Welcome back to my weekly newsletter. This is going to be a series of articles covering how we came up with the idea of Calm Sleep, scaled to over a million users in less than a year, and all that with less than $1,000 worth of total investment. 🌱
I’m Akshay Pruthi, an entrepreneur who loves to build products from the ground up. Over the past 6 years, I’ve built multiple products from scratch and scaled them to millions of users. This is my attempt to share our most important lessons from building one of those apps - Calm Sleep. 🤗
Every week I will publish an article about a different challenge we faced while building Calm Sleep.
Last week, I discussed how to create a pricing strategy, the advantages of having a continually optimized pricing strategy, and the wonders it can do to increase your revenue.
What’s in this week’s read?
This week, I will talk about a feature we’ve just introduced to get more paying customers by letting them experience our product and make an informed choice.
I will also talk about a very interesting concept called the Decoy effect, which is very commonly used in products and services.
Introducing the 7-day free playlist
In my last article, we saw when we buy time from users and get them to experience the value of the app, they’re more likely to convert to long-term paying customers. Data showed us an increase of 2.1% in conversions, going up from 2.3% for users in their first app session to 4.4% in their 4th app session.
With our current pricing structure, customers get a 7-day free trial in a yearly subscription. But people are often reluctant to save their credit cards.
We wanted potential customers to experience our product’s full value and then decide for themselves if the product is worth the money.
So, we launched a limited-time playlist option to help customers explore bits of all our product’s features.
What does the playlist have?
The 7-day free playlist has the best sounds, stories, and meditations shown to a user when he lands on the app.
Why did we bring this into Calm Sleep?
Our hypothesis around this was
We believe that an increase of 5% in payment completion
will be achieved
If users were offered a free trial playlist of our best content (our value proposition)
What does it look like?
Here’s what the new playlist feature looks like.
What we expected would happen
Most users will come in, go for the 7-day free playlist and start on Day 1 with free access to our best content to help them sleep. They get a sound, story, and a guided sleep meditation.
The next day, users will see Day 2 content on the home screen when they open the app.
After 7 days, users are expected to pay to continue playing the same content.
The Results 🤷
We saw only 30% of new users choosing the playlist option 😯This was far below our expected numbers, which was around 90%.
The overall payment conversion on Day 0 which used to be ~ 1.38% reduced to 1.26%
It’s been less than 7 days since we launched this. So I’ll wait for the numbers to mature and write about it in my upcoming blog.
How we used The decoy effect for psychological pricing
If you recall our pricing segments, they were
34.99 one time purchase, available for a lifetime
Of the 2000+ subscribers we had, we saw most going for $34.99 for a lifetime. Wondering why? Sounds like a great deal?
This could be attributed to something called the Decoy Effect.
The decoy effect is a phenomenon whereby customers are observed to change their preference between two options, when a third option, known as the decoy, is presented.
So how does this work?
Do you remember buying expensive popcorn at the movies??
So, National Geographic ran an experiment to see how consumers are subconsciously influenced to buy a tub of large popcorn rather than a small or medium one.
To one group, they put on the menu a small bucket of popcorn for $3 and a large bucket for $7
Now ask yourself, what would you buy? Maybe the small one?
Most participants went for a $3 bucket.
For the second group, they added a 3rd option. A medium bucket for $6.5.
$3 bucket for a small bucket
$6.5 bucket for a medium bucket
$7 bucket for a large bucket.
Now ask yourself, what would you buy this time? $7?
How did that happen?
It looks like group one found the $7 popcorn expensive, but group 2 found some value in it.
The introduction of a $6.5 bucket, aka a decoy, helped customers see value in the large bucket for just $0.5 more! The decoy was asymmetrically dominated by the large bucket, and that made customers blindly choose it for its perceived value!
Here’s the experiment video! 😮
How did we do it at Calm Sleep?
With our current pricing, can you identify which one is the decoy?
34.99 one time purchase, available for a lifetime
You are correct! The yearly pricing.
The yearly pricing of $24.99, acts as a decoy, nudging users to go for the lifetime deal at$34.99 as that sounds like a great bargain when compared to the yearly price!
Here’s another interesting explanation of the same principle.
We were asking ourselves whether we should optimize the conversion at this pricing or experiment with new pricing similar to our competitors?
So, we thought we should experiment with a new pricing
$19.99/ 3 months
$59.99 for a year running at 50% off
$59.99 for a lifetime (valid for 4 hours only, one-time purchase)
What’s the decoy here? Tweet or write an email to me with your answer
Let’s talk more in the coming articles
If you enjoy reading my articles, Buy me a coffee here