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Purchasing Power Parity: Fair pricing for SaaS products

anfilt 4y ago
I hate this. I also hate that the cost to produce an item/product is sometimes quite opaque. I don't care if you think I can pay more. Stuff like this just tells me your ripping me off to get a larger margin of profit.
- ghaff 4y ago
  Why do you care what the cost to produce (and sell and support) an item is? Is it worth it to you or not?
- Gigachad 4y ago
  This is irrational thinking as an end user. All that matters is that the product provides enough value to justify the price. The price in other countries may as well not exist if they aren’t offers available to you.
  - anfilt 4y ago
    No this is not irrational. When it comes to things like this they are only able to justify that price because information asymmetry. It's not irrational to not want to get gouged or overpay. That extra money if it was not wasted because information asymmetry would provide value elsewhere in someones life or business dealings on other things. Like some companies have ridiculous things like MAP when comes to retailers selling their products. Just because a lot people are getting gouged and don't realize it does not mean they are not being gouged on price. Ideally other competition would help balance out this information asymmetry. In the ideal sense that a competitors costs to produce the same product/good would be roughly the same or in at least similar ball park that if one company is pricing something insanely high it would stand out. Although there hosts of reasons this does not work out in practice ranging from limited or no competition. Other issues such as that most goods are not identical ect...
    - fileyfood500 4y ago
      I agree with your sentiment, and I am comforted by competition balancing things out. I think these price distortions are coming from companies with less competition (or they're just losing out on customers!) Most competitive software applications are offered for free (social media, web browsing, word processing) no matter how wealthy the users are, because nobody would pay more for an equivalent product. This is definitely a good argument for encouraging competition and increased price transparency.
    - Gigachad 4y ago
      Price gouging has become a buzzword recently but it has a specific meaning. It's when a store increases the prices of essential items in the middle of a crisis. A store massively increasing the price of water during a natural disaster for example. Per country software pricing does not at all fit this definition. _Most_ products and services are priced differently in different countries. Food is cheaper, labor is cheaper, salaries are lower. Software being priced the same globally would just lock them out of buying it. For the end user, if you buy a $60 game and it provides good entertainment value compared to other forms of entertainment in your country, that was good value. Your entertainment wasn't devalued because someone in Africa bought it for $10 or someone else torrented it for free.
      - anfilt 4y ago
        Your talking about price gouging in the strict legal sense. I suggest just read the first paragraph of wikipedia: https://en.wikipedia.org/wiki/Price_gouging https://en.wikipedia.org/wiki/Price_gouging Particularly these sentences: * "In precise legal usage, it is the name of a crime that applies in some jurisdictions of the United States during civil emergencies. In less precise usage, it can refer either to prices obtained by practices inconsistent with a competitive free market or to windfall profits." * "The term is not in widespread use in mainstream economic theory, but it is sometimes used to refer to practices of a coercive monopoly that raises prices above the market rate that would otherwise prevail in a competitive environment." The term gouging does not always refer to the criminal/civil (depends on jurisdiction) act of price gouging. There is a reason I said "gouged or overpay" and not just gouged because the term does have a few connotations and the overpay clarifies more of what I am getting at. As to your second point if the company is still making money in these countries with less purchasing power at lower prices why not just use that price then? Those people would not be locked out of purchasing it then. Also not everyone in a wealthy country is wealthy or has lots of extra money. High pricing in such countries also locks those people out. This argument is basically saying someone should just pay more because they are likely to have more money, and not pay the actually value of the product or goods. You are combining multiple things in this example such as utility, opportunity cost, economic value to person ect... The same item or product weather priced at $1 or $1,000,000 dollars on average is probably gonna to produce similar amount of utility from person to person. However, with this extreme of the example I made above there are going to be huge difference in particularly opportunity cost. The utility in your case the enjoyment derived from the game of course is going to be same regardless whatever else someone paid for the same game as well. Now companies generally often want to charge as much as they can for a good. Ideally, for every person a company sells their goods too they would charge economic value for that particular person instead of something like market value to maximize profit. Now in a competitive market a company is unlikely to be able charge whatever they want and still remain in business, but in less competitive markets this not necessarily the case. Even if people can afford the goods at these inflated prices in less competitive markets. Exact dollar amounts aside, higher prices are going to lead higher opportunity costs for people which is not a good thing. This is just side note you since mentioned value in your example. What is the true nature of value has been argued quite a bit throughout history. What value is partially depends on what one believes is the correct theory of value. I tend believe all items have some intrinsic value as well as a subjective value. Let's take an other example let us say iron and dirt both products of the Earth. I would say the iron would have a slightly higher intrinsic value than just dirt. This is because iron can do lots of things that can provide more numerous types of utility and that boils down to its material properties. Regardless what one feels or thinks of iron it's going to have the same material properties. However, this does not mean dirt has no value as well lets look at the subjective side of value. A farmer for instance is going to value good dirt probably more than welder that fabricates objects from iron and steel. So value between the two is subjective based off the individual. So the value of good dirt is likely to be higher for a farmer than that of a welder. However, this still does not mean dirt has no intrinsic value either based off it's properties. The properties of dirt can be used to grow things, and certain types of dirt such as clay can even be great building materials because it can be vitrified into bricks for example.
  - Lio 4y ago
    This is not irrational at all. What rational person wants to pay higher prices and to be blocked from arbitrage? In the case of media distributed over the world wide web any sales block is obviously completely artificial and done only for price discrimination. The customers know. It's not a sneaky secret, they can see it right there on the website. Adobe used to be infamous for this kind of bullshit and no body liked them for it. By the same logic, if the customer decides the product doesn't provide enough value to justify the artificially high price the vendor hasn't lost a sale when they pirate it. They weren't going to buy it anyway so it shouldn't matter to the vendor either way. :P
  - MereInterest 4y ago
    The minimum price of a product is the price of manufacture minus the value gained by the seller by selling a product (e.g. door-buster sales). The maximum price of a product is the value gained by the buyer from buying a product. This creates a window of possible prices, with a final price only determined by negotiation. That negotiation may be explicit ("I'll buy from you, but only if you drop the price 15%.") or it can be implicit ("This product is just sitting on the shelf, so I'll drop the price 15%."), but it always exists. By stating that the end user should only consider the price relative to the value gained, that is stating that the end user should give up all room for negotiation right from the start, and pay the highest price from the window of negotiation. It is not irrational for a buyer to negotiate a lower price, perhaps by waiting for the price to decrease over time. Heck, it can even be worth it to avoid/boycott a product as a way to influence the starting point of future negotiations. None of these strategies are by any means "irrational". What would be irrational is to accept the highest possible price without considering the range of negotiable prices.
- oefrha 4y ago
  Leaving aside flexible customer acquisition costs (i.e. ad spend), the marginal cost of digital content (like the course OP’s selling) is practically zero. Your complaint about single unit profit margin makes no sense for zero marginal cost products.
freediver 4y ago
This works only if the product you are selling has near 100% margin. If there is COGS involved (cost of goods sold), if your widget costs $15 to make it does not matter what target customer purchasing power is, you have to sell it at >=$15 or you are losing money. This is why you can not go to Somalia and purchase a Tesla for $10k or rent AWS compute at 1/10 of price for others.
- libeclipse 4y ago
  The marginal cost of digital goods tends to be low A bigger issue is that anyone with a VPN can access the discount
  - matchagaucho 4y ago
    Not if the SaaS has ongoing hosting bills, or years of R&D to recoup.
    - TAForObvReasons 4y ago
      "years of R&D to recoup" does not affect the marginal cost of providing the service to another customer
      - mhuffman 4y ago
        Good luck explaining sunken costs here! I have had many, many discussions about this on this very site and I think that since it is so non-intuitive to anyone that has not taken business courses they just do not believe it.
      - matchagaucho 4y ago
        Going down market with steep discounts most often has higher maintenance and support costs.
    - Dylan16807 4y ago
      Every SaaS has hosting bills. Some of them are significant per customer, and some of them aren't.
ipince 4y ago
How do you prevent people from spoofing or using VPNs to get a lower price? Or do you not, and let it be just another cost of doing business?
- FormFollowsFunc 4y ago
  Could you not check against the country that the credit card is issued in?
  - Beltalowda 4y ago
    Yes, that is what many platforms do.
    - ghaff 4y ago
      Pretty sure that's what Netflix does. I pay on the basis of my billing address but, if I'm in another country, (or come in through a VPN) I get the content based on where I'm located in my experience.
  - kevincox 4y ago
    But you get complex UX flows if your guess at the start is wrong. You think the user is Canadian but puts in a US card what do you do now? IIUC Stripe doesn't have options for dealing with this. Maybe you can reject the payment and make them restart, selecting the country of their payment card.
  - dghlsakjg 4y ago
    I live in Canada, and have for years. I have US Dollar credit cards from Canadian banks, I have US Dollar credit cards from US banks. I have Canadian Dollar credit cards too. My phone number has a US area code (Canada shares an international prefix with the US), but I also have a virtual number for Canada. Whatever system you think of to price discriminate, people will break it. Funny little Canada price discrimination story: Cell phone data is really expensive here since there is no competition, so much so that it is often cheaper to roam on an international line in Canada than to have a contract with a Canadian Telecom, hence the US number.
dzink 4y ago
Complexity will invite arbitrage. What happens when someone enterprising enters all countries and surfaces the lowest price codes on a web site for everyone to find? Or when someone buys via VPN and consumes without. To ensure this system is not abused, you need to match consumption IP location and purchase IP location. If you have consumption via wildly varied IPs that would be a red flag as well. By letting the price difference be known, you encourage a normally willing and able customer to use you via VPN instead.
- pc86 4y ago
  This is all true but the question is at what point of scale does the cost outweigh the benefits? At small scale, you get more money (in absolute terms) using price discrimination with no validation on the back end. As your scale grows, you reach a point where it's worth the monetary and time investment to add validation and things on top. At the end of the day someone using a VPN to get your product for $5 instead of $20 doesn't matter that much unless you're so wildly popular that people are clamoring for it, at which point you theoretically have the staff to start adding in some protections.
  - ghaff 4y ago
    Another factor is considering how difficult you're making things for your legit paying customers just to may sure you keep someone somewhere from ripping you off. A lot of companies strike the wrong balance.
encoderer 4y ago
I would consider this if i operated a consumer SaaS. For a b2b product you really need to spend all your pricing energy on finding ways to charge your best customers more, not find more marginal customers that will erode your gross margins.
paxys 4y ago
The economics term for this is Price Discrimination (https://www.investopedia.com/terms/p/price_discrimination.asp https://www.investopedia.com/terms/p/price_discrimination.as...). I don't want to go into fair or unfair as the author does (that is a very complex discussion), but it is definitely the most optimal way to price your product. The basic idea is – charge every customer the max they are willing to pay. As long as everyone is above the break-even point, you will maximize your profits. This is definitely not a new idea ("emerged these past few months" as the author states). I remember people would pack their bags with boxes of Microsoft Windows and Office when coming back from foreign trips. Same goes for subscription pricing. That premium $20/mo Netflix plan costs $4 in Turkey. It's also a bit weird to see a service advertise their price discrimination. You are essentially saying "your country has a shit economy, so here's a discount" on the checkout page. And then are you also going to show the opposite – "you are in the USA so need to pay 50% more than average for this product"?
- SQueeeeeL 4y ago
  This same effect is why individuals get charged so much for healthcare. It's really easy to leverage information asymmetry to make a ton of money, rule #1 is to never let the customer know how much things cost to you
  - jihadjihad 4y ago
    Airline tickets and hotels, too. You likely paid a different amount for your ticket than either of the people sitting (or staying) next to you.
    - xapata 4y ago
      Hotels aren't as good at this as airlines are. The airlines have more legal support enforcing that tickets are tied to an identity. Hotels can't check the IDs of everyone who goes into the room. And there are fewer airlines, so they have more data and more market power.
      - 4y ago
RektBoy 4y ago
This! How people here in Europe, for example CZ. Can buy things for even higher price in EUR than in USD, yet median salary here is 4x smaller than median salary in US. Ridiculous.
mike_d 4y ago
This is a huge security flaw that I usually report as "client side pricing." Passing the final price (or even just the currency) from the client to your payment processor allows a malicious actor to manipulate the price they pay for goods.
shkkmo 4y ago
I think this attempt to rebrand this kind of pricing as "promoting fairness" is really unfortunate. Companies do not do this sort of thing to be more "fair" they do it to make more money. Always. This tends to lead to consumer hostile behaviors such as (trying to) block VPNs and harassment of international travelers and migrants. Automatically basing this on PPP will make governments much more interested in gamifying PPP measures (such as what Argentine did with the Big Mac Index). This is setting aside all the other issues with calculating PPP in a fair way worldwide.
- jasmer 4y ago
  You're mostly arguing against Adam Smith here, and that war was mostly won long ago. It feels counter intuitive that companies acting in their best interest would be not in the communities best interests, but interestingly, it's definitely not zero sum game. Particularly in this instance, wherein we have rich countries offering services at a discounted rate, it's actually hugely beneficial to almost everyone. If you force a 'single price point' - the profit maximizing point will almost assuredly be much higher than most of the world can afford and so the net surpluses are lower. Price discrimination in this case is reasonable. Where it gets messy are for things like concert tickets. As far as 'PPP gaming' - this is not a new concept, and SaaS is not even remotely relevant to anything at national level economics. The 'PPP' game has been going on since the dawn of time! Literally the first Mesopotamian writing systems revolved around bookeeping and pricing. PPP is not going to be the driving force for pricing for any company that's sophisticate enough to do this - they will find the right price in France the same way they do in America. The PPP is a secondary measurement. The problem in Argentina is that their leaders are corrupt and a bit dumb. Not an 'index'. That said, there is still a lot of room for discussion about this.
  - shkkmo 4y ago
    > Particularly in this instance, wherein we have rich countries offering services at a discounted rate, it's actually hugely beneficial to almost everyone. This seems highly debatable in several fronts and likely is dependent on the specific circumstances of each market. In some cases it may function like providing cheap food and clothing, where it can be beneficial in the short term, but often causes mid to long term economic damage to the receiving economy by putting local producers/providers out of business. Whether beneficial or not, the motivation behind this geographic price fixing is absolutely not fairness, but profit maximization. While companies are free to charge prices they wish in different countries, I think it is against our self interests to have laws that help enforce this price discrimination. Consumers are already at a power disadvantage here, giving companies more power to charge the highest price they can only worsens that disadvantage. > PPP is not going to be the driving force for pricing for any company that's sophisticate enough to do this - they will find the right price in France the same way they do in America. The PPP is a secondary measurement. It was literally cited as the basis for the solution being discussed in TFA. I didn't say that PPP gaming was anything new (which is why I cited old examples) but pointed out that this already existing issue will become larger if the approach described in the article spreads. > The problem in Argentina is that their leaders are corrupt and a bit dumb. Not an 'index'. While Argentina is especially bad. Leaders are corrupt and dumb all over the world. However, the behavior I am referencing in Argentina was absolutely directly related to the Big Mac Index since they directly manipulated the price of Big Macs specifically. Their other manipulations of PPP are harder to attribute, but that one is pretty clear.
kevinpet 4y ago
I encourage the author to take an economics class. There's a common trend of smart people trying to fumble through what amount to the first semester of economics. Even a brief exposure gives you enough knowledge to know the name of what you are interested in. In this case, it's an argument for price discrimination -- charging different prices to different buyers based on their willingness to pay. And in fact "textbooks" is one of the examples given on https://en.wikipedia.org/wiki/Price_discrimination#Textbooks https://en.wikipedia.org/wiki/Price_discrimination#Textbooks This allows you to lean on what's already known. Specifically, identifying market segments with different elasticity and enforcing the scheme. Have people started using the phrase "purchasing power parity" to refer to a pricing scheme that corrects for PPP? I think "parity" might be leading people astray because it actually just refers to an adjustment to GDP or other indicators for purchasing power. It doesn't refer to a pricing scheme. I could suggest the name "Purchasing Power Parity Pricing" if you want something you can say you "support". (That said: I think this is isolated to extremely high margin goods and will not translate to others.)
- The_Amp_Walrus 4y ago
  You haven't made it clear why the author should take an economics class - what are they doing wrong or what money are they leaving on the table?
  - deleted 4y ago
    [deleted]
  - dghlsakjg 4y ago
    They are misusing the term for what they are doing. What they created is a program that price discriminates. Price discrimination based on purchasing power parity is a much more accurate description of what they are doing rather than just just purchasing power parity. Of course, it is possible that the author knows this, and is just avoiding using the term 'price discrimination' since it sounds bad outside of the academic context. They aren't necessarily leaving money on the table, although an argument can be made that purchasing power parity isn't the best mechanism for profit maximizing using price discrimination. The point the OP is trying to make is that this isn't some revolutionary new tactic that the author invented by understanding PPP on a deeper level than anyone else. This is a concept learned in intro to economics. And one that is used by a lot of online service providers already.
julesmaregiano 4y ago
Hello HN, I'm Jules, previously working on Exportator, a solution to generate Parity Promo Codes, now working on pricery.io to help digital products price themselves at PPP prices with Stripe in 5min. Parity pricing combined with selling in localized currencies is a MAJOR move to increase international sales. They are 3 ways to localize prices: 1/ Display price in local currencies. Aka "cosmetic pricing". Do you know what 670₪‎ is worth? Same for $US for many 2/ Bill in local currencies. I wrote an article on how billing in local currencies help win precious % https://www.pricery.io/blog/how-to-turn-stripe-currency-conversion-fees-into-extra-profits https://www.pricery.io/blog/how-to-turn-stripe-currency-conv... 3/ Parity pricing. Here is a calculator I made to give one an idea of the how a price feels in another currency: https://www.localizationtools.io/purchasing-power-parity-calculator https://www.localizationtools.io/purchasing-power-parity-cal... Love the topic, would love to know how to help the cause PS: Regarding VPNs. A, very few people use it to cheat. B, if it makes you feel better, services like ipinfo.io index IP ranges used by VPN providers. Which means to cheat PPP one would have to use private VPN. In other words, 99,9% of VPNs can be detected, in which case, just default back to a $USD price. Pricery helps you offer cosmetic prices, PPP pricing, and VPN protection in 5min out of the box with Stripe. Would love to chat jules@pricery.io
fleddr 4y ago
I was going to write something whiny here, but when I opened the course site I reconsidered. I'm from the Netherlands, and based on that, got a 20% discount. Which is only fair, given that we're a developing nation and all that, but a first for me. We normally pay +20%. So I'm now totally convinced of PPP being fair. On an unrelated note, SaaS prices can lead to funny situations, especially when tangible costs per customer approach zero. At work we were negotiating with a SaaS vendor. Them: our quote for your intended use is 230K/y. Us: Actually, we only have 20K of budget. Them: That'll work too. Makes you wonder how far below 20K we could have gone.
- quickthrower2 4y ago
  Didn’t they even do some pretend dance and paper shuffle to make out like they are taking away something for the discount?
deleted 4y ago
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yboris 4y ago
Here is an interactive data visualization comparing incomes within and between countries using PPP (purchasing power parity) https://income-inequality.info/ https://income-inequality.info/ It's really eye-opening stuff to see that someone earning US poverty level income of $11k means they earn more than 85% of people in the world! You can see the code for it on Github as well: https://github.com/whyboris/Global-Income-Distribution https://github.com/whyboris/Global-Income-Distribution
notRobot 4y ago
(2021)
causality0 4y ago
You should offer products at the cost to provide them plus a reasonable profit margin. If you're charging so much more than it actually costs you to provide that you can make it equally affordable in Switzerland and Somalia, you're already an asshole and no amount of social activism pricing will erase that.
- chad_oliver 4y ago
  You're missing the fact that most courses (i.e. the ones that aren't wildly successful) have a large upfront cost. The marginal cost might be a tiny fraction of the price, but that doesn't necessarily translate to a profitable enterprise overall. You can see the same effect with railways and aeroplanes. There's definitely plenty of operational costs, but the capital costs are relatively high so you want to keep your capital goods (the railways/trains/planes) active all the time even if you only make a tiny profit on each service. However, these businesses often only pan out if they can attract high-margin customers (e.g. business class flyers).
- jojobas 4y ago
  What is "cost to provide" for a SaaS product? Just the marginal computing costs? You have to recover your development costs somehow, apparently that makes you an asshole.
beefman 4y ago
Fair pricing would be to charge what it costs (as is the case with any commodity), not whatever users can afford to pay.
- chad_oliver 4y ago
  Why isn't it fair for the author to be the one who receives the marginal value that they created? They were the ones who created the course, and that course would not have existed for anyone if they put the effort in to build it. Anyone else can do it, but they are the ones who did. To my eyes it seems very fair to offer a product at (appromimately) the same real price for everyone in the world, and let people choose whether or not to buy it. And for what it's worth, commodities are also priced at what the market can bear, not at their marginal cost of production. It's just that competition pushes those prices down very close to the marginal cost. This course has competition too, in the form of all the other articles and tutorials that are available free on the internet. It's not like this course is the only gate to otherwise-inaccessible knowledge.
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benevol 4y ago
Another approach is to simply go with a donation system. Lower purchasing power automatically leads to lower contribution. Bonus: You don't need to worry about/collect/pay VAT in God-knows-how-many-different-countries around the world.
rpgbr 4y ago
As Brazilian, I always ask for parity prices for services charged in dollar. It’s been a while our currency went downhill; right now, it’s BRL 5 for USD 1. That “only USD 9” that’s a no-brainer in the US becomes very costly when converted to BRL. Surprisingly (or not), most SaaS I do business with give me parity prices. I really appreciate that and it makes me more loyal to them.
coffeeblack 4y ago
Pricing isn’t about “fair”, pricing is about an offer’s utility to the buyer in relation to the financial abilities of the buyer. Anything else will sooner or later fail, and sometimes cause extreme damage while falling.
tpmx 4y ago
This is not necessarily legal in the EU. https://europa.eu/youreurope/citizens/consumers/unfair-treatment/unfair-pricing/index_en.htm#shortcut-4 https://europa.eu/youreurope/citizens/consumers/unfair-treat... "Price discrimination is not allowed"
jasmer 4y ago
Consider this a novel economics lesson, not a marketing lesson. Think of how your valuable NA/European customers will react knowing their peers in country XYZ get the same product for 80% less? How will that affect the perception of your brand? It's quite a complicating factor.

I hate this. I also hate that the cost to produce an item/product is sometimes quite opaque. I don't care if you think I can pay more. Stuff like this just tells me your ripping me off to get a larger margin of profit.

ghaff 4y ago
Why do you care what the cost to produce (and sell and support) an item is? Is it worth it to you or not?
Gigachad 4y ago
This is irrational thinking as an end user. All that matters is that the product provides enough value to justify the price. The price in other countries may as well not exist if they aren’t offers available to you.
- anfilt 4y ago
  No this is not irrational. When it comes to things like this they are only able to justify that price because information asymmetry. It's not irrational to not want to get gouged or overpay. That extra money if it was not wasted because information asymmetry would provide value elsewhere in someones life or business dealings on other things. Like some companies have ridiculous things like MAP when comes to retailers selling their products. Just because a lot people are getting gouged and don't realize it does not mean they are not being gouged on price. Ideally other competition would help balance out this information asymmetry. In the ideal sense that a competitors costs to produce the same product/good would be roughly the same or in at least similar ball park that if one company is pricing something insanely high it would stand out. Although there hosts of reasons this does not work out in practice ranging from limited or no competition. Other issues such as that most goods are not identical ect...
  - fileyfood500 4y ago
    I agree with your sentiment, and I am comforted by competition balancing things out. I think these price distortions are coming from companies with less competition (or they're just losing out on customers!) Most competitive software applications are offered for free (social media, web browsing, word processing) no matter how wealthy the users are, because nobody would pay more for an equivalent product. This is definitely a good argument for encouraging competition and increased price transparency.
  - Gigachad 4y ago
    Price gouging has become a buzzword recently but it has a specific meaning. It's when a store increases the prices of essential items in the middle of a crisis. A store massively increasing the price of water during a natural disaster for example. Per country software pricing does not at all fit this definition. _Most_ products and services are priced differently in different countries. Food is cheaper, labor is cheaper, salaries are lower. Software being priced the same globally would just lock them out of buying it. For the end user, if you buy a $60 game and it provides good entertainment value compared to other forms of entertainment in your country, that was good value. Your entertainment wasn't devalued because someone in Africa bought it for $10 or someone else torrented it for free.
    - anfilt 4y ago
      Your talking about price gouging in the strict legal sense. I suggest just read the first paragraph of wikipedia: https://en.wikipedia.org/wiki/Price_gouging https://en.wikipedia.org/wiki/Price_gouging Particularly these sentences: * "In precise legal usage, it is the name of a crime that applies in some jurisdictions of the United States during civil emergencies. In less precise usage, it can refer either to prices obtained by practices inconsistent with a competitive free market or to windfall profits." * "The term is not in widespread use in mainstream economic theory, but it is sometimes used to refer to practices of a coercive monopoly that raises prices above the market rate that would otherwise prevail in a competitive environment." The term gouging does not always refer to the criminal/civil (depends on jurisdiction) act of price gouging. There is a reason I said "gouged or overpay" and not just gouged because the term does have a few connotations and the overpay clarifies more of what I am getting at. As to your second point if the company is still making money in these countries with less purchasing power at lower prices why not just use that price then? Those people would not be locked out of purchasing it then. Also not everyone in a wealthy country is wealthy or has lots of extra money. High pricing in such countries also locks those people out. This argument is basically saying someone should just pay more because they are likely to have more money, and not pay the actually value of the product or goods. You are combining multiple things in this example such as utility, opportunity cost, economic value to person ect... The same item or product weather priced at $1 or $1,000,000 dollars on average is probably gonna to produce similar amount of utility from person to person. However, with this extreme of the example I made above there are going to be huge difference in particularly opportunity cost. The utility in your case the enjoyment derived from the game of course is going to be same regardless whatever else someone paid for the same game as well. Now companies generally often want to charge as much as they can for a good. Ideally, for every person a company sells their goods too they would charge economic value for that particular person instead of something like market value to maximize profit. Now in a competitive market a company is unlikely to be able charge whatever they want and still remain in business, but in less competitive markets this not necessarily the case. Even if people can afford the goods at these inflated prices in less competitive markets. Exact dollar amounts aside, higher prices are going to lead higher opportunity costs for people which is not a good thing. This is just side note you since mentioned value in your example. What is the true nature of value has been argued quite a bit throughout history. What value is partially depends on what one believes is the correct theory of value. I tend believe all items have some intrinsic value as well as a subjective value. Let's take an other example let us say iron and dirt both products of the Earth. I would say the iron would have a slightly higher intrinsic value than just dirt. This is because iron can do lots of things that can provide more numerous types of utility and that boils down to its material properties. Regardless what one feels or thinks of iron it's going to have the same material properties. However, this does not mean dirt has no value as well lets look at the subjective side of value. A farmer for instance is going to value good dirt probably more than welder that fabricates objects from iron and steel. So value between the two is subjective based off the individual. So the value of good dirt is likely to be higher for a farmer than that of a welder. However, this still does not mean dirt has no intrinsic value either based off it's properties. The properties of dirt can be used to grow things, and certain types of dirt such as clay can even be great building materials because it can be vitrified into bricks for example.
- Lio 4y ago
  This is not irrational at all. What rational person wants to pay higher prices and to be blocked from arbitrage? In the case of media distributed over the world wide web any sales block is obviously completely artificial and done only for price discrimination. The customers know. It's not a sneaky secret, they can see it right there on the website. Adobe used to be infamous for this kind of bullshit and no body liked them for it. By the same logic, if the customer decides the product doesn't provide enough value to justify the artificially high price the vendor hasn't lost a sale when they pirate it. They weren't going to buy it anyway so it shouldn't matter to the vendor either way. :P
- MereInterest 4y ago
  The minimum price of a product is the price of manufacture minus the value gained by the seller by selling a product (e.g. door-buster sales). The maximum price of a product is the value gained by the buyer from buying a product. This creates a window of possible prices, with a final price only determined by negotiation. That negotiation may be explicit ("I'll buy from you, but only if you drop the price 15%.") or it can be implicit ("This product is just sitting on the shelf, so I'll drop the price 15%."), but it always exists. By stating that the end user should only consider the price relative to the value gained, that is stating that the end user should give up all room for negotiation right from the start, and pay the highest price from the window of negotiation. It is not irrational for a buyer to negotiate a lower price, perhaps by waiting for the price to decrease over time. Heck, it can even be worth it to avoid/boycott a product as a way to influence the starting point of future negotiations. None of these strategies are by any means "irrational". What would be irrational is to accept the highest possible price without considering the range of negotiable prices.
oefrha 4y ago
Leaving aside flexible customer acquisition costs (i.e. ad spend), the marginal cost of digital content (like the course OP’s selling) is practically zero. Your complaint about single unit profit margin makes no sense for zero marginal cost products.

freediver 4y ago

This works only if the product you are selling has near 100% margin. If there is COGS involved (cost of goods sold), if your widget costs $15 to make it does not matter what target customer purchasing power is, you have to sell it at >=$15 or you are losing money. This is why you can not go to Somalia and purchase a Tesla for $10k or rent AWS compute at 1/10 of price for others.

libeclipse 4y ago
The marginal cost of digital goods tends to be low A bigger issue is that anyone with a VPN can access the discount
- matchagaucho 4y ago
  Not if the SaaS has ongoing hosting bills, or years of R&D to recoup.
  - TAForObvReasons 4y ago
    "years of R&D to recoup" does not affect the marginal cost of providing the service to another customer
    - mhuffman 4y ago
      Good luck explaining sunken costs here! I have had many, many discussions about this on this very site and I think that since it is so non-intuitive to anyone that has not taken business courses they just do not believe it.
    - matchagaucho 4y ago
      Going down market with steep discounts most often has higher maintenance and support costs.
  - Dylan16807 4y ago
    Every SaaS has hosting bills. Some of them are significant per customer, and some of them aren't.

ipince 4y ago

How do you prevent people from spoofing or using VPNs to get a lower price? Or do you not, and let it be just another cost of doing business?

FormFollowsFunc 4y ago
Could you not check against the country that the credit card is issued in?
- Beltalowda 4y ago
  Yes, that is what many platforms do.
  - ghaff 4y ago
    Pretty sure that's what Netflix does. I pay on the basis of my billing address but, if I'm in another country, (or come in through a VPN) I get the content based on where I'm located in my experience.
- kevincox 4y ago
  But you get complex UX flows if your guess at the start is wrong. You think the user is Canadian but puts in a US card what do you do now? IIUC Stripe doesn't have options for dealing with this. Maybe you can reject the payment and make them restart, selecting the country of their payment card.
- dghlsakjg 4y ago
  I live in Canada, and have for years. I have US Dollar credit cards from Canadian banks, I have US Dollar credit cards from US banks. I have Canadian Dollar credit cards too. My phone number has a US area code (Canada shares an international prefix with the US), but I also have a virtual number for Canada. Whatever system you think of to price discriminate, people will break it. Funny little Canada price discrimination story: Cell phone data is really expensive here since there is no competition, so much so that it is often cheaper to roam on an international line in Canada than to have a contract with a Canadian Telecom, hence the US number.

dzink 4y ago

Complexity will invite arbitrage. What happens when someone enterprising enters all countries and surfaces the lowest price codes on a web site for everyone to find? Or when someone buys via VPN and consumes without. To ensure this system is not abused, you need to match consumption IP location and purchase IP location. If you have consumption via wildly varied IPs that would be a red flag as well. By letting the price difference be known, you encourage a normally willing and able customer to use you via VPN instead.

pc86 4y ago
This is all true but the question is at what point of scale does the cost outweigh the benefits? At small scale, you get more money (in absolute terms) using price discrimination with no validation on the back end. As your scale grows, you reach a point where it's worth the monetary and time investment to add validation and things on top. At the end of the day someone using a VPN to get your product for $5 instead of $20 doesn't matter that much unless you're so wildly popular that people are clamoring for it, at which point you theoretically have the staff to start adding in some protections.
- ghaff 4y ago
  Another factor is considering how difficult you're making things for your legit paying customers just to may sure you keep someone somewhere from ripping you off. A lot of companies strike the wrong balance.

encoderer 4y ago

I would consider this if i operated a consumer SaaS. For a b2b product you really need to spend all your pricing energy on finding ways to charge your best customers more, not find more marginal customers that will erode your gross margins.

paxys 4y ago

The economics term for this is Price Discrimination (https://www.investopedia.com/terms/p/price_discrimination.asp https://www.investopedia.com/terms/p/price_discrimination.as...). I don't want to go into fair or unfair as the author does (that is a very complex discussion), but it is definitely the most optimal way to price your product. The basic idea is – charge every customer the max they are willing to pay. As long as everyone is above the break-even point, you will maximize your profits. This is definitely not a new idea ("emerged these past few months" as the author states). I remember people would pack their bags with boxes of Microsoft Windows and Office when coming back from foreign trips. Same goes for subscription pricing. That premium $20/mo Netflix plan costs $4 in Turkey. It's also a bit weird to see a service advertise their price discrimination. You are essentially saying "your country has a shit economy, so here's a discount" on the checkout page. And then are you also going to show the opposite – "you are in the USA so need to pay 50% more than average for this product"?

SQueeeeeL 4y ago
This same effect is why individuals get charged so much for healthcare. It's really easy to leverage information asymmetry to make a ton of money, rule #1 is to never let the customer know how much things cost to you
- jihadjihad 4y ago
  Airline tickets and hotels, too. You likely paid a different amount for your ticket than either of the people sitting (or staying) next to you.
  - xapata 4y ago
    Hotels aren't as good at this as airlines are. The airlines have more legal support enforcing that tickets are tied to an identity. Hotels can't check the IDs of everyone who goes into the room. And there are fewer airlines, so they have more data and more market power.
    - 4y ago

RektBoy 4y ago

This! How people here in Europe, for example CZ. Can buy things for even higher price in EUR than in USD, yet median salary here is 4x smaller than median salary in US. Ridiculous.

mike_d 4y ago

This is a huge security flaw that I usually report as "client side pricing." Passing the final price (or even just the currency) from the client to your payment processor allows a malicious actor to manipulate the price they pay for goods.

shkkmo 4y ago

I think this attempt to rebrand this kind of pricing as "promoting fairness" is really unfortunate. Companies do not do this sort of thing to be more "fair" they do it to make more money. Always. This tends to lead to consumer hostile behaviors such as (trying to) block VPNs and harassment of international travelers and migrants. Automatically basing this on PPP will make governments much more interested in gamifying PPP measures (such as what Argentine did with the Big Mac Index). This is setting aside all the other issues with calculating PPP in a fair way worldwide.

jasmer 4y ago
You're mostly arguing against Adam Smith here, and that war was mostly won long ago. It feels counter intuitive that companies acting in their best interest would be not in the communities best interests, but interestingly, it's definitely not zero sum game. Particularly in this instance, wherein we have rich countries offering services at a discounted rate, it's actually hugely beneficial to almost everyone. If you force a 'single price point' - the profit maximizing point will almost assuredly be much higher than most of the world can afford and so the net surpluses are lower. Price discrimination in this case is reasonable. Where it gets messy are for things like concert tickets. As far as 'PPP gaming' - this is not a new concept, and SaaS is not even remotely relevant to anything at national level economics. The 'PPP' game has been going on since the dawn of time! Literally the first Mesopotamian writing systems revolved around bookeeping and pricing. PPP is not going to be the driving force for pricing for any company that's sophisticate enough to do this - they will find the right price in France the same way they do in America. The PPP is a secondary measurement. The problem in Argentina is that their leaders are corrupt and a bit dumb. Not an 'index'. That said, there is still a lot of room for discussion about this.
- shkkmo 4y ago
  > Particularly in this instance, wherein we have rich countries offering services at a discounted rate, it's actually hugely beneficial to almost everyone. This seems highly debatable in several fronts and likely is dependent on the specific circumstances of each market. In some cases it may function like providing cheap food and clothing, where it can be beneficial in the short term, but often causes mid to long term economic damage to the receiving economy by putting local producers/providers out of business. Whether beneficial or not, the motivation behind this geographic price fixing is absolutely not fairness, but profit maximization. While companies are free to charge prices they wish in different countries, I think it is against our self interests to have laws that help enforce this price discrimination. Consumers are already at a power disadvantage here, giving companies more power to charge the highest price they can only worsens that disadvantage. > PPP is not going to be the driving force for pricing for any company that's sophisticate enough to do this - they will find the right price in France the same way they do in America. The PPP is a secondary measurement. It was literally cited as the basis for the solution being discussed in TFA. I didn't say that PPP gaming was anything new (which is why I cited old examples) but pointed out that this already existing issue will become larger if the approach described in the article spreads. > The problem in Argentina is that their leaders are corrupt and a bit dumb. Not an 'index'. While Argentina is especially bad. Leaders are corrupt and dumb all over the world. However, the behavior I am referencing in Argentina was absolutely directly related to the Big Mac Index since they directly manipulated the price of Big Macs specifically. Their other manipulations of PPP are harder to attribute, but that one is pretty clear.

kevinpet 4y ago

I encourage the author to take an economics class. There's a common trend of smart people trying to fumble through what amount to the first semester of economics. Even a brief exposure gives you enough knowledge to know the name of what you are interested in. In this case, it's an argument for price discrimination -- charging different prices to different buyers based on their willingness to pay. And in fact "textbooks" is one of the examples given on https://en.wikipedia.org/wiki/Price_discrimination#Textbooks https://en.wikipedia.org/wiki/Price_discrimination#Textbooks This allows you to lean on what's already known. Specifically, identifying market segments with different elasticity and enforcing the scheme. Have people started using the phrase "purchasing power parity" to refer to a pricing scheme that corrects for PPP? I think "parity" might be leading people astray because it actually just refers to an adjustment to GDP or other indicators for purchasing power. It doesn't refer to a pricing scheme. I could suggest the name "Purchasing Power Parity Pricing" if you want something you can say you "support". (That said: I think this is isolated to extremely high margin goods and will not translate to others.)

The_Amp_Walrus 4y ago
You haven't made it clear why the author should take an economics class - what are they doing wrong or what money are they leaving on the table?
- deleted 4y ago
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- dghlsakjg 4y ago
  They are misusing the term for what they are doing. What they created is a program that price discriminates. Price discrimination based on purchasing power parity is a much more accurate description of what they are doing rather than just just purchasing power parity. Of course, it is possible that the author knows this, and is just avoiding using the term 'price discrimination' since it sounds bad outside of the academic context. They aren't necessarily leaving money on the table, although an argument can be made that purchasing power parity isn't the best mechanism for profit maximizing using price discrimination. The point the OP is trying to make is that this isn't some revolutionary new tactic that the author invented by understanding PPP on a deeper level than anyone else. This is a concept learned in intro to economics. And one that is used by a lot of online service providers already.

julesmaregiano 4y ago

Hello HN, I'm Jules, previously working on Exportator, a solution to generate Parity Promo Codes, now working on pricery.io to help digital products price themselves at PPP prices with Stripe in 5min. Parity pricing combined with selling in localized currencies is a MAJOR move to increase international sales. They are 3 ways to localize prices: 1/ Display price in local currencies. Aka "cosmetic pricing". Do you know what 670₪‎ is worth? Same for $US for many 2/ Bill in local currencies. I wrote an article on how billing in local currencies help win precious % https://www.pricery.io/blog/how-to-turn-stripe-currency-conversion-fees-into-extra-profits https://www.pricery.io/blog/how-to-turn-stripe-currency-conv... 3/ Parity pricing. Here is a calculator I made to give one an idea of the how a price feels in another currency: https://www.localizationtools.io/purchasing-power-parity-calculator https://www.localizationtools.io/purchasing-power-parity-cal... Love the topic, would love to know how to help the cause PS: Regarding VPNs. A, very few people use it to cheat. B, if it makes you feel better, services like ipinfo.io index IP ranges used by VPN providers. Which means to cheat PPP one would have to use private VPN. In other words, 99,9% of VPNs can be detected, in which case, just default back to a $USD price. Pricery helps you offer cosmetic prices, PPP pricing, and VPN protection in 5min out of the box with Stripe. Would love to chat jules@pricery.io

fleddr 4y ago

I was going to write something whiny here, but when I opened the course site I reconsidered. I'm from the Netherlands, and based on that, got a 20% discount. Which is only fair, given that we're a developing nation and all that, but a first for me. We normally pay +20%. So I'm now totally convinced of PPP being fair. On an unrelated note, SaaS prices can lead to funny situations, especially when tangible costs per customer approach zero. At work we were negotiating with a SaaS vendor. Them: our quote for your intended use is 230K/y. Us: Actually, we only have 20K of budget. Them: That'll work too. Makes you wonder how far below 20K we could have gone.

quickthrower2 4y ago
Didn’t they even do some pretend dance and paper shuffle to make out like they are taking away something for the discount?

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yboris 4y ago

Here is an interactive data visualization comparing incomes within and between countries using PPP (purchasing power parity) https://income-inequality.info/ https://income-inequality.info/ It's really eye-opening stuff to see that someone earning US poverty level income of $11k means they earn more than 85% of people in the world! You can see the code for it on Github as well: https://github.com/whyboris/Global-Income-Distribution https://github.com/whyboris/Global-Income-Distribution

notRobot 4y ago

(2021)

causality0 4y ago

You should offer products at the cost to provide them plus a reasonable profit margin. If you're charging so much more than it actually costs you to provide that you can make it equally affordable in Switzerland and Somalia, you're already an asshole and no amount of social activism pricing will erase that.

chad_oliver 4y ago
You're missing the fact that most courses (i.e. the ones that aren't wildly successful) have a large upfront cost. The marginal cost might be a tiny fraction of the price, but that doesn't necessarily translate to a profitable enterprise overall. You can see the same effect with railways and aeroplanes. There's definitely plenty of operational costs, but the capital costs are relatively high so you want to keep your capital goods (the railways/trains/planes) active all the time even if you only make a tiny profit on each service. However, these businesses often only pan out if they can attract high-margin customers (e.g. business class flyers).
jojobas 4y ago
What is "cost to provide" for a SaaS product? Just the marginal computing costs? You have to recover your development costs somehow, apparently that makes you an asshole.

beefman 4y ago

Fair pricing would be to charge what it costs (as is the case with any commodity), not whatever users can afford to pay.

chad_oliver 4y ago
Why isn't it fair for the author to be the one who receives the marginal value that they created? They were the ones who created the course, and that course would not have existed for anyone if they put the effort in to build it. Anyone else can do it, but they are the ones who did. To my eyes it seems very fair to offer a product at (appromimately) the same real price for everyone in the world, and let people choose whether or not to buy it. And for what it's worth, commodities are also priced at what the market can bear, not at their marginal cost of production. It's just that competition pushes those prices down very close to the marginal cost. This course has competition too, in the form of all the other articles and tutorials that are available free on the internet. It's not like this course is the only gate to otherwise-inaccessible knowledge.

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benevol 4y ago

Another approach is to simply go with a donation system. Lower purchasing power automatically leads to lower contribution. Bonus: You don't need to worry about/collect/pay VAT in God-knows-how-many-different-countries around the world.

rpgbr 4y ago

As Brazilian, I always ask for parity prices for services charged in dollar. It’s been a while our currency went downhill; right now, it’s BRL 5 for USD 1. That “only USD 9” that’s a no-brainer in the US becomes very costly when converted to BRL. Surprisingly (or not), most SaaS I do business with give me parity prices. I really appreciate that and it makes me more loyal to them.

coffeeblack 4y ago

Pricing isn’t about “fair”, pricing is about an offer’s utility to the buyer in relation to the financial abilities of the buyer. Anything else will sooner or later fail, and sometimes cause extreme damage while falling.

tpmx 4y ago

This is not necessarily legal in the EU. https://europa.eu/youreurope/citizens/consumers/unfair-treatment/unfair-pricing/index_en.htm#shortcut-4 https://europa.eu/youreurope/citizens/consumers/unfair-treat... "Price discrimination is not allowed"

jasmer 4y ago

Consider this a novel economics lesson, not a marketing lesson. Think of how your valuable NA/European customers will react knowing their peers in country XYZ get the same product for 80% less? How will that affect the perception of your brand? It's quite a complicating factor.