Archive for July, 2010

Charity: the trick to consumer-set pricing

This economic depression has forced marketers to be more creative.  It’s kickstarted a renaissance in pricing.  I wrote earlier on Daily Deals in I Can Get it for you Wholesale.  Another trend is letting the consumer set his own pricing.

The difficulty with such variable pricing is that there are no standards, norms, or techniques  to prevent freeloaders who wouldn’t normally buy or “selfish” consumers who maximize their own value at the expense of the seller and pay nothing or close to it.  This is a classical Tragedy of the commons situation.

Typical tactics to increase pricing include:

  • Suggested price. Provide a minimum, suggested amount, or related guidelines, similar to donations in the public sector world.
  • Peer Pressure. Displaying what other users paid.
  • Premium. Award a bonus or publicity scaled by payment amount.
  • Transparency. Disclose actual costs so the consumer can hopefully make an informed decision about how much profit he’s willing to let you make.

Add Charity share to the list.  Giving an amount or percentage to charity has long been a part of the marketing toolset to raise sales or conversion.  But it works especially well with consumer-set pricing.  The Freakonomics blog  points to a wonderful study in  How to Maximize Pay-What-You-Wish Pricing where donating a major share of the payment has a huge impact on both consumer sales and price.

Ayelet Gneezy, a marketing professor at the University of California-San Diego, conducted a field experiment at a theme park (sample size: over 113,000).  Gneezy presented four different pricing schemes for souvenir photos: a flat fee of $12.95; a flat fee of $12.95 with half going to charity; pay-what-you-wish; and pay-what-you-wish with half going to charity.  At a flat fee of $12.95 per picture, only 0.5% of people purchased a photograph; when customers were told that half the $12.95 purchase price would go to charity, a meager 0.59% purchased a photo. Under the simple pay-what-you-wish variation, 8.39% of people purchased a photo, but customers paid only $.92 on average. The final option — pay what you wish, with half the purchase price going to charity — generated big results: purchase rates of 4.49% and an average purchase price of $5.33, resulting in significant profits for the theme park. “When the charity factor is introduced, these casual freeloaders balk at the idea of paying nothing, because it’s more likely to reflect badly on them,” writes Ed Yong. “Rather than naming a higher price, their preference is to avoid buying altogether -– for them, it isn’t worth it. Sales fall, but the actual profits go up because the remaining customers are motivated by their desire for the product and for the cause, will pay for both.”

What other techniques have you seen?

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I can get it for you wholesale

The Daily Deal bubble continues to explode.  VCs pour in ever more money.  Aggregators and white labellers build out the market.  Major estores and sites like have even joined the fun.  Amazon bought Woot. Twitter has @earlybird.  Marketers contrive 90% off packages that include “free” services, fake retail prices, and future discounts.

It’s no coincidence this product segment took off during a global depression.  It’s 2010-style coupon clipping.  This isn’t just a discount.  With today’s deals, you don’t just avoid paying retail.  You can buy at wholesale prices.

The deals started to move discontinued merchandise.  It was only a short hop to extend them to service businesses that have a high margin.  Now there are so many deals that you can get much of what you need –  such as PC … headphones … restaurant … massage … golf … trip – all at 50% off.  Or more.

This isn’t just promotional marketing. It’s deflation in action.  People have less money and are spending less.  Businesses have to cut prices.

When was the last time you paid regular prices for dinner when you could have used a 50% off deal?

Stupid users TNG

Ignorant technology consumers have always been a source of great frustration – and amusement – for those on the other side of the fence.   The genre takes a leap forward with the video ‘iPhone4 vs HTC Evo‘.

It’s the funniest video I’ve seen in years.  So good  I laughed, cried, and then had trouble breathing.  Or maybe that was my asthma.

The producer is Brian Maupin, a Best Buy employee who sells mobile phones.  His reward – likely getting fired.

PS – For you non-Trekkies TNG is The Next Generation.


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