Price Increase
13 Oct 2015Recently, Miva, an e-commerce shopping cart, announced a price change for their customers.
Historically, Miva charged customers based on the number of seats (users) and storage/bandwidth the store used, regardless of volume of sales.
As part of the announcement Miva explained that
We've always let our customers choose whatever plan they wanted to use for their business, regardless of the size of their business.... The outcome of this legacy policy has been that, in some cases, very large stores attempt to "squeeze" into hosting accounts designed for stores a fraction of their size...
The new pricing continued to be based on bandwidth/stores use, however, it also added another level of differentiation: annual revenue processed on the platform. I'm citing a portion of their new pricing to make this easy to discuss.
| Starter | Business | Professional |
|---|---|---|
| $79.95 Per Month | $249.95 Per Month | $749.95 Per Month |
| Annual Merchant Revenue $0 - $99,999.99 | Annual Merchant Revenue $100k - $499,999.99 | Annual Merchant Revenue $500k - $999,999.99 |
| - Disk Space: 2GB - Bandwidth: 20GB - Admin Seats: 2 | - Disk Space: 5GB - Bandwidth: 100GB - Admin Seats: 3 | - Disk Space: 10GB - Bandwidth: 250GB - Admin Seats: 5 |
Before the change, whether you were doing $10 in revenue or $100,000,000 in revenue as long as your usage fit disk/bandwith/admin tier you paid the same. Now if two business are using exactly the same disk/bandwidth/admin tier but one is is making $100,000 annually and one the other, $10,000,000 the bigger business gets bumped into a higher plan. This forced many of their current users to pay significantly more. It's no surprise that some of the user feedback has been:
A 150% price increase? That's ridiculous......
Do you realize how impractical it is to ask a business with a gross revenue of 100K to pay 250 a month? Most likely their profit margins are already minimal - could be 30K of profit, and less minus operating expenses.
My monthly bill for one website is going from roughly $90 a month to $1,500 A MONTH?? The other from $49 to $249??
(You can read the complete customer reaction in the Miva forums here and here )
What can we learn from this?
- Price sensitivity. As I wrote in my Customer Budgets, you need to know the budget of your customers. Historically, Miva has always targeted the smaller merchant that is intensely price sensitive. This also backs into knowing your customer P&L. Some merchants net margins are so thin that a $500 annual cost difference is a big deal to them.
- Perhaps Miva did this on purpose to get rid of some of the smaller customers, but realistically, when doing a price increase, model out the changes by reviewing a few customers usage. Having the price jump 10x or more is generally not going to be received well by the customers.
- Giving customers 30 day notice to such a dramatic price change further negatively effects the company perception. It's impossible to migrate to a different platform in 30 days.
- Product positioning . In Revenue Models I talk about that many business dislike the revenue share model once they grow. Miva essentially switched to a hybrid revenue share model. The bigger the customer got, the higher plan they got bumped into.