal was $40,000, but the project reached that goal in little over two hours of its launch. The total, at last check, stands at $256,691 with two more weeks to go. Likely it will go on to add few more thousands before the final date.

What does this success tell every aspiring writer who wants to use KickStarter as a way to self-publish their books?

According to Godin,

“What this shows is that if you build a tribe, you can use it to calmly build a publishing career that doesn’t involve a roulette wheel experience where you only have a week to succeed.”

Godin neglects the fact that he is a popular published author, speaker, Idea Man and most importantly someone with thousands of loyal followers (who seem to have remarkable cognitive similarity). It is not a surprise that his first KickStarter project, launched through his extremely popular blog as marketing channel, became a tremendous success. He can thumb his nose at publishers seeking to control what we get to read.

His success is irrelevant to the rest of us. Godin got the causation backwards. If you are already popular, have a sucessful publishing career, built an online following then you can translate that power to any channel. Not the other way.

What is the base rate of success on KickStarter? According to their statistics page,  1,617 of  62,032 total projects reached their goal of $20K to $99K (picked this range to line up with the $40K target Godin set for his project).  That is 2.6% of all projects secure funding that is big enough to provide career income to the author.

But wait, that is the average across all projects. As an aspiring author who wants to “calmly” build a publishing career you should look at the success rate for Publishing projects. For this category the number drops to 1.5%.

If you are not Seth Godin and you started a KickStarter Publishing project today, your chances of making your $20K-$99K target is no more than 1.5%.

Getting successful funding for one book is one thing, turning that into a career is another. The chances go down quickly for repeat successes.

Finally let us not forget the fallacy of composition in his argument. These are early days for KickStarter. Just because they showed up (first) some  may get successful, but will that extend to every new author trying to make a career through KickStarter? As Thomas Sowell, succinctly put it,

If one person stands up in a stadium, she can see better than others. But if everyone stands up …