California software start-up offers low introductory price to attract potential customers.
Seeding the market usually means giving away a new product to a select group of people, who, it's hoped, will earnestly spread the word. But seeding doesn't have to be synonymous with giving up sales. Approach Software, a start-up in Redwood City, Calif., for example, offered a low introductory price and a 90-day money-back guarantee to persuade influential users to try its first product, a database software program designed for non-techies.
Approach's limited-time offer of $149 for Approach 1.0 for Windows, plus free technical support, quickly got the innovative software into the hands of thousands of small-company CEOs and other target customers. The price was hard to beat, given the software's features: it takes about half an hour to learn and works seamlessly with other database programs. Competing products can cost as much as $799.
How did the company select the introductory price of $149, rather than, say, $99? After all, conventional wisdom suggests that the lower the price, the more people you reach. Well, input from 30 prospective customers, and a direct-mail test campaign, suggested otherwise.
Jaleh Bisharat, Approach's marketing director, interviewed prospects at their sites. The participants, recruited by a market-research firm, offered both invaluable feedback on the product and pointed comments on how to price the introductory offer. " 'Below $149 you're selling yourselves short,' " Bisharat says prospects told her.
Still, just to be sure, Bisharat conducted a direct-mail campaign that tested price points of $99, $129, and $149. The mailing, to 50,000 prospects from five mailing lists, provided the "statistical proof" she needed -- sales came in almost as high at $149 as at $129 -- and obviously more profitable. The company then tested an introductory price of $199, but that "crossed a threshold of what people would spend to try a new product through the mail," says CEO Kevin Harvey.
"We never could have guessed the price-sensitivity curve if we hadn't tested it," he adds. "Once the product was out there, we could sell at a much higher price." A month after it began shipping last April, Approach 1.0 landed on industry best-seller lists, and it stayed there for six months -- even after the $399 suggested retail price ($279 street price) kicked in, last July.
The number of people who purchased the product on the advice of friends or associates tripled in the six months following the original shipment of the product. Harvey expects 1992 sales of more than $10 million. -- Susan Greco