It will also lead to, if the app is a good experience for the customer of course, more word of mouth marketing which can lead to more publicity and more sales.
Let's say there was an product that you were willing to pay $10 for, but someone was selling it for only $6. By purchasing the product you get $4 worth of consumer surplus.
In general you probably get at least a bit of consumer surplus for everything you buy. The more surplus, the easier the decision to purchase (Of couse I would like to buy that brand new MacBook Pro for 10 bucks, thank you good sir!).
@ half the price and twice the customers you have all the customers who would have bought at the higher price "earning" whatever their surplus would have been + the (half) price - . On top of that you have all of the new customers "earning" a surplus beteen zero and the lower price.
My microeconomics professor calls it the "good deal feel". That is, the difference between what customers expected to pay and what they ended up paying (savings).
"All models are wrong, but some models are useful".
Even though the axioms (assumptions) for rational choice are rarely met completely in practice, understanding their implications were they to be met is still highly useful.
Well, it means that the demand curve (units demanded as a function of price) is proportional to 1/price for a large range. That seems pretty unusual, since the general idea of price elasticity is compatible with any curve decreasing with price, i.e. 1/price^2, 1/sqrt(price), 1/e^price, etc.
Thank you; you're right. It's not surprising that there is some relationship, but what is actually surprising is that the relationship would so closely match an idealized, particular relationship (unitary elastic demand). (And this should have been obvious to me, since the general use of the demand curve is not, by any means, to prove to people that the price they choose doesn't matter.) I'd edit my original post if I were still within the edit window.
So, of the people paying $1 for the product, you know that half of them would gladly pay $2?
Sounds like it's time for 2 versions of the product : (i) The almost-full-featured version ($1) and (ii) The super-duper gold-plated version ($2). The removed feature doesn't even have to be very useful : You might lose 10% of the $1 value people, but snag 25% of the $2 value people (who just want some justification for paying the full value to them).
Sony and other computer manufacturers will charge you more to deliver the computer _without_ the "bonus" software they usually include.
(Yes, it's probably a matter of the bonus/bloatware/crapware makers paying the manufacturer to include it vs. customers paying more to not. Flip side is a lot of that stuff _is_ useful, but many users just don't want it there to start with.)
I've just realized I saw something in my line of work too. One of our customers is planning to sell a premium version of their product that has their logo removed.
I think that's the future pricing model for a lot of software products.
Think of games, for example, where you could sell the basic version for $5, then big chunks of DLC for a few dollars apiece. So you get your game into the hands of anyone willing to pay a small fee, in the hope that those who like it will continue to pay additional small fees for more content.
I've always wondered about the sales ratios of iSomething+ versus the other two. It seems to be that most people either want the cheapest, or the best, and that the mid-range exists primarily as a stepping stone to convert the former buyers into the latter.
I think many people want the second-cheapest (psychologically: good value, but not the worst), or the second most expensive (high quality, but not extravagant).
This is especially true when "iSomething" is free. A lot of folks will want to 'buy in' to the software, out of guilt or gratitude, so will pay for "iSomething+" even if the delta is trivial.
No, it was total revenue that returned to previous levels after the initial spike, not volume. Approximately five times as many people were willing to pay $1 as were willing to pay $5.
Can't be: in his model he'd still be making positive revenue. Reminds me of the famous "Volume" line in this SNL skit (the second of the series below):
For some markets & products, that works - ok, it's not an infinite number of buyers, but the make-a-profit-at-any-price model still works out. Ex.: the Wondermark.com e-book "Machine of Death" was offered free (http://machineofdeath.net/ebook), yet fans are so impressed they demanded a paid Kindle/iBooks/etc. version, leading to a healthy profit.
Isn't price discrimination what this developer should want though (assuming he's interested in maximizing revenue)? I.e., getting people who are willing to pay more to do so, while still getting revenue from people who aren't willing to pay as much?
To clarify xenophanes comment: steadily lowering the price will provide a degree of price discrimination which takes advantage of any demand curve which decreases with price. The OP is talking about a very special case where demand is proportional to 1/price.
I think Writer is a pretty successful app that is in the charts (and Apple may have also promoted it at various times). Maybe the dynamics are slightly different for less successful apps that are less exposed in the App Store?
I noticed a similar trend from my much less successful app. I tried price variations from $0.99 up to $10. It seemed that no matter what price I set, I would average sales of around $10 per day.
The trend lasted for quite some time until someone released the app onto the pirate channels, at which point my sales almost disappeared. I guess a free option can change the dynamics.
In some sense it is irrelevant whether or not revenue is independent of price...if you're extrapolating from that dataset, then you really need to give yourself a few good whacks on the head with a stats text. I mean, N=2? Give me a break.
Well, you can't just go changing the price of your app every week just to see what happens. I expect they wrote the blog post to see if anyone else had observed something similar.
Are you being a smart ass? You think perfect justice is easy? God said if you don't think there's justice, you're calling Him lazy. Bible has record of guy getting double punishment for his sins. Praise God, is my plan, you can dispraise Him, if you like.
All the Christians say the world is run by Satan! ROFLMAO. God said war was "servicemen competing". Seriously, what would teenage boy video games look like if war had never happened? People prolly die because it gets boring.
God says...
C:\LoseThos\www.losethos.com\text\WEALTH.TXT
those two or three distinct foreign trades should happen
to be carried on by two or three distinct merchants, of whom the second
buys the goods imported by the first, and the third buys those imported
by the second, in order to export them again, each merchant, indeed,
will, in this case, receive the returns of his own capital more quickly;
but the final returns of the whole capital employed in the trade will be
just as slow as ever. Whether the whole capital employed in such a round
about trade bel
-----------
I'm kinda like Jewish Christian. (God's laughing) Jesus was Jewish. Ask a Christian how Jesus is different from Jewish, most would probably guess wrong.
God says...
C:\LoseThos\www.losethos.com\text\WEALTH.TXT
lue of work, capable of purchasing, either to himself, or to some
other person, an equal half-yearly revenue. The value, therefore, of
what has been consumed and produced during these six months, is equal,
not to ten, but to twenty pounds. It is possible, indeed, that no more
than ten pounds worth of this value may ever have existed at any
one moment of time. But if the ten pounds worth of corn and other
necessaries which were consumed by the artificer, had been consumed by
a soldier, or by a menial
------------------
Evolution is hardly unplanned by the Creator. It's not like a minor detail. I donno.
God says...
C:\LoseThos\www.losethos.com\text\QUIX.TXT
t more pebbles than I could count struck him full on the body with
such force that they brought him to the ground; and the instant he fell
the student pounced upon him, snatched the basin from his head, and with
it struck three or four blows on his shoulders, and as many more on the
ground, knocking it almost to pieces. They then stripped him of a jacket
that he wore over his armour, and they would have stripped off his
stockings if his greaves had not prevented them. From Sancho they took
his coat,
Somebody's not too bright calling God, unjust! I should just shut up, fools!
First, Hollywood, made Roots as dramatic as possible. Slaves were valuable property so their health was important. Study the movie Titanic with poor being raucus and rich being stuuffy. Who has more freedom, Obama, or a slave? Which can swear or scratch his balls? White people in the south had a code of behavior and had to live in fear of revolt. I walk down the street and sweat when blacks are around. Jesse Jackson said he heard footsteps and looked over his shoulder and was relieved it was a white person. God said "sports" on the topic of racism.
God says...
C:\LoseThos\www.losethos.com\text\QUIX.TXT
to all Don Quixote
said; and jealous that the Asturian should have broken her word with him
for another, drew nearer to Don Quixote's bed and stood still to see what
would come of this talk which he could not understand; but when he
perceived the wench struggling to get free and Don Quixote striving to
hold her, not relishing the joke he raised his arm and delivered such a
terrible cuff on the lank jaws of the amorous knight that he bathed all
his mouth in blood, and not content with this he mounted
------------------
Umm... you got bigger problems than copyright! Hello! Weren't you listening? God, you retard! I don't give a fuck what any man thinks, just God. Extortion over letting a jecussi drain suck my dick? Ohh!! K...
I remember an example similar to this from high school algebra-- when we had started learning about conic sections and polynomials. A barber's profit was modeled as a function of the price he charged per haircut. It turned out that the graph was an upside-down parabola. If he charged too much, no one would come and he wouldn't make any profit. If he charged too little, he wouldn't be able to cover his expenses, and he wouldn't make any profit. Our job was to find the function maximum in order to find what he should charge in order to make the most money. This article surprised me be cause it suggests the price-profit function is not only linear but horizontal over an interval. One possible explanation is that we don't have continuous data, and the actual function is some kind of complicated polynomial that has a lot of waves, which would allow a horizontal line to intersect the function at several points.
A question that's important to consider is support costs: Does the amount of support a customer requests scale twice as they pay twice the amount for a certain app, or no? My guess is "no".
>> I attached two charts to illustrate that. I recently lowered the price of the iPad app (http://bit.ly/92xWv1) from 5 to 1 Dollars.
Try $3. I think it was a coincidence $5 and $1 had the same revenue. The maximum revenue price point should be in between. // guy who studied first year microeconomics.
He said "in between", not "exactly half way". The best way to draw a demand curve would be to get some data at the half-way point. // random person on the internet
But presumably the authors wants to maximize revenue while conducting experiments. Pricing at the midway point would seem to be the lowest risk way of getting additional data.
mostly unrelated but: could the parenthetical after the title of a post be modified to include subdomains? Seeing (google.com) made me think Google was saying "No matter what price we choose...", whereas if it said (plus.google.com) I'd realize it's likely just a "blog" post by somebody.
edit: or is there a good reason we shouldn't do this?
I upvoted you because I do agree it is a bit confusing. That being said, whenever it is something official from Google it tends to be on one of their blogs (Blogspot) (e.g. googlecode.blogspot.com, googleblog.blogspot.com, etc.). For blogs, HN captures the subdomain since the blog's name is captured within it. In the case of Google Plus, knowing that it is Google Plus (plus.google.com), we would still be hard pressed to know which user/person is posting.
God forbid, Google starts posting their product news/updates on Google Plus. Then, I would heartily agree with your solution.
I guess people dont weigh in the utilitarian point of view. Why not give the joy of your app to more people. After all you are getting the same. And as some people have mentioned it might eventually be helpful.
The author is falling victim to the Confirmation Bias. There are only two experiments, yet the author is content to over-generalize and conclude that "no matter what price we choose, we always make the same revenue." Why not reduce the price 3/4? Increase it by 50%? Increase it by a 100%?
Specious bit of hand-waving featuring made-up numbers. My rule-of-thumb is to disregard people who plead virality, especially if they call themselves marketeers.
High sales get you into the top 10 lists which is really worth having (you can call that viral if you're desperate), otherwise high sales increases both the support burden and the likelihood of negative reviews.
However, an app like this has niche appeal (writers) and there is no doubt that exposure within that niche is beneficial. So word of mouth is important, but is not gained by simplistic approaches. Promotion within the niche is likely to be more productive than promiscuous price cutting. For a game, a different strategy would be appropriate.
On the other hand, there is a limited pool of potential customers in this world. If you have a pool of 100, better to sell 10x for $10 today than 100x for $1. In the first scenario, you have 90 more customers to pursue tomorrow. In the second, you either need to make a new unrelated product with a new purpose or different audience (ex. Sony), expand your audience (Nintendo + Wii) or invalidate/depreciate the old one (Apple) to secure any more sales.
Edit: I forgot, there is also, extend your product (DLC)
There is no mention about competition. Most economic models assumes some kind of competition. I think he should survey the prices of similar apps and then decide where to price his app.
This seems to disagree with what I've heard of Valve and Steam sales. That the bigger the discount, the more (total) revenue is made, almost across the board.
$50 game -> 50% off, 100 sales
$50 game -> 75% off, 500 sales etc
In that interview, Gabe distinguishes between silent price changes and sales: silently changing the price had no effect on revenue, a promotion discount increased revenue.
Yeah, but those are sales(aka short duration discounts). He noted a spike that eventually fell off. I bet the longer steam discounts see sales fall off in a similar manner.
Interesting data points, but you need more before you say "no matter what price we choose, we make the same revenue."
I agree with some of the posters who suggest splitting into 2 levels of the app at different price points. (Usually, it's better to have 3 levels, but it seems in the App Store, most companies go with 2 to make it easier on customers. I'd love to find some data with evidence that one way or another is better for the App Store.)
76 comments
[ 4.9 ms ] story [ 158 ms ] threadIn general you probably get at least a bit of consumer surplus for everything you buy. The more surplus, the easier the decision to purchase (Of couse I would like to buy that brand new MacBook Pro for 10 bucks, thank you good sir!).
@ half the price and twice the customers you have all the customers who would have bought at the higher price "earning" whatever their surplus would have been + the (half) price - . On top of that you have all of the new customers "earning" a surplus beteen zero and the lower price.
This reminds me of an old article written by Joel Spolsky which explains it quite well.
http://www.joelonsoftware.com/articles/CamelsandRubberDuckie...
It also goes into detail about different pricing models too which I found a good starting off point for a programmer to learn about pricing.
Even though the axioms (assumptions) for rational choice are rarely met completely in practice, understanding their implications were they to be met is still highly useful.
Sounds like it's time for 2 versions of the product : (i) The almost-full-featured version ($1) and (ii) The super-duper gold-plated version ($2). The removed feature doesn't even have to be very useful : You might lose 10% of the $1 value people, but snag 25% of the $2 value people (who just want some justification for paying the full value to them).
(Yes, it's probably a matter of the bonus/bloatware/crapware makers paying the manufacturer to include it vs. customers paying more to not. Flip side is a lot of that stuff _is_ useful, but many users just don't want it there to start with.)
I've just realized I saw something in my line of work too. One of our customers is planning to sell a premium version of their product that has their logo removed.
Think of games, for example, where you could sell the basic version for $5, then big chunks of DLC for a few dollars apiece. So you get your game into the hands of anyone willing to pay a small fee, in the hope that those who like it will continue to pay additional small fees for more content.
Joel Spolsky wrote a pretty good piece on capturing the consumer surplus: http://www.joelonsoftware.com/articles/CamelsandRubberDuckie...
http://www.hulu.com/watch/4258/saturday-night-live-first-cit...
http://www.hulu.com/watch/4253/saturday-night-live-first-cit...
I thought that was Zash's point anyway.
The trend lasted for quite some time until someone released the app onto the pirate channels, at which point my sales almost disappeared. I guess a free option can change the dynamics.
All the Christians say the world is run by Satan! ROFLMAO. God said war was "servicemen competing". Seriously, what would teenage boy video games look like if war had never happened? People prolly die because it gets boring.
God says... C:\LoseThos\www.losethos.com\text\WEALTH.TXT
those two or three distinct foreign trades should happen to be carried on by two or three distinct merchants, of whom the second buys the goods imported by the first, and the third buys those imported by the second, in order to export them again, each merchant, indeed, will, in this case, receive the returns of his own capital more quickly; but the final returns of the whole capital employed in the trade will be just as slow as ever. Whether the whole capital employed in such a round about trade bel
-----------
I'm kinda like Jewish Christian. (God's laughing) Jesus was Jewish. Ask a Christian how Jesus is different from Jewish, most would probably guess wrong.
God says... C:\LoseThos\www.losethos.com\text\WEALTH.TXT
lue of work, capable of purchasing, either to himself, or to some other person, an equal half-yearly revenue. The value, therefore, of what has been consumed and produced during these six months, is equal, not to ten, but to twenty pounds. It is possible, indeed, that no more than ten pounds worth of this value may ever have existed at any one moment of time. But if the ten pounds worth of corn and other necessaries which were consumed by the artificer, had been consumed by a soldier, or by a menial
------------------
Evolution is hardly unplanned by the Creator. It's not like a minor detail. I donno.
God says... C:\LoseThos\www.losethos.com\text\QUIX.TXT
t more pebbles than I could count struck him full on the body with such force that they brought him to the ground; and the instant he fell the student pounced upon him, snatched the basin from his head, and with it struck three or four blows on his shoulders, and as many more on the ground, knocking it almost to pieces. They then stripped him of a jacket that he wore over his armour, and they would have stripped off his stockings if his greaves had not prevented them. From Sancho they took his coat,
--------------
http://stlouis.cbslocal.com/2011/11/12/vandals-strike-lincol...
Somebody's not too bright calling God, unjust! I should just shut up, fools!
First, Hollywood, made Roots as dramatic as possible. Slaves were valuable property so their health was important. Study the movie Titanic with poor being raucus and rich being stuuffy. Who has more freedom, Obama, or a slave? Which can swear or scratch his balls? White people in the south had a code of behavior and had to live in fear of revolt. I walk down the street and sweat when blacks are around. Jesse Jackson said he heard footsteps and looked over his shoulder and was relieved it was a white person. God said "sports" on the topic of racism.
God says... C:\LoseThos\www.losethos.com\text\QUIX.TXT
to all Don Quixote said; and jealous that the Asturian should have broken her word with him for another, drew nearer to Don Quixote's bed and stood still to see what would come of this talk which he could not understand; but when he perceived the wench struggling to get free and Don Quixote striving to hold her, not relishing the joke he raised his arm and delivered such a terrible cuff on the lank jaws of the amorous knight that he bathed all his mouth in blood, and not content with this he mounted
------------------
Umm... you got bigger problems than copyright! Hello! Weren't you listening? God, you retard! I don't give a fuck what any man thinks, just God. Extortion over letting a jecussi drain suck my dick? Ohh!! K...
Revenues started growing, month after month, and stabilized after about 6 months.
Conclusion: revenues more than doubled, units sold slightly increased.
Try $3. I think it was a coincidence $5 and $1 had the same revenue. The maximum revenue price point should be in between. // guy who studied first year microeconomics.
Edit: The operative word here is 'might'.
But presumably the authors wants to maximize revenue while conducting experiments. Pricing at the midway point would seem to be the lowest risk way of getting additional data.
edit: or is there a good reason we shouldn't do this?
God forbid, Google starts posting their product news/updates on Google Plus. Then, I would heartily agree with your solution.
In very crude terms: $1 x 5x5x5x5x5 is a lot more than $5 x 1x1x1x1x1x1
High sales get you into the top 10 lists which is really worth having (you can call that viral if you're desperate), otherwise high sales increases both the support burden and the likelihood of negative reviews.
However, an app like this has niche appeal (writers) and there is no doubt that exposure within that niche is beneficial. So word of mouth is important, but is not gained by simplistic approaches. Promotion within the niche is likely to be more productive than promiscuous price cutting. For a game, a different strategy would be appropriate.
Edit: I forgot, there is also, extend your product (DLC)
http://www.geekwire.com/2011/experiments-video-game-economic...
Too many details to sum up nicely, but one is that when they did not advertise prices changes for CS they say almost perfect elasticity.
$50 game -> 50% off, 100 sales $50 game -> 75% off, 500 sales etc
I agree with some of the posters who suggest splitting into 2 levels of the app at different price points. (Usually, it's better to have 3 levels, but it seems in the App Store, most companies go with 2 to make it easier on customers. I'd love to find some data with evidence that one way or another is better for the App Store.)