Sunday, June 14, 2009

Software and pricing

David Pogue has some comments on Win7 and Snow Leopard, and some philosophizing on pricing.
Basically he theorizes that the reason Apple will price SL as low as $29 (a hundred bucks lower than normal) is because the iPhone app store has shown that the cheaper something is, the more money you make.

I'm glad he is making the point. I've bitched before that, for example, selling ebooks or audiobooks for $30 or $50 is idiocy. Much cheaper would be better for both seller and buyer. I've also experienced this in my own business.

However, I must add that Pogue perhaps over-simplifies a little, he makes it sound like an infinite street. Obviously that's not true. There's a limited number of potential customer no matter how cheap you make something, so there will be a point where profits fall if the price falls further.

The theory is that there is the classic statistical bell curve: the top of the bell curve is the optimal price, where profit is highest, so that's the price you choose.
The exceptions are that you might want to price it lower if you're trying to expand your market share quickly at the expense of some profit. Or you might want to price it higher, so as to position your product as a high-end product, again sacrificing some immediate profits for future good-will.

Update
TidBITS actually ran an article some weeks ago, they hoped that Apple would pursue exactly this cheap pricing with Snow Leopard. Simply because it has few new features, and it would not sell otherwise, but it's necessary for the future of the platform that it sell well. I agree, and it's good that Apple thinks so too.

posted by Eolake Stobblehouse @ Sunday, June 14, 2009   3 comments links to this post

3 Comments:

At 14 Jun 2009 21:40:00, Blogger GilsDesk said...

This comment has been removed by the author.

 
At 14 Jun 2009 21:42:00, Blogger GilsDesk said...

I'm no economist, but this topic has always fascinated me (how things are priced).

It seems that there are two peaks on the bell curve for this -- one optimal point at which the product is priced just below its perceived value, so nearly everyone feels that it's a "great deal" and snaps it up -- and another (higher) point at which the product's price seems to indicate that it is in a higher class than similar products because it costs a bit more, which makes it more desirable and everyone snaps it up.

In the case of Apple, they have higher-priced hardware, and the second peak seems to work well for them (high-price must equal high-quality, so the high-end consumer snaps them up). In the case of software, maybe they want to experiment more with that lower peak.

They have already had success with the 99-cent song and the low-priced apps which move by the millions, so it might work with an OS also.

The other thing to remember is that an OS is more than an app or a song -- it is like a drug. If you get enough people hooked on an OS, they will use it for the rest of their lives. There aren't many apps or songs that can say that. That being the case, it may be extremely wise to let the OS go cheaply now, and buy life-long customers in the long run.

 
At 14 Jun 2009 22:23:00, Blogger eolake said...

TidBITS actually ran an article a few weeks ago, they hoped that Apple would pursue exactly this pricing with Snow Leopard. Simply because it has few new features, and it would not sell otherwise, but it's necessary for the future of the platform that it sell well. I agree, and it's good that Apple thinks so too.

 

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