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The most surprising thing I learned from this is that even juxtaposing two options will help you get higher pricing. When thinking of product and service pricing, for me it's difficult to invent three different options sometimes, so it's relieving to know that I could create just two and it will get me most of the way there.

It is also crazy to think how relational it all is. I don't really need that extra $7 beer at the bar, "but who cares, we're having fun". Whereas paying $8 a month to the New York Times took me months and months to decide on because I wasn't used to paying for it, even though I'd been a reader for years.

It really is a mostly emotional decision.




For me, the thing is that you're buying one beer for $7 one time, not "beer in perpetuity, or until you remember to change your mind".


"You'll be back." - Beer


But you're also getting something for it in perpetuity.

People, I find, are simply irrational when it comes to monthly subscriptions. I'm a student with <1000E income and a monthly cost <20E doesn't even register; as long as I get something from it I want. If it's not big enough to induce a lifestyle change, what's the problem? So often I see people use Spotify and complain about the commercials, and I'm just like 'What is wrong with you? Literally nothing would change if you spent that money and clearly you would benefit from it. Why do you not do it?'


Let's turn it around. If you invest 120 dollars into your retirement fund every year for the next 40 years, you'll end up with 33.5k. Instead, you spent 4.8k. The person who listened to a few commercials is up 40k on you at retirement.

This is an extreme example (after all, you're not going to spend 10 dollars on Spotify for the rest of your life), but the principle of the matter stands: Money saved now will be worth more later thanks to compounding interest. In a sense, the dollars you earn today are the most valuable dollars you'll ever earn.

It's up to you to make the judgment call on a case by case basis whether you'd like to live in the moment, or whether you'd prefer to save. Everybody draws the line somewhere (I personally have a Spotify subscription), but to call it irrational is... a bit irrational.


How does that play at the negative interest rates times?

Anyway, all that is true, and I did know that when younger. What nobody tells you is that there are a few times when your income grows faster than an exponential. Everything you save up before of one of those few times is basically worthless.

Anybody's main goal should be to have as many of those income growing events as possible. Not giving-up everything when young because of compounded interest.

Yet, this thing is not predictable, thus it's always good to save a bit. It's a balancing act, not a clear-cut good vs. bad situation.


Stock market isn't negative interest


People don't invest every single dollar they have into a fund. You're always going to have a bit of money laying around, why not put it to use?

And even if one went with it: I'll be up by a multiple of 33.5k because I spent money on things that put me in a better mood to work on myself and lead me to better jobs etc. etc.


You make a good point but I don't think this is the main dynamic at play. I'm much more hesitant to buy a $5 app, a one-time purchase, than a $7 beer.


I've noticed that I'm more open to spending money on food rather than things like apps/music etc. Buying a $2 app is a week-long decision for me. Whereas I regularly spend ~$10 on a pizza when I'm bored.


I'm the same and it doesn't really make any sense. Ok food is physical and tasty, but you enjoy it for maybe 15 minutes vs a game that could provide 100s of hours of entertainment?


The difference is uncertainty. With pizza, you know pretty well what you are going to get. With an app, 90% are crap, 9% are ok but not what you personally prefer, 1% are great. So, gambling $2 with a seemingly 1% chance of greatness feels like an app costs $200. The reality is not that bad. But, it's all about how it feels.

On top of that, it's not even really about the money. You don't want to feel bad about getting tricked into paying for a crap app. You'd feel like a sucker. It would be frustrating. People do all kinds of mental gymnastics to avoid feeling embarrassment and frustration --to the point that it's dangerous to call out a scammer because they are likely to get geniunely indignant and angry to avoid feeling the embarrassment of their obvious lie. Procrastination to avoid possible frustration is very, very common.


And that's exactly why guarantees are so effective for sellers. It takes that risk off the customers shoulder, and due to the "Oh, it'd be embarrassing to refund this app, since that means I made a mistake", very few people actually go through with the guarantee.

One pitch I found pretty neat goes roughly as follows.

Buy <product> now, and if within (30|90|365) days you at any point feel unsatisfied with it, feel free to ask for full refund, no questions asked, and you get to keep our <marginal cost 0 infoproduct>, valued X$, as a gift from us for trying it out.

Short breakdown of it.

    "Buy <product> now" - bog standard call to action  
    "(30|90|365) days" - if the product is any good, longer guarantees usually reduce returns, since they give more time to grow on the product and forget the guarantee date. 
    "feel unsatisfied" - eg. you don't even need a reason to return it 
    "full refund" - that's pretty d'uh now, try a 110% refund for extra excitement 
    "no questions asked" - eg. we're not going to hassle you for trying to use this. you will not feel stupid. 
    "get to keep <infoproduct>" - even if you opt out, you get something
    "valued X$" - with a home made infoproduct, that value is pulled straight from the posterior, but gives a value anchor 
    
And suddenly that 3000$ product seems less risky than a 2$ app.


Another reason to offer this money back guarantee when selling products online: you're already doing this whether you want to or not. Your customer's credit card company will usually offer a chargeback within 90 days, and then you'll cop the penalty fee for the chargeback. You may as well offer the same guarantee as the cards do, but encourage the customer to come to you instead. You'll avoid the fee and potentially get intel on what problems customers are having with your product.


> And that's exactly why guarantees are so effective for sellers... very few people actually go through with the guarantee.

Not always -- many people are shameless jerks. REI used to have a lifetime no-questions-asked return policy, but people were returning worn-out shoes and such, so they had to discontinue it.



I guess it's also training. We have many positive experiences of the "risk" of ordering pizza has turned out well. The number of experiences we have had to psotively reinforce app purchase positive experience is likely two orders of magnitude smaller.


Also, the benefit is more immediate. "I will enjoy this food within the next 30 minutes" is closer temporally than "I will enjoy this app over the course of the next few months or maybe even years".


>The difference is uncertainty. With pizza, you know pretty well what you are going to get.

Two counter-arguments:

People buy enticing stuff off of supermarket shelves all the time though -- things that they are not certain if they'll like them.

Lots of people who have bought and generally like an app (or so they say), still complain for its price on boards, even if it's comparable to a beer. E.g. they ask why a $2.99 app isn't $0.99 etc.

So it's not just "uncertainty".


Think you nailed it on the head with your example - with food, you're fulfilling a necessary contract with your body. You have to eat, and even if the pizza is terrible and you're unhappy with it, you've satisfied the necessity of eating.

With the app, not only are you out a few dollars, you potentially commit the sin of wasting your time by not fulfilling any desires. Though the upside is exponential (in relation to the food), so is the downside.


You also have to decide whether you want to spend time on the app.


Is it possible that you now (like most consumers) have been conditioned to expect apps to be free? Meanwhile, nobody expects anyone to give them a pizza or a beer for free.


I guess you've never gone to university then, because those places don't function without free pizza. It is the only reliable way to get students (and postdocs) to attend your event.

(Yes, I'm aware that attendance is the "price" for the pizza, but let's just say that cold pizza can still be had for free.)


While that's an interesting edge case, what I probably should have said is that pizza and beer is something adults expect to exchange money for, as opposed to apps.


Those two cater needs of different levels on Maslow's hierarchy. People don't have to pay for air and sometimes even for (clean enough) water, but if they'll have to they will pay for that before paying for some $5 digital artifact.


I think you know the value of the beer vs the unknown app.


Maybe that's because most apps are garbage.


Yep, I distill this as "future annoyance."

How much future annoyance is your product worth? 8 dollars per year?

The mental overhead in case my card changes might not be worth it.


I think you meant "Yep, I brew this as 'future annoyance'"?


Would be cool if some services allowed you to sign up for one month at a time, with a renewal-by-single-click close to the end of each expiry period, kind of exactly like ordering beers one at a time until you're done.


Seriously! Think about how we deal with Android/iPhone apps.

I go to Five Below or a Dollar Store and stock up on $2-$3 items that are kind of neat even venturing into the $5 range occasionally for "premium garbage" yet I get on the Google Play store and see a really awesome app that fills one of my needs but it's $2! How can someone charge $2 for THAT? They only spent a year working on it and it fits my need perfectly but $2 is too much!

It's really weird, for sure.

I think the hardest part with things like the New York Times is that a lot of us are getting our news from aggregators. I don't give a shit about the New York Times as a company nor any others. I read down through places like Hacker News and click links there. If, occasionally, it's a link to a NYT article, I read it (or don't.. I guess?) but otherwise, if any one of the news sites disappeared off of the face of the globe, I'd be no better or worse off.

Also, $8/mon is nothing when it's one news site but if each site begins charging, using a news aggregator is going to be a very expensive proposition...


There is something to be said though about being able to see, touch, and feel that $3 tchotchke in the store rather than downloading an app with no idea of it's depth or quality (unless there is a brand reputation already).

I think there's something primal about touching/seeing something before buying, and I haven't seen anything digital that even comes close to this sense of grokking the whole thing you're buying in a few seconds/a minute of physical inspection.

I'm curious what the difference is (if any) in effect of the GBB pricing model in a store front versus online marketplace.


"if each site begins charging, using a news aggregator is going to be a very expensive proposition"

Yes, it could be, but that won't happen unless the act of publishing gets regulated (like in China, where even bloggers have to (or will have to) have publishing licenses) and forced upon an artificial asking price.


Tangible objects provide a higher sense of gratification, I suppose. $10-15 USD for a single, one-time, movie ticket or $1-5 dollars for a phone application.

And then there's the whole micro payment economy which is another thing.


You may also enjoy reading about how airline pricing works. It doesn't have an emotional component, but they get away with charging wildly different prices for the same service by having prices fluctuate on a day-to-day basis and some other tricks. It's sort of a "people who can pay, will pay" model, where they can gather from a larger chunk of the demand curve.


I think this is modern tech poking it's holes in our economic model. I know that it costs $some_amount_of_money to make a batch of beer. But there's only so much of it. Sure someone can make another batch, but that costs another $some_amount_of_money.

It also costs $some_amount_of_money to make digital media, yet once created, it can be duplicated indefinitely for free.

At least, that's what always hangs out in the back of my mind.




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