

Dan Ariely: "Why is the price anchor for apps so low?" - brianmackey
http://danariely.com/2011/12/25/the-oatmeal-this-is-how-i-feel-about-buying-apps/

======
saurik
No. While I laugh as hard as the next guy at that Oatmeal comic, the reality
of the situation is that these examples aren't actually true: people are
/often/ "really cheap".

1) tons of people refuse to go to Starbucks: "coffee should cost $0.50; I'll
just stop at McDonald's"

2) tons of people don't go to see movies when they are released: "why watch it
now when I could wait a month and watch it at the budget theater?"

3) tons of people don't buy concessions when they do watch movies: "I can make
popcorn at home for almost nothing; maybe I can even just sneak it inside"

4) tons of people buy Dell laptops: "why would anyone knowingly pay the 'Apple
Tax'? I can get a much better computer at half the price if I go with a PC
instead"

I know people who refuse to purchase soda water in bottles: they only use the
SodaStream, as the compressed air cartridges are cheaper (or, more simply,
drink flat tap).

Everyone knows people who sit around endlessly comparing prices on plane
flights on the one hand, while constantly complaining about the decreasing in-
flight meal quality on the other.

Hell, McDonald's is even trying to take advantage of this by directly
attacking Starbuck's where it hurts: they are now selling stronger and more
intricate coffee concoctions.

[http://www.seattlepi.com/business/article/McDonald-s-
challen...](http://www.seattlepi.com/business/article/McDonald-s-challenging-
Starbucks-with-cheaper-1249371.php)

This isn't because these products were introduced too cheaply (I remember when
domain names cost $75/year), or even because there are lots of free
comparables (people optimize fractions of a percent on their plane tickets).

People are simply cheap. If you want to list a reason for it, I'd guess
"short-sighted": they expect (nigh unto demand) things to be commodity
products that aren't.

I mean, how many of these people who complain about in-flight meals ask
themselves "how much would I pay for a better meal"? The people I know who ask
that question are already drastically different consumers.

I went out shopping for a microwave yesterday, reading reviews of the various
models, and I see tons of complaints that X model only lasted a year or two.

You have to wonder: if a company makes a product for $20 less that starts to
fall apart in a year (as it is held together with cheap glue and plastic that
wears through), will people actually not buy it?

As far as I can tell, people still buy it, and they buy a lot of them (these
are the microwaves with the largest numbers of reviews; yes, the ones that
don't work even have more positive reviews, as more people are buying them).

The incentives that consumers are enforcing on their suppliers simply suck. If
people looked into their purchases ahead of time, asking the right questions,
and knowing what they are willing to pay for various benefits, these broken
products might simply never be made.

This is why companies like GoDaddy can exist: charge slightly less than the
competition (as people are cheap), make it up in the backend with irritating
upsells or by directly selling your personal information.

How many people who demand unlimited bandwidth wonder how that business model
possibly works? Further, how many of them wonder whether the answer is more
complex than "they have secret caps"?

(For the record, the answer is pretty complex, and involves a market where
application vendors such as Netflix would normally pay off carriers on the
backend to get their apps onto devices; the App Store has disrupted this
market.)

So, given all of this, we now have to direct our questions to the story of the
app developers, to see why they think their situation is so different, and I
think this is where it gets good.

First off, it isn't in fact the case that people offering cheap goods are
making the most money. They have the most downloads, but are not the highest
grossing.

This became really clear when Apple added a "top grossing" category: in the
market where everyone was whining that apps "had to be $1 to sell", the top
app was actually a $50+ GPS navigation app.

So really, developers just /think/ they are in a market where no one is
willing to buy apps for more than $1, despite even more obvious high-cost
examples ($10 apps from EA and PopCap).

Why? Honestly, because we have made producing and distributing goods so simple
that people who are neither trained nor experienced in the numbers are now
dominating it (and certainly are the ones most blogging about it).

Airlines hear complaints about pricing (or alternatively, about their meal
quality) /constantly/; as does Starbucks, as do movie theaters (as does Apple
itself on hardware, btw).

However, they don't care. Even if they get 10,000 complaints; /if even if they
get more complaints than sales/, these are not lost customers: these are
people below their chosen profit point.

I seriously see app developers who seem to be optimizing for "no complaints".
They keep dropping the price point trying to find a place where it becomes a
"no-brainer" so that "everyone will buy it".

However, you really need to ask: if you sell it for $10 instead of $1, do you
get 1/10th the customers, or simply 1/5th? If the answer is "1/5th", you
should seriously consider $10.

Notice: if you do sell it for $10, and it is really really easy for people to
complain or leave feedback (internal rating/commenting systems are really bad
at contributing to this), you are going to see /tons/ of complaints.

You might even see more complaints than satisfied customers, and you might
even see four times as many complaints as you see satisfied customers; and
yet, you made twice as much money.

This allows you to hire twice as many people, allowing you to make a much
better product, allowing you to make more sales at the higher price point...
this is how quality products work.

Apple has classically had a fraction of the market Dell did, but they had
/such a higher margin/ that they could offer all kinds of things that Dell
couldn't (such as great service).

(Which is also an important point: if you increase your price from $1 to $2,
the difference in margin might be much more than "twice as much": if Apple
sold their iPhone at $170 they'd make no money at all.)

Instead, developers self-select themselves into the bargain bin; they are so
tied in to their negative feedback (I mean: it really does hurt to get it),
that they have a difficult time realizing the positive feedback.

What people really need to do is analyze their market, think about what kinds
of customers they are targeting (which might very well be "price conscious
consumers"), price their product appropriately, and learn to live with some
complaints.

------
evolve2k
One reason is the risk involved in app purchasing. With all the other items
you essentially already know what you are getting.

With apps you essentially buy them blind. A crappy app already has your money
when you realise it's crap.

Uncertainty leads to a tendency to put things off.

Apps might be much better off if there was an easy way to have a free trial
period/limited feature set.

One reason free apps are desirable is because there is no downside risk in
obtaining them initially.

If more apps had a free trial period, be it a day or hell even an hour I think
we'd see a much greater propensity for people to pay and pay more after the
quick trial is open.

~~~
saurik
While this is an interesting contributory factor, the kind of feedback people
get regarding pricing is epic. I have a friend who released an app for
customer relationship management ("FollowUp!", or something like that; it
could also be used to keep track of friends you don't talk to often enough)
and got a comment that read along the lines of:

"""This app is amazing. It changes the way I do business. I use it every
single day. It exactly solves my problem. However, $5 for an app? Come on,
that is unreasonable."""

Additionally, there are good ways to mitigate people purchasing things
"blind": in addition to having good screenshots, and a well written
description (preferably one you redraft often and are A/B testing), you are
also going to want a website that includes more: maybe a video.

I mean, a ton of video games are also "crap": I remember many Nintendo games I
used to own that simply sucked, and where you regret having spent $35 on the
cartridge. However, people still paid $35 for those cartridges, as the good
games spent the time to do marketing.

At the time that meant getting into trade magazines (Nintendo Power! being an
epic one, but there were tons of smaller ones that I used to subscribe to);
today that would mean being covered by various blogs or online papers. A few
years ago, we had a game company, and one of our three people spent most of
his time just handling press.

This is no different for iPhone games either: the guy who wrote GeoDefense
(one of the most popular and most profitable games for the iPhone platform)
talks endlessly at conferences about how what made him successful was hiring a
PR firm to handle his press announcements: he was simply covered everywhere.

With things like this in place, users aren't "buying blind": they are making
informed decisions about products they heard about elsewhere, and are simply
using the App Store as a payment and distribution vehicle.

(Which, seriously, is all that it is good at; too many people try to use it
for "discoverability", and then end up with these very problems: users don't
really know what their app is or what it does, no one finds it unless you are
under top-selling, and before you know it you are stuck in a $1 price category
or trying to work freemium; they are bargain-binning themselves.)

------
emettler
Because when I tried to open your page on my iPad using an acclaimed 3rd party
browser (that I 'underpaid' for)...it crashed. And when I relaunched and
attempted a gesture that I thought would get me back to your page it instead
loaded 5 blank tabs. Generally my coffee doesn't explode and Brokeback
Mountain was ... Ok. I finally got back to your site on my desktop, but
generally the apps themselves are the best explanation for their cost. If you
want a mildly theoretic explanation, usability and programing languages are
probably where you should look... despite the sun never seeming to set on the
behavioral economics empire...

