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How so? He's selling twice as many at full price as the discount price according to his real time stats. To my mind, that seems like this isn't a failure at al

by ericb 16y ago

How so? He's selling twice as many at full price as the discount price according to his real time stats. To my mind, that seems like this isn't a failure at all.

sachinag 16y ago
The penny rule. The number of people who go from pirates to $2.99 is dramatically outweighed by the people who go from $5.99 to $2.99. (Do the math; that's a net loss.) The only way this works out for the developer if this scheme results is PR and raising awareness overall amongst people who are potential customers who wouldn't have known about the product anyway.
- tptacek 16y ago
  $5.99 is also an absurd price to begin with. By the way, the next time someone on HN asks what "market segmentation" is or why product managers get paid money, this thread would be a good object lesson.
  - ericb 16y ago
    Yes, this thread is an excellent object lesson--he achieved self-segmentation in his market using nonstandard practices all without a product manager while simultaneously creating great PR.
    - tptacek 16y ago
      I don't know what this comment means, except for the "great PR" part. I agree, it's great PR; unfortunately, since people will clearly pay much more than $5.99 for a solid expansion to a game, you're going to have a hard time convincing me that a confusing pricing scheme that practically begs people to pay less than $5.99 is a success.
      - ericb 16y ago
        > I don't know what this comment means I think you're a smart guy and being disingenuous here, but I'll play along. A market segment is a sub-set of a market made up of people or organizations with one or more characteristics that cause them to demand similar product and/or services based on qualities of those products such as price or function. source: http://en.wikipedia.org/wiki/Market_segmentation http://en.wikipedia.org/wiki/Market_segmentation If there are users who will pay 2.99 but not 5.99, this strategy can still capture their value today, but simply pricing at a higher price will not. You posit that people will pay much more than 5.99 for an expansion pack for this game and I don't think you're in any position to know that about this game.
        tptacek 16y ago
        I don't know what "self-segmentation" means; I'm not being disingenuous. Do you mean "users segment themselves"? Because no, they don't; he created 2 segments, both wildly underpriced, and provided no rational incentive for customers to choose the more expensive one. I paid $2 for _The Incident_ on the iPhone. Don't me wrong, _The Incident_ is a work of art, but it does not provide the same kind of value as a title as this game does; I play it in 4 minute increments on the elevator at my office. I am not the only person who paid $2 for _The Incident_. You're right, I don't play computer games (well, I play Starcraft 2 since I bought it for my son --- actually, I bought it twice, so I could play it multiplayer with him; want to guess how much I spent for that?). Maybe this game just sucks and is only worth $6. That's not the impression I got.
        ericb 16y ago
        By self-segmenting, I mean that his customers are voluntarily sorting themselves into market segments according to what they are willing to pay, and then paying that amount. Extracting the most value from your customers is a challenge. Ideally since software has no real unit costs to the developer, you'd like to be able to sell the same software for every value from $500 down to $0 with each person paying the max they are willing. The problem is that you can't divine the amount each person would pay and have no way to manage this. I am saying he has his customers sorting themselves based on what they will pay on his behalf, and in theory he could get closer to the theoretical ideal that way. It is true, there's no rational incentive (although maybe a desire to ensure the developer keeps working on a game you love almost qualifies) but it doesn't matter if using the guilt lever works on irrationality so long as it works, which if his numbers are real, it did to the extent that he sold two at 5.99 for every one at 2.99.
tptacek 16y ago
I didn't think too hard because as soon as I saw his rationale for cost-based pricing I stopped thinking straight. So, just to get you started: * Don't price things based on what they cost you unless you it's an ore or sorghum. * Don't solicit customers that don't value your product. * Don't demand that customers think carefully about which button to push to make a sale. * Don't make the cheap option the first button users eyes cross. You could probably go on to pick apart every sentence in the blog post (like his misunderstanding of the concept and purpose of a "sale") or the fact that his rationale sucks all possible incentive out of making his team more efficient at building and harnessing content for his game, but those are the big ones. PS: if those stats are lying, that'll be the one smart thing he did with this page.
- ericb 16y ago
  Hmmm... I didn't take his rationales seriously at all. I'm surprised you made the mental leap to think the stats might be made up, but not the leap to think that his cost based price might be fudged and provided solely to encourage sales at the higher pricepoint. I just looked at the genius of guilt-based discriminant pricing, and was amazed it worked. (assuming honesty in reporting)
  - tptacek 16y ago
    Guilt-based pricing has been tried in lots of places, and I'm unaware of an example where it's worked well. Radiohead seems to have had the most success, and they grossed less on In Rainbows than any of their label releases (they're a confusing example because their experiment was also about disintermediating the labels, which was a success).
    - getonit 16y ago
      In Rainbows being a failure is the recording industry's spin and, as usual, once you stop taking the cherry-picked data at face value and look at the big picture, you find the complete opposite is true: http://techdirt.com/articles/20081015/1640202552.shtml http://techdirt.com/articles/20081015/1640202552.shtml

by ericb 16y ago

How so? He's selling twice as many at full price as the discount price according to his real time stats. To my mind, that seems like this isn't a failure at all.

sachinag 16y ago

The penny rule. The number of people who go from pirates to $2.99 is dramatically outweighed by the people who go from $5.99 to $2.99. (Do the math; that's a net loss.) The only way this works out for the developer if this scheme results is PR and raising awareness overall amongst people who are potential customers who wouldn't have known about the product anyway.

tptacek 16y ago
$5.99 is also an absurd price to begin with. By the way, the next time someone on HN asks what "market segmentation" is or why product managers get paid money, this thread would be a good object lesson.
- ericb 16y ago
  Yes, this thread is an excellent object lesson--he achieved self-segmentation in his market using nonstandard practices all without a product manager while simultaneously creating great PR.
  - tptacek 16y ago
    I don't know what this comment means, except for the "great PR" part. I agree, it's great PR; unfortunately, since people will clearly pay much more than $5.99 for a solid expansion to a game, you're going to have a hard time convincing me that a confusing pricing scheme that practically begs people to pay less than $5.99 is a success.
    - ericb 16y ago
      > I don't know what this comment means I think you're a smart guy and being disingenuous here, but I'll play along. A market segment is a sub-set of a market made up of people or organizations with one or more characteristics that cause them to demand similar product and/or services based on qualities of those products such as price or function. source: http://en.wikipedia.org/wiki/Market_segmentation http://en.wikipedia.org/wiki/Market_segmentation If there are users who will pay 2.99 but not 5.99, this strategy can still capture their value today, but simply pricing at a higher price will not. You posit that people will pay much more than 5.99 for an expansion pack for this game and I don't think you're in any position to know that about this game.
      - tptacek 16y ago
        I don't know what "self-segmentation" means; I'm not being disingenuous. Do you mean "users segment themselves"? Because no, they don't; he created 2 segments, both wildly underpriced, and provided no rational incentive for customers to choose the more expensive one. I paid $2 for _The Incident_ on the iPhone. Don't me wrong, _The Incident_ is a work of art, but it does not provide the same kind of value as a title as this game does; I play it in 4 minute increments on the elevator at my office. I am not the only person who paid $2 for _The Incident_. You're right, I don't play computer games (well, I play Starcraft 2 since I bought it for my son --- actually, I bought it twice, so I could play it multiplayer with him; want to guess how much I spent for that?). Maybe this game just sucks and is only worth $6. That's not the impression I got.
        ericb 16y ago
        By self-segmenting, I mean that his customers are voluntarily sorting themselves into market segments according to what they are willing to pay, and then paying that amount. Extracting the most value from your customers is a challenge. Ideally since software has no real unit costs to the developer, you'd like to be able to sell the same software for every value from $500 down to $0 with each person paying the max they are willing. The problem is that you can't divine the amount each person would pay and have no way to manage this. I am saying he has his customers sorting themselves based on what they will pay on his behalf, and in theory he could get closer to the theoretical ideal that way. It is true, there's no rational incentive (although maybe a desire to ensure the developer keeps working on a game you love almost qualifies) but it doesn't matter if using the guilt lever works on irrationality so long as it works, which if his numbers are real, it did to the extent that he sold two at 5.99 for every one at 2.99.

tptacek 16y ago

I didn't think too hard because as soon as I saw his rationale for cost-based pricing I stopped thinking straight. So, just to get you started: * Don't price things based on what they cost you unless you it's an ore or sorghum. * Don't solicit customers that don't value your product. * Don't demand that customers think carefully about which button to push to make a sale. * Don't make the cheap option the first button users eyes cross. You could probably go on to pick apart every sentence in the blog post (like his misunderstanding of the concept and purpose of a "sale") or the fact that his rationale sucks all possible incentive out of making his team more efficient at building and harnessing content for his game, but those are the big ones. PS: if those stats are lying, that'll be the one smart thing he did with this page.

ericb 16y ago
Hmmm... I didn't take his rationales seriously at all. I'm surprised you made the mental leap to think the stats might be made up, but not the leap to think that his cost based price might be fudged and provided solely to encourage sales at the higher pricepoint. I just looked at the genius of guilt-based discriminant pricing, and was amazed it worked. (assuming honesty in reporting)
- tptacek 16y ago
  Guilt-based pricing has been tried in lots of places, and I'm unaware of an example where it's worked well. Radiohead seems to have had the most success, and they grossed less on In Rainbows than any of their label releases (they're a confusing example because their experiment was also about disintermediating the labels, which was a success).
  - getonit 16y ago
    In Rainbows being a failure is the recording industry's spin and, as usual, once you stop taking the cherry-picked data at face value and look at the big picture, you find the complete opposite is true: http://techdirt.com/articles/20081015/1640202552.shtml http://techdirt.com/articles/20081015/1640202552.shtml