Pricing as Signal

http://www.joelonsoftware.com/items/2005/11/18.html

by raganwald • 18 years ago

54 35 18 years ago

mhb• 18 years ago

Nonsense. How often would someone need to buy expensive, crappy music before they realized that the price is not an accurate signal of whether they will like it? Particularly in the case of music in which it is not difficult to hear it before buying it.

adamc• 18 years ago

Every version of a particular song offered for sale is identical, so it is easy for people to figure out that price is not a significant differentiator. Most products aren't like that. It is relatively hard to know the quality of an Accounting package before you buy it and use it extensively, for example. In that sort of context, price does often send a signal about what market niche you are aiming for.

nonrecursive• 18 years ago

The thing is, I don't think people always work like you're describing. Some people might actually look to the price of the song, if only unconsciously, to help decide whether they should like it. Especially if the song is popular, and price indicates popularity. Then it's not just a matter of liking a song, but of fitting in and being hip.

petercooper3• 18 years ago

And if by buying overpriced music, the person feels like they're "fitting in" and are "hip" then what's the problem? They're not being ripped off. They're getting $2.50 (or whatever) of smugness / well-being / hipness.

raganwald• 18 years ago

I don't know if the internet changes everything about this, but in the old days of retail, the discounted stuff is always grouped together, all the $4.99 albums in a bin, the $6.99 albums have "Great Value!" stickers, and so forth.

You also get a flyer in your Saturday paper bragging about the low prices on these ten albums at Best Buy or whatever. Same thing, they are signaling that they all have equal value.

So in retail price is signal in conjunction with a bunch of other stuff. But again, that may be irrelevant in the age of iTunes and Amazon.

knarf• 18 years ago

I love those old Joel posts. It's a pitty he stopped writing about anything interesting once he sold enough copies of FogBugz..

SirWart• 18 years ago

I don't think the quality of the posts have gone down all that much, just the quantity. I imagine he's just run out of things to talk about that he hasn't already covered.

wayne• 18 years ago

If I remember correctly, Joel mentioned in one of the podcasts that he likes to just tell stories in his blog posts now and let audiences draw their own conclusions. When he tried to make arguments before he was often misinterpreted (e.g. his stance on exceptions) and now he feels he has to pre-respond to the multitude of ways people might respond to his argument, and that doesn't make for fun reading. As he's gotten older and more experienced he also said the world has become less black-and-white so he doesn't like to make absolute statements as much anymore.

The podcast is linked off from here: http://blog.stackoverflow.com/

He also writes a column in Inc, which isn't bad: http://www.google.com/search?q=joel+spolsky+site%3Ainc.com

pmorici• 18 years ago

Is he really selling DVD's about the companies summer internship program?

jrockway• 18 years ago

He was, yes.

petercooper3• 18 years ago

Joel's argument makes sense in theory, but in practice it doesn't add up at all. You can preview music, get a feel for what it's like, regardless of the price. On a movie, you're relying on other people's opinions, but from 30 seconds of preview you can usually establish if you like it or not (and if it's a band you always buy the music from - you don't care anyway).

MrRage• 18 years ago

In makes sense in practice too. I'll never touch a bargain bin of CDs at a store.

petercooper3• 18 years ago

Ah, but if that were generally true of public perception, bargain bins wouldn't exist.

thomasswift• 18 years ago

I used to love the bargain bins section at my used cd store, it was always filled with cheap gems. Granted I spent a fair share of time listening to some crap, but it was worth it to find an old song that was quality.

Also, I'll never touch the bargain bin either because there really are no cd stores around anymore, except Best Buy.

umangjaipuria• 18 years ago

I disagree. What if you make something free? Does that make it seem crappy?

I don't think pricing is a signal. It is a barrier - how high a barrier would you like to set for you customers.

whatusername• 18 years ago

Wine. At a restaraunt. Sure, it's a textbook example - but that's because it's so common. People don't want to buy the cheapest wine - so they get something from the middle of the list.

Price can send a signal about the STATUS of the object - and this can be more powerful than any signals about the quality!

hopeless2• 18 years ago

If something is expensive, you ask yourself "what justifies this price", with the expectation of greater quality, features, stability, support or whatever.

If something is free, you also ask "what justifies this price", but this time you expect things to be missing, flawed, incomplete, contains viruses, etc. You're instantly looking for whats wrong, not whats great.

So, yeah, pricing is a signal.

llimllib• 18 years ago

> I don't think pricing is a signal.

Then I recommend that you begin reading http://marginalrevolution.com/ as soon as possible.

briansmith• 18 years ago

Many (most? the vast majority?) of people who go to the movie theater will see a movie even if the movie they intended to see is sold out. Plus, they are not price-conscious. So, it makes sense to keep all the movies at a high price so that the customers end up paying high prices for movies they didn't go to the theater to see. "A rising tide lifts all boats." If they went to the theater to see a particular movie, and it was sold out, they will pay for some other movie this weekend and then try again next weekend (and the next next weekend if necessary) until eventually they see the movie they originally intended to see. LoTR is sold out three weeks in a row = many customers bought three or four movie tickets, instead of just one.

If they were price conscious, they would rent it for a dollar from RedBox when it comes out on DVD. Or, they would go to the discount movie theater to see it for $4. Or, they would download it for free off the internet.

On iTunes, there is no such thing as "sold out." And, everybody is price-conscious because everybody under 30 knows you can just get the songs for free off the internet if you are willing to put up with the hassle. Apple has recognized that people value that hassle at approximately $0.99. If people were willing to pay $2.49 for a song, it wouldn't mean that the song was better than a $0.99 song. It means that they would probably pay $2.49 for every song, since they value the convenience at about $2.49.

coliveira• 18 years ago

There is another reason movie theaters don't use the basic strategy of raising prices: they can just increase the number of rooms for a movie. This pretty much takes care of any demand pressure (unless everyone in the country decides to see the same movie in the same day).

With old music, in CD format, someone could say that there is a physical media that needed to be sold, so prices could fluctuate. With digital music, however there is a theoretically infinite number of copies that can be sold, so there is not reasonable explanation for raising prices.

In other words: the price of selling the latest J.Lo album is exactly the same price of selling any other crap you can think of.

parenthesis• 18 years ago

Except it costs money to make recordings. Lavish recording, small market: explanation for higher price.

Of course, this kind of reasoning is irrelevant if a recording is essentially just advertising for a tour, movie, fashion-label or whatever.

bestes• 18 years ago

Can you put "(old)" or something in the title if the article isn't new? I almost always like these articles, but then feel silly when I realized that it's 2-3 years old and that I've read it before.

jmtulloss• 18 years ago

Of course not. That would be a signal that you don't need to read this submission.

mixmax• 18 years ago

There's nothing wrong with old - as a matter of fact I would argue that if a 2-3 years old tech related article is stille interesting it is truly worth your time.

Hwo many of the recent articles on Google chrome will be reread in 3 years time?

SwellJoe3• 18 years ago

I refer to this effect as "The Filter of Time" (or just "the filter" in conversation). It applies to music most obviously, but it can be applied to any work with an artistic component, I think. Oldies stations play a higher ratio of good to bad music than modern pop or rock stations, because the filter has been at work on their playlist.

It's probably worth thinking about the filter when doing anything online, since there are so many places one can get sucked in without actually gaining anything, learning anything, or improving the world in any way. Your example of articles about Chrome is an excellent choice...do we learn anything from the second through the fiftieth article about Chrome? Probably not. So, skip it. If you're writing another "me too", skip it. If you're reading something and can't imagine it applying immediately to your life or being useful for the rest of your life, maybe you should skip it.

Of course, since I'm just agreeing with you in a somewhat verbose manner, maybe I should have skipped it.

hopeless2• 18 years ago

How about [Classic] (i.e., old but good)

jad• 18 years ago

Is this even an accurate comparison, considering that movie theaters only show new movies, and iTunes sells both old and new music?

Wouldn't it be more accurate to compare the pricing strategies of iTunes to, say, Blockbuster Video?

tdavis2• 18 years ago

I'll say the same thing I said last time I read this: Brandy isn't a bad song, dammit!

SwellJoe3• 18 years ago

Note to self: Never accept a mixtape from tdavis, or attend any function where tdavis has selected the music.

How do you feel about MacArthur Park?

LogicHoleFlaw2• 18 years ago

Great tune. Too bad about the lyrics.

Hint: Find the jazz arrangement of it with the lead trumpet performance by Maynard Ferguson :)

edw519• 18 years ago

Note to self: Never accept a mixtape from tdavis...

+1 for a rare LOL on hn. Thank you, SwellJoe!

tdavis2• 18 years ago

Not really my bag, but I admit to liking Brandy because sometimes I just like old pop, what can I say? I am generally a fan of progressive rock, industrial and grunge more than anything, though. Oh and good ol' rock (60s and 70s of course).

That being said: Brandy, you're a fine girl, what a gooood wife you would be, but my life, my lover, my lady is the SEA doo doodoo dodododooodooo!

dejb• 18 years ago

I don't think the analogue with movies was a good one. The time investment of several hours involved in going to see a movie is more than the actual money cost for most people. There are many movies that wouldn't be worth seeing if they paid you. Music has this as less of a factor because the time investment is so much less. Usually when you are going to buy a song you have already heard it.

Pricing as Signal

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