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Profit Based Pricing

Re Profit based Pricing

Hey Creators,
We wanted to let you know about an experiment you might have encountered and what it means to you. Back in the spring of this year (2008) we launched a beta feature called Profit Based Pricing. The purpose of Profit Based Pricing was to:

1) Make it easier for Creators to set and change their prices;
2) Ensure that a Creator always earns their desired profit regardless of any changes in cost (ex. The item you derive from changes in price);
3) Ensure that products never break in the catalog because of a price change;
4) So IMVU could implement uniform pricing across its base products, and ensure that they keep up with changes in the economy.
When we launched the system it worked for all 4 of the goals above, however it came at a heavy performance price to IMVU’s servers at the time. We’ve since upgraded our services, and believe we’ve identified how to optimize the calculations (think millions of price calculations that could potentially need to be calculated at any time). But before we turn on the Profit Based Pricing system and start tweaking it for performance, we want to test out what the impact on price changes could be for customers.

Last week a small experiment (10% of new users only) was started to test changes to the base cost. The test is broken into 10 test groups, each getting 1% of the people entering the test (adding up to 10% of all new users). No old users are exposed to the test, unless they create a new account and end up in the test. Each test group modifies the base price (the price IMVU Inc. gets at the bottom of the derivation tree) up or down by a certain amount. In order to keep the test simple the price changes are the same for any product type in a given test group (ex. Test Group A is +10%, so all product types (stickers, 3D, etc) had their base derivation costs raised by 10%). The test groups range from -50% to +200%. We decided to test a wide range in order to stress the system and also determine what any potential change to the IMVU products would do the economy.

The profit for each developer in this test is UNCHANGED. No developer has seen their profit decrease, if a product is part of the -50% to 0% group that change comes out of IMVU’s fees, and if a product is in the 0% to +200% groups then the price went up, but the profit for the Creator remained exactly the same. For example: If developer A derives from an IMVU product with a base cost of 250cr, and charges 600cr, then the total price (with retail markup) is 660cr and developer A makes 350cr profit. If a user in the +50% bucket buys this product, they will pay 125 credits more (+50% of IMVU's 250 base cost), so their total price will be 785cr. Developer A will still get 350 credits.

So far the results have been very encouraging. We aren’t seeing any significant change in new user behavior, but have seen an increase in credits being utilized. So what does this all mean to you?

Well for starters it helps justify internally the need to prioritize and implement the full Profit Based Pricing project we started in the spring. Second once implemented it will allow IMVU to adjust its base products to close up any loop-holes that are being exploited (ex. A single product of a certain type being priced way below others of the same type), along with giving IMVU another tool to help manage the economy (our base prices have not changed in 3 years, and may be adjusted to reflect any changes necessary for the health of the economy). And most importantly it will allow Creators to easily change their product prices by only needing to focus on your profit, and once you set it, you can leave it alone knowing you will always earn that profit regardless of any changes to the underlying cost, without fear that a change in price will break your product.

For those of you who did not see the Spring test, the only change you’ll see for Profit Based Pricing, is a change to the pricing and submission screens that will let change to let you adjust “Profit” instead of Price, and should present a clearer picture of a product’s costs, profit, and final price. The system is meant to be transparent, and require little to no work from a Creator.

The last thing I should point out is, the -50% to 0% test is only for our testing purposes. No-one will be able to set their profit for a negative amount. IMVU does not support the idea of selling at a credit loss on a product.


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