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Assuming you are a software developer, I think you should reconsider your "price should approximate production cost" reasoning. I think it will hold you back i

by ttcbj 10y ago

Assuming you are a software developer, I think you should reconsider your "price should approximate production cost" reasoning. I think it will hold you back if you eventually try something entrepreneurial. When I started a small software company, I originally had a similar understanding. I subconsciously thought that the software should be priced to pay for its development cost, plus some profit. I was not very successful, until I realized that the product should be priced as a percentage of the value it delivered to the customer. Customers don't want you to do a lot of work, they just want their problem solved for a price that is reasonable relative to the benefit of the solution. This idea reverses several of your conclusions: 1. The product should be priced based on how much value it delivers, and only those companies that can deliver the product for significantly less than that price will stay in business. Once a company finds a need that people will pay for, it generally makes sense to drive the cost of production down while maintaining the same benefit, thus maximizing profit. 2. The more value a company creates with the resources it uses (the greater its margin), the more left-over resources it will have to invest in producing still more benefits, or to return profits to its original investors. So, going back to the cost of digital content, I am happy to pay for it, as long as I end up feeling the movie was worth watching for the price. And if they can produce great content without many resources (or with lower cost of delivery), all the better. My problem, right now, is that there is so much great content I cannot ever hope to watch it. But that is not a problem that really bothers me, I am happy to keep paying to have a long list of shows I'd like to watch, if I could just find the time.

TACIXAT 10y ago
I will keep this in mind, mostly because you described my mentality to a tee. That is absolutely my reasoning on software projects. Though I have yet to set up a payment processor on any, my intentions were to price them very low. Thanks.
rjbwork 10y ago
Indeed. It's a hard shift in perspective from the default that we developers are biased towards given our "in the trenches, know the details" position.
enraged_camel 10y ago
Yep. Specifically, the reason digital rentals cost $5 is because of convenience. The parent poster gave Blockbuster as a counter-example. But you had to physically visit the Blockbuster store to rent and return stuff. Digital content is way more accessible.
ajkjk 10y ago
There's another big factor for me: price should reflect how much the business deserves. This is why I hate paying Comcast's prices but wouldn't mind them if I business I didn't hate charged the same amount. It's also why I hate paying the same price for a Kindle book as a regular book, when I can't even hand the book to someone else after I'm done with it. If it was being bought from the author, maybe. From a publisher or distributor -- no way. I'll borrow a friend's or torrent it, just to not give you money.
- pdimitar 10y ago
  Thanks for saying exactly what I think. I am fine with people making money -- our economy is a big but closed system and the money flows in all directions. Not a problem that somebody wants to make a buck. But when they do it in a way that most of their customers hate their guts but can't get anything else (due to monopoly or oligopoly) then eventually people find a way around you. It's inevitable. Current prices of movies and books are insane for the value they're giving you. Not to mention Amazon has been caught red-handed several years back that they can remotely delete any file from your Kindle if they so desire. I have no doubt in my mind that Apple, Google etc. can all do the same. Business interests > consumer interests, this hasn't changed ever since the first economy in the world emerged. It was then I took the decision to never buy digital goods from corporations. You never really own what you pay for.
- vacri 10y ago
  > If it was being bought from the author, maybe. From a publisher or distributor -- no way. So you'll pay the author, unless the author is only collecting royalties, in which case fuck the author? What are you paying for then? Distribution? But you say fuck them too. As usual, this kind of reasoning just sounds like trying to explain away "I just want it for free".
  - ajkjk 10y ago
    No, if I just wanted it for free, then I would just say I want it for free. Yes, I don't want to give a retailer money if they're taking massive profit they don't deserve, even if that means not giving the author money either. A small profit for distribution is fine. (The lifetime value of a Kindle format of a book is far less than that of a physical book. I try to pass on almost every physical book I buy to someone else for reuse.) I would rather: * get it for free * get it for free, and give the author money some other way * wait till I can get it in a less-undeserving way * just go buy it from someone else to deny giving business to the big company that doesn't deserve it (say, to an independent bookstore.) * buy a different format that they deserve to make more money on. And I'll venture to guess that, if you don't understand this thought process, the buying behaviors of 'millennials' (which advertisers care a lot about understanding) are probably a total mystery to you.
k26dr 10y ago
This is the best entrepreneurship TLDR/ELI5 I've come across. Thank you, I plan on quoting this in the future
hbt 10y ago
There is a name for that: price gouging. Maybe you can justify selling an ebook for 800$ because when using it the customer will recover their investment. What if your hospital/doctor/insurance starts doing that? After all, wouldn't be a good investment to not be DEAD or suffering? Wouldn't you give them a shit load of money for all that value they created for you? It's a bullshit justification for milking people out of their money. I prefer the Amazon/walmart approach. Commoditize aggressively and keep the competition away by having low profit margins. Make your money off volume instead of gouging a small pool of customers. The same applies to this Hollywood crap. They are price gouging with licensing deals, geo-location restrictions, delayed releases etc. Then wonder why aren't enough people willing to pay us what we ask them to? Fuck off.
- nemothekid 10y ago
  >I prefer the Amazon/walmart approach. Commoditize aggressively and keep the competition away by having low profit margins. Yes, and pay everyone in between absolute peanuts. Enjoy your sitcoms farmed out to overworked Amazon Turk writers. Amazon can get away with it because buying a book on Amazon is the same as buying one on Barnes and Nobles. Good content however costs money, and decent writers won't work for the same wages as Amazon warehouse workers.
- hathawsh 10y ago
  Your argument applies well to commodities. Today there are so many commodity products that we're almost drowning in them. Amazon, Walmart, Costco, and others have risen because they are optimized to take advantage of commodities. Your argument does not apply to new products and services. Let's say you've written a new AI-driven CRM product that maintains customer contact automatically without being overbearing. How do you price it? There's a lot of risk because it's never been done before and you don't know how easy it is for other companies to copy you. You need to build in a margin that allows you to fund not only your current staff but also future improvements. So, in short, it's important to know whether your product or service is a commodity (or whether commodities compete with your product). It deeply impacts the way you develop your pricing.
- thomyorkie 10y ago
icebraining 10y ago
On the other hand, TACIXAT is drawing from a point-of-view as a buyer, and that position isn't rare, especially when you're selling to individuals (ie, paying with their own money). People do feel cheated when stuff costs way above what they perceive is fair, even if it's still a fraction of what they get from it. Of course, what they perceive as fair and the actual costs are often widely different, since most people don't have a good sense of what stuff costs to make.
- pdimitar 10y ago
  Yeah, because copy-pasting a movie's poster in a website and then "distributing" the video file costs so much. Sorry for being sarcastic. But maybe you should make a clearer point. If I did understand you correctly however, the digital goods cost cents for the distributors, at best.
  - icebraining 10y ago
    I was making a general point, hence "often" and "most people", not about this specific case.
devishard 10y ago
Surely you realize production cost and value to the customer are related?

by ttcbj 10y ago

TACIXAT 10y ago

I will keep this in mind, mostly because you described my mentality to a tee. That is absolutely my reasoning on software projects. Though I have yet to set up a payment processor on any, my intentions were to price them very low. Thanks.

rjbwork 10y ago

Indeed. It's a hard shift in perspective from the default that we developers are biased towards given our "in the trenches, know the details" position.

enraged_camel 10y ago

Yep. Specifically, the reason digital rentals cost $5 is because of convenience. The parent poster gave Blockbuster as a counter-example. But you had to physically visit the Blockbuster store to rent and return stuff. Digital content is way more accessible.

ajkjk 10y ago

There's another big factor for me: price should reflect how much the business deserves. This is why I hate paying Comcast's prices but wouldn't mind them if I business I didn't hate charged the same amount. It's also why I hate paying the same price for a Kindle book as a regular book, when I can't even hand the book to someone else after I'm done with it. If it was being bought from the author, maybe. From a publisher or distributor -- no way. I'll borrow a friend's or torrent it, just to not give you money.

pdimitar 10y ago
Thanks for saying exactly what I think. I am fine with people making money -- our economy is a big but closed system and the money flows in all directions. Not a problem that somebody wants to make a buck. But when they do it in a way that most of their customers hate their guts but can't get anything else (due to monopoly or oligopoly) then eventually people find a way around you. It's inevitable. Current prices of movies and books are insane for the value they're giving you. Not to mention Amazon has been caught red-handed several years back that they can remotely delete any file from your Kindle if they so desire. I have no doubt in my mind that Apple, Google etc. can all do the same. Business interests > consumer interests, this hasn't changed ever since the first economy in the world emerged. It was then I took the decision to never buy digital goods from corporations. You never really own what you pay for.
vacri 10y ago
> If it was being bought from the author, maybe. From a publisher or distributor -- no way. So you'll pay the author, unless the author is only collecting royalties, in which case fuck the author? What are you paying for then? Distribution? But you say fuck them too. As usual, this kind of reasoning just sounds like trying to explain away "I just want it for free".
- ajkjk 10y ago
  No, if I just wanted it for free, then I would just say I want it for free. Yes, I don't want to give a retailer money if they're taking massive profit they don't deserve, even if that means not giving the author money either. A small profit for distribution is fine. (The lifetime value of a Kindle format of a book is far less than that of a physical book. I try to pass on almost every physical book I buy to someone else for reuse.) I would rather: * get it for free * get it for free, and give the author money some other way * wait till I can get it in a less-undeserving way * just go buy it from someone else to deny giving business to the big company that doesn't deserve it (say, to an independent bookstore.) * buy a different format that they deserve to make more money on. And I'll venture to guess that, if you don't understand this thought process, the buying behaviors of 'millennials' (which advertisers care a lot about understanding) are probably a total mystery to you.

k26dr 10y ago

This is the best entrepreneurship TLDR/ELI5 I've come across. Thank you, I plan on quoting this in the future

hbt 10y ago

There is a name for that: price gouging. Maybe you can justify selling an ebook for 800$ because when using it the customer will recover their investment. What if your hospital/doctor/insurance starts doing that? After all, wouldn't be a good investment to not be DEAD or suffering? Wouldn't you give them a shit load of money for all that value they created for you? It's a bullshit justification for milking people out of their money. I prefer the Amazon/walmart approach. Commoditize aggressively and keep the competition away by having low profit margins. Make your money off volume instead of gouging a small pool of customers. The same applies to this Hollywood crap. They are price gouging with licensing deals, geo-location restrictions, delayed releases etc. Then wonder why aren't enough people willing to pay us what we ask them to? Fuck off.

nemothekid 10y ago
>I prefer the Amazon/walmart approach. Commoditize aggressively and keep the competition away by having low profit margins. Yes, and pay everyone in between absolute peanuts. Enjoy your sitcoms farmed out to overworked Amazon Turk writers. Amazon can get away with it because buying a book on Amazon is the same as buying one on Barnes and Nobles. Good content however costs money, and decent writers won't work for the same wages as Amazon warehouse workers.
hathawsh 10y ago
Your argument applies well to commodities. Today there are so many commodity products that we're almost drowning in them. Amazon, Walmart, Costco, and others have risen because they are optimized to take advantage of commodities. Your argument does not apply to new products and services. Let's say you've written a new AI-driven CRM product that maintains customer contact automatically without being overbearing. How do you price it? There's a lot of risk because it's never been done before and you don't know how easy it is for other companies to copy you. You need to build in a margin that allows you to fund not only your current staff but also future improvements. So, in short, it's important to know whether your product or service is a commodity (or whether commodities compete with your product). It deeply impacts the way you develop your pricing.
thomyorkie 10y ago

icebraining 10y ago

On the other hand, TACIXAT is drawing from a point-of-view as a buyer, and that position isn't rare, especially when you're selling to individuals (ie, paying with their own money). People do feel cheated when stuff costs way above what they perceive is fair, even if it's still a fraction of what they get from it. Of course, what they perceive as fair and the actual costs are often widely different, since most people don't have a good sense of what stuff costs to make.

pdimitar 10y ago
Yeah, because copy-pasting a movie's poster in a website and then "distributing" the video file costs so much. Sorry for being sarcastic. But maybe you should make a clearer point. If I did understand you correctly however, the digital goods cost cents for the distributors, at best.
- icebraining 10y ago
  I was making a general point, hence "often" and "most people", not about this specific case.

devishard 10y ago

Surely you realize production cost and value to the customer are related?