Purchasing Power Parity: Fair pricing for SaaS products

https://scastiel.dev/implement-ppp-fair-pricing-for-your-product

169 153 4 years ago

freediver2• 4 years 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• 4 years ago

The marginal cost of digital goods tends to be low

A bigger issue is that anyone with a VPN can access the discount

matchagaucho2• 4 years ago

Not if the SaaS has ongoing hosting bills, or years of R&D to recoup.

JimDabell• 4 years ago

Look at the billing address associated with the payment card. A VPN can’t mask that.

Arubis• 4 years ago

Good point. Could the PPP concept just be applied to your profits rather than your revenues, with a floor under which you just don't sell? Or, in the interest of equity at the cost of a little more complexity, deliberately round up pricing in profitable-after-COGS regimes to subsidize loss-after-COGS regimes?

paxys3• 4 years ago

Yes you have to sell it for >=$15, but you can still price it at $20 in Somalia and $100 in the USA. It doesn't have to be 100% margin.

ignoramous• 4 years ago

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.

Reason why there's an uptick in SaaS companies in Eastern Europe, Asia, and West Africa. They can out-compete on price already and will gradually manage to build software of similar quality as their counterparts living in higher cost-of-living countries.

This has been Freshdesk [0] / Zoho (both based in India) modus operandii for one to two decades now. And one I'm keen on living upto.

[0] https://archive.is/h1n6z

clairity6• 4 years ago

yah, this is all econ 101 stuff. what you're talking about is a specific application of marginal analysis to a firm's pricing policy, namely, making sure marginal revenue is greater than marginal cost (or, MC ≤ MR), ignoring sunk costs (like fixed costs). in software, fixed costs are high, but variable costs (e.g., COGS) are tiny, which is why software can be priced at just about any level (including "free") and still be profitable (in the absence of competition).

the other economic concept at play here is arbitrage, which is being able to buy low and sell high risk free.

mr_toad2• 4 years ago

in software, fixed costs are high, but variable costs (e.g., COGS) are tiny

In traditional software. SaaS has hosting costs, support costs etc.

ipince• 4 years 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• 4 years ago

Could you not check against the country that the credit card is issued in?

Beltalowda2• 4 years ago

Yes, that is what many platforms do.

kevincox• 4 years 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.

dghlsakjg2• 4 years 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.

HideousKojima• 4 years ago

I'd assume you just go based on billing country instead of geoip.

notpushkin• 4 years ago

Which you don't know until they start typing in the card number. I think most users would expect you to tell them the price up front.

scastiel• 4 years ago

Hi, post author here!

I was aware of this potential issue when I implemented PPP on my course. It turns out almost nobody uses this trick, although a few told my about it. I guess when you are transparent with your users, they are actually happy to pay the fair price? Or maybe I’m too naive ;)

Beltalowda2• 4 years ago

For a "niche product" like this it's probably not a big deal, but for larger platforms like Steam, Spotify, Netflix, etc. it kind of is. I used to live in Asia and had a lot of trouble with this. I ended up resorting to just buying the vouchers in the store than deal with "you used to be in Europe but are now in Asia, you're probably committing fraud!" stuff. I was earning local salary so the 4× price difference was kind of a lot.

Some companies even make a fuss when you move between Western countries with similar economies for some reason. Lots of businesses are stuck in a "you were born in a country, live your entire life in a country, and will die in that country", which to be fair is true for most people, but far from all and there is often no resort.

throwaway888abc• 4 years ago

Really enjoyed your article (thank you) so posted here. I'm currently researching more about the topic. And thanks everyone for great discussion.

mrtksn• 4 years ago

In Apple's case, you as a customer, need a valid payment method from the country your account is going to be.

PS: Apple, probably Google too, have tiered pricing where you choose the price of your app or your content will cost and Apple takes care of the local pricing which is adjusted to your users purchasing power.

HWR_143• 4 years ago

I do not think Google has a similar "tier" concept. It has a "recommended price", which is a conversion to the local currency maybe, but maybe not, taking into account PPP. But you can go in and override those prices if you want to make your product particularly cheap or more expensive in a random country.

sachinneravath• 4 years ago

You can detect most of the VNPs and fall back to the original pricing if the user visits your website using a VPN.

Kiro• 4 years ago

How?

dzink• 4 years 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• 4 years 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.

ghaff4• 4 years 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• 4 years 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.

paxys3• 4 years ago

The economics term for this is Price Discrimination (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"?

SQueeeeeL2• 4 years 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• 4 years 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.

tjoff2• 4 years ago

Not sure how knowing I get overcharged by 50X is gonna help me? It is not like I have a choice in the matter anyway (when it comes to healthcare).

antaviana• 4 years ago

I am a bit contrarian on this. While I do agree that market segmentation maximizes revenue, I think that with regards of fairness, long term it is best that prices are the same worldwide.

The reason is because if someone in a poorer country gets a good at a lower price than someone on a richer country, that person will have less pressure to raise their prices to eventually reach real equality.

So the only real driver for segmentation for prices is to maximize revenue, not to be more fair.

I remember that before the EUR, the items in Zara stores had the prices in all European currencies (ESP, ITL, DEM, etc). It was simpler for production to just have one single ticket will all possible prices. If you made some algebra to compare actual pricing, you could see that prices were very different, but not because of fairness.

For example, at the time, the absolute value of a Zara product for Greece was above the absolute value of the same product in Spain. The GDP per capita of Greece was lower than the GDP per capita of Spain, but at the time in Greece Zara products were perceived as luxury items and in Spain were perceived as low cost, so Zara capitalized on that perception.

mym19902• 4 years ago

Maybe I am missing it, but I don't quite understand what 'fairness' has to do with cross market pricing. Different markets will constitute many variations in variables that will affect pricing. The cost of doing business in France is different than the cost of doing business in South Africa. The brand reputation of a McDonalds is different in China than it is in the US. I can go to almost any European country and buy groceries for cheaper than in the US, I have never thought "this is not fair".

ilyt2• 4 years ago

Kinda depends on product. If your price for each additional good is near zero (generate extra key for a video game) or very cheap (pretty much any SaaS), you have flexibility and can make it cheaper on some markets to be more competitive.

In case of software (video games are good example here) it might also move people from "just pirate it, $60 is my entire disposable income for this month" to buying from you

HWR_143• 4 years ago

As long as everyone is above the break-even point, you will maximize your profits.

Given network effects, and depending on your horizon, I'm not even sure everyone needing to be above your breakeven is required.

mr_toad2• 4 years ago

definitely the most optimal way to price your product.

Only if you have no competition. If you do, you can expect them to undercut your most profitable markets.

iso1631• 4 years ago

The presence of competitors selling the same or alternative goods lowers the "max they are willing to pay"

jasonpeacock• 4 years ago

Heh, Amazon tried this back in 2000 and it was very bad for customer trust:

https://www.computerworld.com/article/2588337/amazon-apologi...

maccard• 4 years ago

The world and internet have changed significantly in 22 years. Microsoft were too early to the party in 2013 for a "digital only console" and 7 years later both MS and Sony shipped a digital only console.

RobotToaster• 4 years ago

That premium $20/mo Netflix plan costs $4 in Turkey.

Hence the popularity of Turkish and Pakistani VPN tunnels.

Ozzie_osman• 4 years ago

it is definitely the most optimal way to price your product.

Yes, but it ignores some second-order effects. When you leave some money on the table by charging some users less than the max they are willing to pay (often referred to as consumer surplus), you get some benefits like more word of mouth, higher likelihood to get repeat purchases from a customer, and so on.

Think of the feeling you had the last time you bought something and thought "oh, this is so expensive i can barely justify paying for it" vs "oh my God, this is so worth the money I'm going to feel good for the next week and tell all my friends it's a no-brainer".

Most people underestimate these effects when they price discriminate.

edmundsauto• 4 years ago

I can see how people would forget to include them (2nd order thinking is hard!). But how would they underestimate the effects when there is t really a clear way to accurately quantify them?

It makes a big difference if word of mouth was 1% increased versus 20%.

(And then there are 3rd order psychological effects - people tend to increase their perception of how valuable something is when they pay more. that’s kind of the BMW strategy!)

What we’re left with is a world where we make decisions on easy measurements. That does not necessarily mean including 2nd order effects would change the calculus. And if you’re doing 2nd order, how can you make smart business decisions that aren’t just your gut?

Human psychology is really complex, situationally dependent, and cannot be generalized from our own experience. That’s why companies rely on data, even if it’s incomplete.

jonas21• 4 years ago

Joel Splosky wrote a great article on software pricing and price discrimination a while back (gosh, was it really 18 years ago? I feel so old now):

https://www.joelonsoftware.com/2004/12/15/camels-and-rubber-...

bjelkeman-again• 4 years ago

The kicker at the end is great.

Take my advice, offered about 20 pages back: charge $0.05 for your software. Unless it does bug tracking, in which case the correct price is $30,000,000. Thank you for your time, and I apologize for leaving you even less able to price software than you were when you started reading this

inopinatus2• 4 years ago

Car rentals often show wide variation based on visitor origin. This was observed decades ago (I recall an economics professor mentioning it way back), and on a cursory check just now I was quoted up to 40% lower prices at an international airport, for an otherwise identical rental, by presenting as European* rather than American or Australian.

Such a difference cannot be explained by PPP or insurance factors. We might conjecture that consumer expectations account for the price discrimination, e.g. visitors from Europe may be accustomed to high quality integrated mass transit (including to/from the airport) and thus resent a high car rental price, whilst Australians and Americans assume they'll need a rental to get around, with consequently higher willingness to pay.

* tested with UK, France, Germany, Italy, and the Netherlands.

NavinF• 4 years ago

by presenting as European*

Based on what, IP?

crazygringo4• 4 years ago

That's so crazy, I just need some verification in order to believe it. I've never in my life seen price discrimination by citizenship like that before, with the exception of discounts for locals vs. tourists for museums etc.

What are the links you're using to check the prices? And are you using a VPN to change your IP location, or something to do with the passport associated with an Expedia account or something, or is it a billing address? And what airport and car rental company are you looking at specifically?

I want to make sure it's reproducible. I know Americans in Europe often wind up paying more to rent, but only because many of them require the less common and more expensive automatic transmissions. But you say you're selecting an identical rental so that can't be it.

chillfox• 4 years ago

That sort of thing is everywhere, and has been a thing forever. I remember when I was a teenager, my dad had a business importing consumer electronics from Asia and the difference in shipping cost between him paying the shipping company directly or getting a local agent to do it was often more than the cost of the products. It didn't matter if he used an established agent or some random person with zero connections, the price difference was due to him being European and had nothing to do with connections.

t0mas88• 4 years ago

The travel industry is very big on price discrimination (they call it revenue management). Car rental, hotels etc do it a lot, but the most advanced ones are the airlines.

For many flights there is no single price that would allow the airline to operate the flight without making a loss. Some example for a 100 seat plane:

1. Sell all tickets at $100: Plane 100% booked, revenue $ 10,000, which is less than the cost of flight.

2. Sell all tickets at $200: Plane only 60% booked, revenue $ 12,000, better but still less than the cost of the flight.

Reality: Sell 15 tickets at $400, then sell 60 at $200 and sell 20 at $100. Now you make $ 20,000 with a 95% booked plane.

Your new problem is how to avoid the $400 people buying a $100 ticket, because that ruins your whole optimization. The way airlines do that is to make many tariff classes with a lot of rules and a limit to the number of tickets sold at a certain class. They then change that a bit based on demand once the flights gets closer to departure.

The rules are relatively simple things (this was invented in the mainframe computing time and some of those systems are still around), common examples: A minimum amount of time before departure (e.g. you can't but the $100 ticket for a flight that's tomorrow), a minimum stay time (e.g. return flight has to be at least a week after arrival, filters out business travel), only valid if the trip includes a weekend-night (again filters business), only valid on a connecting flight etc.

The optimization is not a simple thing at all, I've seen setups with large Spark/Hadoop clusters to calculate the optimal pricing for each tariff-class and the amount of tickets to allow on each flight for each tariff-class. Because that's the output of most revenue management systems. And then on the other side of things the flight booking sites or travel agents are trying to find the cheapest combination for each customer, because these tariffs are not "an SFO-JFK return" but more like "leg 1 SFO-ATL, leg 2 ATL-JFK, 5 days later leg 3 JFK-SFO" or something like that. And you can buy any combination you want as long as it fits the rules for each tariff class.

jasmer4• 4 years ago

"Such a difference cannot be explained by PPP"

? It's definitely explained in terms of PPP.

If you could only have one single measure to use in terms of price discrimination, it would be that.

Europeans have less purchasing power than Australians.

Ergo, price difference.

I'll bet Philippine visitors get an even bigger discount.

dragonwriter• 4 years ago

Price discrimination is optimal for sellers if you can wall off markets, but is PPP really the optimal basis for geographic price discrimination?

tracerbulletx• 4 years ago

It's just taught as an assumption that you will do this in a business school's bachelors curriculum. For different countries they'd just treat it as a different market with different pricing but a lot of times it's done by acting like something is a different product through packaging and branding. Like the 150 dollar lip cream is probably chemically not that different than the 10 dollar one but they just make it feel more premium and sell it under a premium brand name. Or even just the way consumer electronics include or don't include features at various product levels is also price discrimination. (Which is why sometimes the low tier product includes a physical ability to do something but it's turned off with software or something. To nudge people willing to pay more to the one aimed at them.)

greycol• 4 years ago

Back in the early 2000s so long as you were buying two or more copies of Adobe Photoshop it cost as much to hop on a 28 hour round trip plane ride from NZ to the US to buy those copies rather than purchase and download the software off Adobe's website (which was geolocked and priced to match the only local physical distributor).

With physical goods price discrimination is limited by arbitrage opportunity in moving the good from one country to another. With intellectual property licensing can tie a good to a location which means that the price discrimination can effectively be any amount.

My personal opinion is regulation should proscribe the price discrimination past some multiple of purchasing parity to curtail the worst possible abuses. Having said that it's not a major real world problem while piracy remains as an outlet for abused markets.

achow2• 4 years ago

"Shit economy"?

Some places a dollar goes far, that cannot be construed as 'shit economy'. The place where a $10 USA haircut costs $0.5 need not be due to local (bad) economic situation. Similarly for food and other living essentials.

sfe22• 4 years ago

Agreed, the cheaper the service the more efficient economy they got.

dahfizz2• 4 years ago

Some places a dollar goes far, that cannot be construed as 'shit economy'

You're implying a strange causality.

The places with the highest PPP conversion factor are places like Colombia, Iran, Cambodia, Indonesia. The reason a dollar goes so far is because these places have no money. When controlling for PPP, 10% of the population of Cambodia lives on less than $2 per day.

So yeah, a dollar will go pretty far. And its because their economies are shit.

coffeeblack2• 4 years ago

So why does a millionaire in Turkey get it for $4 while a homeless American single mother has to pay $20? How is that “fair”? It’s just racism.

MichaelZuo3• 4 years ago

Most countries, including Turkey, don't actually define race or care about it really. The U.S. and a few other countries are the exception.

In fact even the UN doesn't really put much stock in it, since the concept is too muddled for it to be useful across 190+ countries.

Ethnicity, the kind provable by family ancestry or genetics, is the usual replacement.

evrydayhustling• 4 years ago

It's also a bit weird to see a service advertise their price discrimination.

I think there are two angles here that are can be rational depending on what you are selling, and to whom.

One is "stakeholder consumerism" similar to e.g. fair trade coffee. Some consumers want their payment to be part of a system that shares benefits with other parts of the economy. The provider is saying to the rich world, who will provide most revenue: you pay more so that I can provide my service everywhere while maintaining some margin.

The other is reassuring people that your price discrimination "isn't personal". All prices must thread the needle of making the product more valuable than the buyer's next best alternative, but the alternatives vary from buyer to buyer. PPP isn't perfect but it's a non crazy proxy for what the buyer is giving up to have your product (eg one dinner in Switzerland vs a month's food in Cambodia). And yes, it's a weak proxy when one region has a really wide range of incomes.

RektBoy• 4 years 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• 4 years 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.

anfilt3• 4 years 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.

ghaff4• 4 years 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?

Gigachad2• 4 years 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.

anfilt3• 4 years 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...

Lio• 4 years 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• 4 years 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• 4 years 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.

shkkmo2• 4 years 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.

jasmer4• 4 years 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.

shkkmo2• 4 years 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• 4 years 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

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• 4 years 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?

dghlsakjg2• 4 years 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.

fulafel• 4 years ago

Maybe. Economics also has quite bad terms for many things. Like discrimination here, or "rational". It's like maths and programming, you can find useful things in category theory but it's not necessarily useful to adopt it as a framework in your communication.

julesmaregiano• 4 years 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-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-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• 4 years 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• 4 years ago

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

yboris• 4 years ago

Here is an interactive data visualization comparing incomes within and between countries using PPP (purchasing power parity)

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

notRobot• 4 years ago

(2021)

causality0• 4 years 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_oliver2• 4 years 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• 4 years 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• 4 years 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_oliver2• 4 years 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.

benevol• 4 years 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• 4 years 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.

coffeeblack2• 4 years 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• 4 years ago

This is not necessarily legal in the EU.

https://europa.eu/youreurope/citizens/consumers/unfair-treat...

"Price discrimination is not allowed"

jasmer4• 4 years 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.

Purchasing Power Parity: Fair pricing for SaaS products

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