
"No matter what price we choose, we always make the same revenue" - inflatablenerd
https://plus.google.com/115711522874757126523/posts/LwZyWLKLN94
======
meric
>> 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.

~~~
jmonegro
Not necessarily in between, you'd have to draw a demand curve at various
different prices to determine the optimum // guy who is studying economics

~~~
nl
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

~~~
aptwebapps
The optimum point might lie outside. The curve might even dip in between the
two price points.

Edit: The operative word here is 'might'.

~~~
nl
Yes, it 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.

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mdda
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).

~~~
barredo
Apple's simple take on this may be revealing:

    
    
      iSomething   = $X
      iSomething+  = $X+100
      iSomething++ = $X+200

~~~
lukifer
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.

~~~
alex_c
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).

~~~
ToastOpt
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.

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alecbenzer
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?

~~~
orky56
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.

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carbocation
A fine example of the price elasticity of demand. Not surprising in the
slightest, but a helpful real-world illustration.

~~~
apu
Actually, I found it surprising because almost all theoretical economic models
seem so divorced from reality that nothing ever works as you expect.

~~~
chimeracoder
"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.

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noonespecial
Its easy then. Keep the price high and it will lower your support costs. Make
more profit.

~~~
adamt
But if your growth is in some way viral/exponential due to word of
mouth/recommendations, then you're better off having 5x as many users today.

In very crude terms: $1 x 5x5x5x5x5 is a lot more than $5 x 1x1x1x1x1x1

~~~
epo
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.

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MichaelGagnon
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%?

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Zash
Is this why products often enter market at a high price, which is then lowered
gradually?

~~~
xenophanes
No, that's for price discrimination.

~~~
FaceKicker
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?

I thought that was Zash's point anyway.

------
ugh
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?

~~~
randomdata
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.

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makira
For one of our app, which was selling well, we eventually doubled the price.

Revenues started growing, month after month, and stabilized after about 6
months.

Conclusion: revenues more than doubled, units sold slightly increased.

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diziet
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".

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jorkos
This is why in-app purchases are so effective. Charging everyone the same
price all the time doesn't make sense with digital goods

~~~
jrockway
It doesn't make sense with regular goods, either. Or with anything, actually.

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decadentcactus
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

~~~
codelion
Where did you hear that from ? On the contrary.
[http://www.geekwire.com/2011/experiments-video-game-
economic...](http://www.geekwire.com/2011/experiments-video-game-economics-
valves-gabe-newell) "What we saw was that pricing was perfectly elastic. In
other words, our gross revenue would remain constant."

~~~
taejo
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.

~~~
codelion
Only in certain cases, and he mentions that they do not understand it well
enough so they are still experimenting.

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reubenswartz
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.)

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aptwebapps
From a comment on the Google+ discussion came this corroboration, of sorts,
from Gabe Newell.

[http://www.geekwire.com/2011/experiments-video-game-
economic...](http://www.geekwire.com/2011/experiments-video-game-economics-
valves-gabe-newell)

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.

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alokm
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.

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pellias
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.

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SeanLuke
I wonder what happens when he sells for $0. An infinite number of buyers?

~~~
chii
Yep, sometimes thats called piracy too, in case you're wondering...

~~~
SeanLuke
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):

[http://www.hulu.com/watch/4258/saturday-night-live-first-
cit...](http://www.hulu.com/watch/4258/saturday-night-live-first-citywide-
change-bank-1)

[http://www.hulu.com/watch/4253/saturday-night-live-first-
cit...](http://www.hulu.com/watch/4253/saturday-night-live-first-citywide-
change-bank-2)

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DefinitelyNbdy
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.

~~~
rcthompson
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.

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lwat
In his position I might stick with a higher price. I'll sell fewer units
meaning there's not as many clients to support while making the same revenue.

~~~
phob
At the lower price, you produce a lot more consumer surplus. This is valuable
if you're the charitable type.

~~~
cpeterso
What is "consumer surplus"?

~~~
harryh
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!).

~~~
netcan
adding to that..

@ 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.

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dbbo
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.

