9 ms·

It seems like one takeaway is that a significant portion of people will just pay the default as stated, even if given a choice. I think people just have a hard

It seems like one takeaway is that a significant portion of people will just pay the default as stated, even if given a choice. I think people just have a hard time deciding what something is actually worth, so they'll take whatever advice is given. So, when pricing your products, if you're wondering if you should charge more, the default answer should be "Yes"

npsimons 14y ago
As a customer, I support this thinking. Most people (at least in USA) are encouraging the race to the bottom by caring only about price, consequences be damned. But I can honestly say, after thinking about it, I can't really see a large number of cases where slightly higher price would be bad. As a merchant, you can take that money, use it to make your next generation of products better, pay a better wage, heck even paying your shareholders and management more would seem like a good use of that money to me (I personally don't object to CEO's getting paid more if they earn it; I object to unconditional golden parachutes, short term thinking, and the wealthiest paying less taxes than the poorest). Of course, I'm talking here about direct sales, where the margin is pretty thin; I think middle-men are unnecessary, and obscene markup for name brand or just because you can is egregious.
- ars 14y ago
  > Most people (at least in USA) are encouraging the race to the bottom by caring only about price, consequences be damned. Are you serious? People have cared mainly about price since the dawn of history. Obviously people have particular quality level they want, but once that's met if it's a tradeoff between quality and price, price virtually always wins.
  - npsimons 14y ago
    Firstly, I limited it to USA because that's what I am familiar with. Secondly, please note the "consequences be damned" proviso, which flatly contradicts people having a quality level they want. What I've seen indicates to me that the quality of mass produced goods has steadily declined (at least in my lifetime), and the only benefit gained seems to have been a slightly lowered price. Market pressures, combined with the fact that most people don't really think long term, can easily explain this phenomenon. People will gladly pay $10 for a pair of shoes that will last a year, rather than $50 for a pair that will last 10 years.
daeken 14y ago
So, a couple months back I released a WebGL Enabler for iOS with a pay-what-you-want model: http://demoseen.com/webglenabler/ http://demoseen.com/webglenabler/ I keep meaning to write a blog post about the results, but ~99.5% of people paid $0. Of the people who paid, probably around 50% paid the $1.99 I had as default, but what's really interesting to me is the way people priced it if they changed the value. I got a number of payments for amounts like $1.25 and $1.50, and I remember looking at those completely baffled -- who cares enough to pay anything for this (you could just download it for free -- I don't mind) but not enough to pay an extra $0.49? Really wish I had an answer there; maybe people just like 'getting a deal'?
- bicknergseng 14y ago
  That's what I hate most about having insight into data... the times when my intuition is wrong and there is no rational reason for what is actually happening. Human behavior can be so bizarre...
  - fleitz 14y ago
    Unfortunately, it's logical thinking that is bizzarre. Irrationality is the norm.
    - d0mine 14y ago
      Logical thinking is fine: garbage in — garbage out. Logical thinking won't help if you give it incorrect input data. Unless you believe in supernatural; everything is math provided a correct model.
      - Ntrails 14y ago
        That is a complete misunderstanding of the word model. Models are tools to help describe expected behaviour given a plethora of assumptions - they are not there to perfectly predict what can and will happen. The idea that a model can do so has caused innumerable problems of late and it is frustrating to hear such myths perpetuated.
Yhippa 14y ago
For lack of a better way to decide what to pay I assumed that they did the analysis and thought $5 would be an appropriate amount after factoring in the people who'd pay more, less, or nothing. I think it's a good anchor price and if I was feeling generous it's a low enough value where I'd pay double. At a minimum I'd pay their asking price because after getting many hours of fun out of the game with friends it's definitely worth at least that.
Spellman 14y ago
This is a well-known cognitive bias called Anchoring. https://en.wikipedia.org/wiki/Anchoring https://en.wikipedia.org/wiki/Anchoring Just by giving a starting value predisposes people towards that value. And in this case, it was low enough people would impulse buy with the default value left in. Contrast to the Humble Bundles where their true value is much larger, so people tend to weigh the value against other purchases from their peers or prior purchases (which is why the median prices seem invariant between bundles).
jonnathanson 14y ago
There is actually a well-documented psychological phenomenon known as "anchoring," which is to say, people will be subconsciously influenced by the number they first see. Car dealerships do this all the time with the MSRP numbers they put on their vehicles (which are, typically speaking, wildly inflated from their cost basis). Seasoned negotiators do this, as well -- anchoring either high or low, depending on their objectives. I would be willing to bet that an A/B test of a higher suggested price and a lower suggested price would yield better returns from the higher suggested price. Anchoring is especially effective in cases where people have no real sense of the intrinsic value of something. For instance, if I offered someone a bar of palladium, they'd generally have no freaking clue what they should pay. I could tell them $2000, or I could tell them $200,000. The $200,000 offer might not actually get any takers at $200,000. But it would generate a much higher negotiated price than the $2000 offer would, because people would mentally start at $200,000, and then try to work down from it.
zanny 14y ago
Does this happen with the Humble Indie Bundles? The default price is $25. I wonder if they could release some payment statistics if that was an abnormally highly paid rate.
lywald 14y ago
I'll bite: this is immoral, isn't it? To charge more than what you think it's worth. Because that's taking money you don't think you deserve. Anyway, this whole community seems oblivious to morals... I can almost feel the nihilism through the internet.
- addlepate 14y ago
  That's engineers' whole problem really, we think we deserve little so that's what we settle for. The flipside of what you're saying is that people will pay the price for something even if they value it much more highly than the price. Capitalism is amoral, sorry.
- pinchyfingers 14y ago
  How do you know what anything is worth? If something will make me $100, but you think it is only worth $10, then what is it worth? $10 or $100? Finding the price that the market will bare is precisely how you determine a product's monetary value. Side note: if you want to see a entrepreneurial community without morals, I could point you to some places that would make you reconsider your opinion of HN.
- colinshark 14y ago
  No, because there is no single ideal price for anything. The ideal price varies between customers. Real world: Customer A thinks the $14 pizza is overpriced. No sale. Customer B thinks the $14 pizza is delicious and worth it. Would pay up to $20 if forced. Pays $14 and enjoys $6 in surplus value. Ideal world: Customer A thinks the $14 pizza is worth about $6. Buys it for $6 (Arriving at the deal is the tricky part). Customer B thinks the $20 pizza is worth about $20. Buys it for $20 (Arriving at the deal is the tricky part). Now both customers are happy with their pizzas, and the pizza maker made $26 in revenue instead of $14. There is no "true" price for anything. It's not morally wrong for the cheap customer to pay $1 in a PWYW deal, and it's not morally wrong for the seller to enjoy it when someone pays $100 in the same deal.
  - egypturnash 14y ago
    The pizza maker made $26 minus whatever it costs to produce the pizza in time and materials. If the pizza cost $7 to make then the pizza maker makes $14 in profit versus $7. Also they lost a buck on that $6 pizza. Further complexities: maybe it's a slow day and those employees were idle, and the raw materials were going to go bad without being used anyway - so if the $6 customer is buying it as cost the pizza maker may still be winning. Especially if they sold some fountain drinks to that customer, which are almost pure profit. If you want a sustainable business, you need to cover your materials cost. Arguably paying less than the materials/shipping cost for something is morally wrong, especially if you know damn well this thing costs more than that to make and ship.

npsimons 14y ago

As a customer, I support this thinking. Most people (at least in USA) are encouraging the race to the bottom by caring only about price, consequences be damned. But I can honestly say, after thinking about it, I can't really see a large number of cases where slightly higher price would be bad. As a merchant, you can take that money, use it to make your next generation of products better, pay a better wage, heck even paying your shareholders and management more would seem like a good use of that money to me (I personally don't object to CEO's getting paid more if they earn it; I object to unconditional golden parachutes, short term thinking, and the wealthiest paying less taxes than the poorest). Of course, I'm talking here about direct sales, where the margin is pretty thin; I think middle-men are unnecessary, and obscene markup for name brand or just because you can is egregious.

ars 14y ago
> Most people (at least in USA) are encouraging the race to the bottom by caring only about price, consequences be damned. Are you serious? People have cared mainly about price since the dawn of history. Obviously people have particular quality level they want, but once that's met if it's a tradeoff between quality and price, price virtually always wins.
- npsimons 14y ago
  Firstly, I limited it to USA because that's what I am familiar with. Secondly, please note the "consequences be damned" proviso, which flatly contradicts people having a quality level they want. What I've seen indicates to me that the quality of mass produced goods has steadily declined (at least in my lifetime), and the only benefit gained seems to have been a slightly lowered price. Market pressures, combined with the fact that most people don't really think long term, can easily explain this phenomenon. People will gladly pay $10 for a pair of shoes that will last a year, rather than $50 for a pair that will last 10 years.

daeken 14y ago

So, a couple months back I released a WebGL Enabler for iOS with a pay-what-you-want model: http://demoseen.com/webglenabler/ http://demoseen.com/webglenabler/ I keep meaning to write a blog post about the results, but ~99.5% of people paid $0. Of the people who paid, probably around 50% paid the $1.99 I had as default, but what's really interesting to me is the way people priced it if they changed the value. I got a number of payments for amounts like $1.25 and $1.50, and I remember looking at those completely baffled -- who cares enough to pay anything for this (you could just download it for free -- I don't mind) but not enough to pay an extra $0.49? Really wish I had an answer there; maybe people just like 'getting a deal'?

bicknergseng 14y ago
That's what I hate most about having insight into data... the times when my intuition is wrong and there is no rational reason for what is actually happening. Human behavior can be so bizarre...
- fleitz 14y ago
  Unfortunately, it's logical thinking that is bizzarre. Irrationality is the norm.
  - d0mine 14y ago
    Logical thinking is fine: garbage in — garbage out. Logical thinking won't help if you give it incorrect input data. Unless you believe in supernatural; everything is math provided a correct model.
    - Ntrails 14y ago
      That is a complete misunderstanding of the word model. Models are tools to help describe expected behaviour given a plethora of assumptions - they are not there to perfectly predict what can and will happen. The idea that a model can do so has caused innumerable problems of late and it is frustrating to hear such myths perpetuated.

Yhippa 14y ago

For lack of a better way to decide what to pay I assumed that they did the analysis and thought $5 would be an appropriate amount after factoring in the people who'd pay more, less, or nothing. I think it's a good anchor price and if I was feeling generous it's a low enough value where I'd pay double. At a minimum I'd pay their asking price because after getting many hours of fun out of the game with friends it's definitely worth at least that.

Spellman 14y ago

This is a well-known cognitive bias called Anchoring. https://en.wikipedia.org/wiki/Anchoring https://en.wikipedia.org/wiki/Anchoring Just by giving a starting value predisposes people towards that value. And in this case, it was low enough people would impulse buy with the default value left in. Contrast to the Humble Bundles where their true value is much larger, so people tend to weigh the value against other purchases from their peers or prior purchases (which is why the median prices seem invariant between bundles).

jonnathanson 14y ago

There is actually a well-documented psychological phenomenon known as "anchoring," which is to say, people will be subconsciously influenced by the number they first see. Car dealerships do this all the time with the MSRP numbers they put on their vehicles (which are, typically speaking, wildly inflated from their cost basis). Seasoned negotiators do this, as well -- anchoring either high or low, depending on their objectives. I would be willing to bet that an A/B test of a higher suggested price and a lower suggested price would yield better returns from the higher suggested price. Anchoring is especially effective in cases where people have no real sense of the intrinsic value of something. For instance, if I offered someone a bar of palladium, they'd generally have no freaking clue what they should pay. I could tell them $2000, or I could tell them $200,000. The $200,000 offer might not actually get any takers at $200,000. But it would generate a much higher negotiated price than the $2000 offer would, because people would mentally start at $200,000, and then try to work down from it.

zanny 14y ago

Does this happen with the Humble Indie Bundles? The default price is $25. I wonder if they could release some payment statistics if that was an abnormally highly paid rate.

lywald 14y ago

I'll bite: this is immoral, isn't it? To charge more than what you think it's worth. Because that's taking money you don't think you deserve. Anyway, this whole community seems oblivious to morals... I can almost feel the nihilism through the internet.

addlepate 14y ago
That's engineers' whole problem really, we think we deserve little so that's what we settle for. The flipside of what you're saying is that people will pay the price for something even if they value it much more highly than the price. Capitalism is amoral, sorry.
pinchyfingers 14y ago
How do you know what anything is worth? If something will make me $100, but you think it is only worth $10, then what is it worth? $10 or $100? Finding the price that the market will bare is precisely how you determine a product's monetary value. Side note: if you want to see a entrepreneurial community without morals, I could point you to some places that would make you reconsider your opinion of HN.
colinshark 14y ago
No, because there is no single ideal price for anything. The ideal price varies between customers. Real world: Customer A thinks the $14 pizza is overpriced. No sale. Customer B thinks the $14 pizza is delicious and worth it. Would pay up to $20 if forced. Pays $14 and enjoys $6 in surplus value. Ideal world: Customer A thinks the $14 pizza is worth about $6. Buys it for $6 (Arriving at the deal is the tricky part). Customer B thinks the $20 pizza is worth about $20. Buys it for $20 (Arriving at the deal is the tricky part). Now both customers are happy with their pizzas, and the pizza maker made $26 in revenue instead of $14. There is no "true" price for anything. It's not morally wrong for the cheap customer to pay $1 in a PWYW deal, and it's not morally wrong for the seller to enjoy it when someone pays $100 in the same deal.
- egypturnash 14y ago
  The pizza maker made $26 minus whatever it costs to produce the pizza in time and materials. If the pizza cost $7 to make then the pizza maker makes $14 in profit versus $7. Also they lost a buck on that $6 pizza. Further complexities: maybe it's a slow day and those employees were idle, and the raw materials were going to go bad without being used anyway - so if the $6 customer is buying it as cost the pizza maker may still be winning. Especially if they sold some fountain drinks to that customer, which are almost pure profit. If you want a sustainable business, you need to cover your materials cost. Arguably paying less than the materials/shipping cost for something is morally wrong, especially if you know damn well this thing costs more than that to make and ship.