Pricing can be one of the most complex topics in business. About twenty years ago I read through what I consider to be THE book on the subject, "The Strategy and Tactics of Pricing":

https://www.amazon.com/Strategy-Tactics-Pricing-Growing-Prof...

What I learned was invaluable. I do have to warn you, the book lays it all out. This is excellent, of course. However, what happens is your level of confusion as to how and why to price using a certain approach will grow as you progress through the book.

Somewhere past the middle things start to coalesce and your choices become clearer. Again, this depends on the nature of the product.

Please note this is not a critique of the book at all, it's excellent, this is a complex topic and it is only natural to be confused before reaching clarity.

I have the 4th edition (2005 update), which is only $8 used on Amazon:

http://www.amazon.com/Strategy-Tactics-Pricing-Growing-Profi...

But honestly any edition is great - its sold as a textbook[1], so they seem to make periodic, cursory updates, but the substance remains unchanged. I suspect the 1994 edition is fantastic as well, and perhaps available in your local library.

I hope you like it, and get as much out of it as I have! And thank you for taking my recommendation, that made my day. :)

[1] That its a textbook is perhaps my favorite meta-lesson of the book itself. How do you charge $100 for a book? Call it a text book!

I urge you to purchase and read The Strategy and Tactics of Pricing [0]. You are making a number of mistakes, not the least of which is to use low pricing as a differentiator. Bad idea. You've landed yourself on a potential slippery slope that can be devastating. I doubt your current competitors will follow you down. They are likely not suicidal. However, your position is easily attacked by anyone willing and able to take a dive for the weeds (in terms of pricing). Product being reasonably equal, the lower price wins. Customers nearly always want to pay as close to zero as possible.

I see a lot of "we had this revelation" type posts on HN. Perhaps this is a side effect of a younger, less experienced membership. A lot of these things are nowhere close to revelations. People --many people-- have trenched these paths before you. Anyone with a reasonable amount of business "street" experience could have told you that giving away EVERYTHING for a low price would convert better. What you need to do is optimize profit per unit and segment the market in order to maximize that function. The other thing you are doing is colloquially referred to as "leaving money on the table".

The pricing field is deep, wide and complex. The suggested book is one of many I studied over the years. For a number of years one of the most frustrating aspects of entrepreneurship for me was having to read piles of business books to understand what the hell I was supposed to do. Engineering school does not prepare you for this.

[0] http://www.amazon.com/The-Strategy-Tactics-Pricing-Profitabl...

This is a better article than it sounds from the title. It sums up the most important principles I read in pricing books (of which I recommend The Strategy and Tactics of Pricing: http://www.amazon.com/The-Strategy-Tactics-Pricing-Edition/d... )

Just copying the pricing mistakes from the subheadings (parens are mine):

* You’re pricing based on costs (but costs change with volume which is dependent on price)

* You have no idea what your value is (so you guess based on their reactions and your gut feelings)

* You are trying to be cheaper, not better or different (and you lose the pricing war)

* You don’t believe in your own value (and you feel apologetic when giving a quote)

* You fear price objections

* You surprise your prospects with your price

* You have no plan for negotiation

* You think you need one price (you don't segment your customers and leave a lot of value on the table and/or outprice some potential low-effort customers)

* You’re too busy (by underpricing yourself)

I will join the book recommendations with THE book on pricing - The Strategy and Tactics of Pricing

http://www.amazon.com/Strategy-Tactics-Pricing-5th/dp/013610...

I'm reading it for a second time right now and it's stuffed with actionable information on pricing, value communication (aka marketing), price communication, purchase cycle, pricing over the product lifecycle and so on.

The following is a great book on pricing

http://www.amazon.com/Strategy-Tactics-Pricing-Growing-Profi...

It was on the reading list for a pricing class I took. All I can say is that pricing should be the culmination of your marketing strategy. The book does a great job of explaining some real rationale and logical thinking on how to set your price.

The nice advantage you appear to have is that you can tweak or iterate your pricing strategy? maybe try different prices for different people or times of the day/month/year?

Good luck!