
Why companies make their products worse - RachelF
https://www.1843magazine.com/ideas/the-daily/why-companies-make-their-products-worse
======
klagermkii
I don't agree with the idea that giving companies better and better tools to
achieve price discrimination is the win-win that the final quote seems to make
it out to be. Yes, I can see how it could allow a company to offer goods to
people who otherwise would not be able to access their services, but this
comes at the cost of potentially complicated usage restrictions, making it
easier for incumbents to squash new competitors, and pushing for more and more
of a legal framework to support this kind of business model at the expense of
the end user. I can think of examples where the products are barely (if at
all) worse and see how heavily it swings things in favour of the powerful
incumbent:

Trademark restrictions to prevent importing what could be effectively the same
textbook or wrist watch.

DVD region locking where you can sell practically an identical product but
charge vastly different rates in different areas, and it's illegal to work
around.

License agreements on software not to restrict specific functionality, but
rather the usage scenarios.

The example in the article of the slower LaserPrinter example morphs from
being a physical restriction to modern printer cartridges that block ink
refills via DRM.

Comcast's battle with Google Fibre where the price will heavily drop in just
the areas where Google Fibre operates. Makes it much harder for Google Fibre
to make any gains, but the vast majority of Comcast customers see no decrease
in their bills.

Even the recent EpiPen drama, where they want to be able to milk as much as
possible out of the pockets of insurance companies, but end users don't want
to play the real price, so they introduce the co-pay discount to try and
offset that cost. It makes the "rich" organisation pay, but reduces the amount
paid by an individual.

~~~
grecy
Pricing products differently in different countries is all about charging
whatever people will pay for something, in order to maximize profit.

Australia's minimum wage is ~$16/hr, so Adobe products, Apple, even online
downloads cost a lot more than the US, because people in Australia have more
money to spend.

When the citizens of a country have a lot of spending money, international
companies charge them more than in countries where the citizens don't have a
lot of money.

Viewed this way, it's really interesting to note that "stuff" (cars, laptops,
phones, beer, smokes) is cheaper in America than any other developed country
in the world. This is an interesting way to come to the conclusion that the
average American citizen has less spending money than the average developed
country citizen

~~~
ryuker16
I can tell you never lived in a poor country.

Often times it's the reverse: international goods are same or significantly
higher than USA or first world prices: the west embraced free trade but the
rest of the world not so much....

A few things like McDonalds will be lower by 30% but many chain stores will go
the opposite direction: luxury pricing premium...reasons vary from local
tariff(especially for cars or electronics) or just brand snobbery(Nike is
expensive in china for example) or protective laws(Korean electronics and cars
are more expensive in Korea than USA, tariffs keep out cheaper foreign
competitors).

Often times, poor countries have crazy bad wealth distribution ratios so
overcharging to enhance prestige is fairly normal. Going low on price is a bad
strategy since 90% of the population can't even afford your goods but the top
5-10% can spend like kings.

Australia getting screwed on pricing is likely due to some goofball middle man
system or taxing/tarriff scheme combined with island isolation
surcharge(hawaii suffers this too).

I wouldn't be surprised if their is some foreign software tax.

~~~
grecy
> _I can tell you never lived in a poor country._

On the contrary, I spent 2 years in Central and South America (almost lived in
Argentina) and I'm now making my way down the West Coast of Africa.

That aside, I wasn't really talking about "poor" countries, I was talking
about the pricing of stuff like cars, TVs, laptops among developed countries.

People from Europe/Australia are continually staggered when I tell them how
little I paid for a 4x4, or an Apple Laptop in the USA.

------
lmm
> Today Eurostar offers a ticket that uses Dupuit’s logic. It offers ultra-
> cheap tickets that do not specify the time of travel (this is revealed two
> days before the trip takes place). Adding uncertainty to a traveller’s
> itinerary is a reduction in quality. But it is useful because it forces
> business travellers – who must be in London or Paris at a specific time –
> away from this bargain option.

This doesn't seem like quite the same thing. Eurostar makes a real saving on
their "manufacturing" here - they can give the customer a seat on whichever
train has space, rather than having to allocate them a seat ahead of time and
maybe fill up a train and drive potential customers to fly instead.

~~~
rtkwe
It does both at the same time. It allows them to service less time sensitive
customers or extremely price sensitive customers without losing revenues as
they would if the cheaper ticket didn't have the large downside of travel time
uncertainty. So it's the same thing with an added bonus of decreasing the
potential need to run more trains.

------
lsiq
The hypothesis that you would have excess supply is not very well thought out.

Take the train example that he mentioned. He is effectively suggesting that
higher margin 2nd class tickets subsidize 3rd class tickets. Companies may be
afraid to improve 3rd class, thinking it would eat into their 2nd class and
lower profits. But they would very likely just sell more tickets, as their 3rd
class was now the best in the business. And provided there were an actual
differentiated service in 2nd class, those tickets would still sell. And if
the was no difference, they could eliminate 3rd class altogether and sell
second class only for greater volume and slightly lower price (or make 2nd
class improvements).

Cannibalization is no problemo for business. Some folks at Apple were afraid
the iphone would cannibalize ipod sales. Imagine if they actually went with
that thinking and sold iphones that didn't play music. And iPods still sell to
this day.

Unless the sector has high barrier to entry (e.g. Intel), such practices are
very often short sighted. You don't see IBM selling printers anymore.

~~~
smallnamespace
> But they would very likely just sell more tickets, as their 3rd class was
> now the best in the business.

IMO, you're simply begging the question by presuming that 2nd class won't be
cannibalized.

We're also forgetting that one can't simply increase ticket supply, because
trains and airlines are capital constrained once you run out of seats. At
best, you can hope to charge _more_ for 3rd-class tickets, at the expense of
having cheaper, or empty, or fewer 2nd-class seats.

Even if a company manages to raise price of 3rd-class tickets, they face both
a 1) lower effective subsidy from 2nd class and 2) the cost of providing 3rd-
class amenities. Which effect dominates very well depends on the relative
preferences of 2nd and 3rd-class buyers.

The sweet spot is to find an inconvenience that _only affects 3rd-class
ticket-holders a little bit, but annoys 2nd-class ticket-holders a lot_.

The Eurostar is a good example of that -- most people aren't inconvenienced
too much by being told their flight time 2 days in advance (so depresses
economy ticket prices only slightly), but deep-pocketed business travelers
find it completely unacceptable (which shifts effective demand to the business
seats).

~~~
makomk
If the trains run out of seats in 3rd class, this helps prevent 2nd class from
being cannibalized - customers who want a guaranteed seat or less overcrowding
then have to buy a 2nd class ticket.

~~~
smallnamespace
That shouldn't happen -- your excess 3rd-class customers would go with your
competitor instead of buying expensive 2nd-class tickets.

Best choice is to raise the price of 3rd-class seats, which brings us back to
whether the increased ticket revenue there offsets cannibalization.

------
hatmatrix
The author describes how companies cripple their own product to extract
"maximum profit from each punter," but does not say why this is good for the
customers. Presumably, most of the profits are funnelled to shareholders.

> The key test is whether the practice means more goods are sold. Suppose the
> French had regulated trains so that all carriages had roofs. All those in
> second class might have switched to third class, potentially rendering both
> uneconomical to provide.

Could not there be a third option where the quality is not crippled so much
but priced such that there is an increase in both supply and demand for a
reasonable ride? In the current scenario, business chugs along, with lower-
tier customers settling for an inferior product and upper-tier customers
extorted to the maximum extent.

~~~
gnicholas
You're right—the author doesn't really address this. If a business is unable
to price discriminate by adding or removing features, they will end up having
to pick either (1) high price or (2) low price. [Stylized example, of course]

If they pick High Price, then they will include lots of features, but only
people with a high willingness to pay and high ability to pay will end up
purchasing the product. This means that people who would have been willing to
purchase the low-end version of the product do not have that option and will
instead purchase no product.

If the company picks Low Price, they will not include as many features because
(in many cases) there is not sufficient profit incentive. This means that even
customers who would have been willing to pay for these features cannot
purchase them.

Ultimately, the assumption is that if customers are interested in making a
purchase of a "crippled" or "feature-enhanced" product, and the company is
willing to make that exchange, then the exchange makes both parties better
off. This is what economists call "gains from trade."

Does this mean that everyone customer is better off with price discrimination
under every circumstance, or that one cannot imagine a way in which a company
could operate altruistically in order to make some customers better off? No.
But generally they won't, and this is typically tied to the company's duty to
their shareholders. (This is why B-Corps are nice—they give more flexibility
in this regard.)

~~~
usrusr
Minor nitpick: if a company is not able to add our remove features, the
product would be exactly the same no matter wether they go for volume or for
price per unit. What you describe is the scenario where the company would be
unable to have more than one price tier, while retaining the ability to add
our remove from the set of features.

Edit: communism might be such a scenario, because multiple price tiers might
be seen as ideologically incompatible, but even that would be a misconception
as it misses variability personal preference: one might be willing to make
compromises in other areas to have a bigger TV screen, while their neighbor
might be more than happy to sacrifice screen size for a more sophisticated
bicycle.

~~~
gnicholas
This would be true where the product is already built. The point I was trying
to make is that if we lived in a world where "crippled" / "premium" products
were not allowed, companies would face the High Price / Low Price choice in
advance and would have to choose an option and make development / feature
choices accordingly.

------
payne92
This is an extremely shallow analysis.

Price discrimination has always been fundamental aspect of business and
economics: companies often offer different "values" different price points.

BUT, software businesses have another aspect many physical product & service
companies do not: the ongoing cost of maintenance and support for legacy
applications, and the (typically) increasing cost to add new features.

Consider the opening example: Microsoft Outlook. It's highly likely that
Microsoft was motivated by _cost_ issues, and was _not_ executing a deliberate
de-feature move.

~~~
tensor
They still have to maintain Outlook whether or not it's in the lower cost
option. You could argue that they might save a tiny bit in support, but I'd be
surprised if it was a relevant amount.

~~~
payne92
I'm sure they are very interested in moving users to a newer platform. Legacy
support is "all cost" \-- you're typically not getting any revenue.

Look how motivated Microsoft was to drop XP support.

------
lightedman
In the case of physical products, the answer is pretty obvious - products that
last = fewer sales. So companies try to find the balance between lifetime and
turnaround time to typical replacement/repurchase.

I refused to do that when I did induction and LED lighting. My products are
still in use by the people that bought them. I don't expect them to need a
replacement for 20 years. Maybe by then I'll be back in the lighting business.

~~~
lucaspiller
In regards to induction hobs, it seems most, if not all of them, have glass
tops. Why aren't they made of something more sturdy like ceramic or stone?

~~~
barkbro
There might be a good reason why they use glass ceramics instead of for
example stone. Maybe because it's harder to manufacture consistently
(ferromagnetic impurities?), has a larger coefficient of expansion or because
it's harder to implement touch controls for them. It might just be more
expensive.

------
Theodores
The examples could have been better.

486dx/sx anyone? Here the maths coprocessor was not wired up in the budget
version. Yield had as much to do this as marketing.

Lame Teslas. If you want auto drive and to use all those battery cells then
pay extra. The mass production can be extra efficient plus upsells are
possible as the customer can pay for the upgrade later.

1000 hour light bulb. The cartel of lightbulbs required bulbs to last a lot
less. Worse product, more repeat sales, rigged market.

The smaller chocolate bar. To hit a price point, e.g. a dollar/pound/euro the
product can be made worse or smaller.

The cheap board game. Times have changed, people play a board game once and it
goes in the bin. Before TV the product would have been played year round and
passed on to the next generation. There is no need to build a product to that
standard any more.

Patents expire too, this means products get worse.

Changing laws. Imagine that you can no longer use bright food colours, the
product gets worse.

This article didn't address anything I didn't know of and made no mention of
what is obvious.

~~~
spqr0a1
Light bulbs aren't such a clear example. Incandescent filaments are much more
efficient at higher temperature but burn out quicker. In the general case,
savings from reduced electricity cost more than offset the increased
replacemet rate for bulbs in accessible fixtures.

~~~
ohnoyoudinnt
> Light bulbs aren't such a clear example. Incandescent filaments are much
> more efficient at higher temperature but burn out quicker

That's a common misperception. Early filaments could last for decades. It took
a lot of work to design a filament that burned out after a certain amount of
time:

[https://en.wikipedia.org/wiki/Phoebus_cartel](https://en.wikipedia.org/wiki/Phoebus_cartel)

"The cartel was a convenient way to lower costs and worked to standardise the
life expectancy of light bulbs at 1000 hours, while at the same time raising
prices without fear of competition. Members' bulbs were regularly tested and
fines were levied for bulbs that lasted more than 1000 hours."

~~~
tedunangst
What about after 1939?

------
eth0up
I fear many economists have the mentality of child prodigies; brilliant,
extremely clever and very unwise. On a planet (<\-- maybe note this) with
limited surface-space and resources, and with growing populations with growing
standards and demands, the paradigm of Planned Obsolescence(PO) is going to be
exceedingly difficult to sustain. Aside from the physical limitations (see:
Pacific Ocean plastic island, wars for resources, ocean acidification, climate
change, etc., etc.) facing this paradigm of PO, the social costs generally go
overlooked. Whether it is a reluctantly accepted 'necessary evil', or
something merely conveniently ignored, there is something dishonest at the
root of PO, which may have the collective effect of promoting a dishonest
society. Perhaps some here can laud the virtues of the Phoebus Cartel[1], or
any number of other such rackets - there are clear short-term benefits. But it
seems terribly unlikely that a strong and trusting society will ever be more
than ephemerally forged from this material. The PO paradigm also seems to lend
itself generously to the Hegelian Dialectic while contributing ineffectuality
to the masses, demarcating Consumers from Providers. I'd like to see
economists explore the advantages of local economy more often.

It's a complex world that's unraveled, one where our popular methods of
survival can be perfectly legal, unethical, hypocritical and irrational
simultaneously, and the ensuing conflicts arising therefrom, conveniently
viewed and treated as isolated. I think Adam Curtis's _The Century of the
Self_ [2] offers a bit of insight on where things starting going silly, and
some of the mechanisms involved.

While the article may not be directly supporting PO as a paradigm, it gets
uncomfortably close. Planned Obsolescence is great fun and games for a while,
but I think the final results are predictably grim. There are definitely great
challenges in maintaining a thriving economy without enslaving ourselves to
endless consumerism, but these challenges must be faced. PO isn't the way.

1\.
[https://en.wikipedia.org/wiki/Phoebus_cartel](https://en.wikipedia.org/wiki/Phoebus_cartel)
2\.
[https://en.wikipedia.org/wiki/The_Century_of_the_Self](https://en.wikipedia.org/wiki/The_Century_of_the_Self)

~~~
ryuker16
Planned Obsolence is also beneficial in some cases. Many products are
significantly more energy efficient although they function the same(fridge and
cars come to mind).

In the software realm, plenty of software that should have been replaced or
constantly updated chugs along managing critical infrastructure. Old hardware
compatible with such systems get rarer thus raising operating costs and
difficulty in servicing.

THe Phoebus Cartel was some major bullshit hence laws against price fixing
were passed. These days trade is global so smuggling products from other
countries is easy...unlike in 1939 where you only had a few stores/vendors to
choose from who sold lightbulbs.

The modern version is vendor lock-in(see microsoft, sony, and apple which love
this): hopefully this philosophy dies in the long run.

~~~
eth0up
_" hopefully this philosophy dies in the long run."_

I sure hope so. Although there are myriad more, here's another example of this
philosophy in action:

[https://www.techdirt.com/articles/20160920/07021035568/hp-
la...](https://www.techdirt.com/articles/20160920/07021035568/hp-launched-
delayed-drm-time-bomb-to-disable-competing-printer-cartridges.shtml)

I'd rather work manual labor than be the guy who decided on that - profits
considered.

------
walterbell
If there is vendor competition, all tiers of service can be improved, while
retaining market segmentation.

~~~
exelius
Unless there's a breaking point of "good enough" that can serve all segments.

Typically though, this "making the product worse" thing is used as part of the
sales cycle of a patented product. There has to be some "proprietary" piece
(whether a large up-front investment in infrastructure or a new technology) or
else it's a commodity and this type of segmentation doesn't work.

~~~
usrusr
"Premium fuel" is a perfect example of price segmentation in a commodities
market. Granted, not many customers fall for it, but it seems to be enough to
keep up the expensive ruse.

~~~
gwbas1c
Not really. High compression engines need higher octane in order to achieve
full performance.

------
vlehto
There was recently Onnibus in Finland. They sold cramped two storey bus trips
at very limited lanes. First ticked sold at 1e and price going up so that the
last goes for 35e or something. Similar to cheap air travel schemes. You
extract more accurate info as it's not just two price points but a curve of
ticket-price/time.

So far the result has been all bus services lowering prices, train tickets
going lower too and overall people traveling more. It was needed price cut as
some people we're switching to air travel as plane ticket was cheaper than
train.

------
hrxn
This article's premise hinges too much on the feasibility that 'good' and
'bad' can be defined objectively. Not good.

------
hatmatrix
Is this like multi-licensing[1] or freemium[2] models in open source software?

[1] [https://en.wikipedia.org/wiki/Multi-
licensing](https://en.wikipedia.org/wiki/Multi-licensing)

[2]
[https://en.wikipedia.org/wiki/Freemium](https://en.wikipedia.org/wiki/Freemium)

------
oli5679
There is a result in microeconomics that if you ban price discrimination from
a previously discriminating firm, there was a always an alternative policy
(specifying a maximum profit margin the firm can achieve but placing no
restrictions on price discriminations) that would have lead to strictly
greater welfare gains.

[http://www.sciencedirect.com/science/article/pii/S0165176597...](http://www.sciencedirect.com/science/article/pii/S0165176597001900)

This is ignoring competitive and redistributive effects, but the competitive
implications should be positive (higher profits encourage competition) and
this tool is sufficiently blunt for it to be unlikely to be the optimal
feasible redistributive mechanism.

~~~
makomk
It is, of course, rather difficult to cap the profit margin of a company in
the real world, both for political reasons and due to the difficulty of
actually defining profit.

~~~
oli5679
You can just use the gross margin accounting definition, this isn't too
difficult and firms should be roughly compliant. Also, firm profits should be
higher than if you ban price-discrimination, so I don't see where the
political resistance would come from?

There are issues with:

1) Estimating the demand system and so picking the optimal gross margin.
However, banning price discrimination is also relatively blunt and leads to a
somewhat arbitrary outcomes from a welfare perspective.

2) Effects on firm incentives to reduce costs. If a firm knows that it will be
subject to maximum gross margin restrictions in the future, it will have a
weaker incentive to innovate possibly?

------
jokoon
I fail to understand how it becomes economically viable to sabotage a product
like this.

A third class is a form of subsidy, it will be sold at a loss.

I don't think having a train company decide for the date of your trip a
choice. It's just that train management is expensive, so if you remove the
date constraint, everything is simpler, because you can fill an entire train
that will travel a certain week, instead of having to deal with the
uncertainty of a train which is not entirely full.

Ouigo do that in France.

------
sickbeard
"Product Managers". If you have ever had the pleasure of dealing with one you
would know

------
fyhhvvfddhv
Bahumbug. Another lame attempt to justify greed at the expense of others. Not
to mention the added resource use and pollution. The Profit motive isnt always
right, correct or optimal.

------
sandworm101
Airlines. I seriously believe that market has hit a low-cost saturation point.
They are now actively making their most common product worse, more painful and
difficult to use, in order to sell upgraded versions.

------
PhantomGremlin
I wish I could read an article on why Apple insists on, version by version,
making their software worse. E.g. recently released Safari 10 inexplicably
removes the Accessibility preference to "Never use font sizes smaller than
...".[1]

Unfortunately you won't find anything informative like that in this article.
Instead you get examples such as why in 1849 French railways offered three
classes of travel, and why the lowest tier was deliberately very bad. That
doesn't really help explain current practices (unless Apple inexplicably wants
to force me to use Firefox instead of Safari?).

[1] fortunately the internets have already discovered a command line
workaround, but should that really have been necessary?

    
    
       defaults write com.apple.Safari com.apple.Safari.ContentPageGroupIdentifier.WebKit2MinimumFontSize -int 18

------
brbrodude
"Lying is good!" \- Economists

~~~
vorg
Advertising non-existent cheaper but lower-quality alternatives is a by-
product of actually having those alternatives in an industry. When a hotel
advertises budget hotel rooms in its front window, but tells walk-ins that
they're sold out and only the more expensive larger ones are available, that
hotel is cashing in on the tiered quality-price phenomenon with a bait-and-
switch ploy. Such "lying" is merely a by-product, not the product itself.

And in fact such by-products needn't even be based on "lying", such as when a
business "withdraws" its cheaper alternative by changing the rules of
purchase, e.g. requiring the customer to buy a high-markup item at the same
time.

