Archive of UserLand's first discussion group, started October 5, 1998.

Nielsen's nuts -- differentiated pricing is happening

Author:Brian Carnell
Posted:3/5/2000; 9:42:29 PM
Topic:Nielsen's nuts -- differentiated pricing is happening
Msg #:15414
Prev/Next:15413 / 15415

The article you linked to from J. Nielsen is nuts -- this guy should stick to design advice rather than mis-applying economic theories he doesn't seem to fully comprehend.

First, note that Nielsen's proposed solution -- rewarding frequent buyers -- is a good one but only works where there is a persistent relationship. Unfortunately, a lot of web businesses don't necessarily lend themselves to repeat customers.

For example, the folks at Cognitoy have an intersting differentiated pricing scheme for their robot fighting game Mindrover (see The game is $45, $40 if you give them the email address of a friend who might be interested in the game and $35 if you give them two email addresses.

Now, for someone like me, the price of the game was well below my price elasticity curve for the product so I just forked over the $45, but someone else might find it worth it to fork over the email addresses and save $10.

(And the developers have mentioned they've been a bit surprised that they have had so few complaints about people who felt such emails have constituted spam, but obviously that's what it is).

Another example of differentiating pricing is Eudora going to an ad-supported model for its "free" version. One can either pay an up-front cost in dollars to use Eudora or one can pay the price of having to view ads.

This also has implications for the web. Why not have a free web site with ads and a subscription-only site without ads? Actually, you'd probably have to offer a subscription for something besides just the web sites-advertisements, but obviously you could thrown in the "no ads on the site" as an inducement (how about a web-wide version a la those "adult check" style subscription services that, uh, er, my friends tell me some porn sites use?)

Personally, I think it's very likely that the economic model for the web will look very different by the end of this decade than it does now, and there will have to be a way to add differentiated pricing other than "always buy from us and you'll get a discount" (these are generally appealing, after all, only where comparison shopping isn't that easy and I am locked into choosing only from a small number of retailers. Using Nielsen's model, the problem with a buy 9, get the 10th one free is in order to maximize the lowest price I might buy my next 9 CDs from 4 or 5 different retailers on the Internet, and sticking with just one might actually set me back even with the free CD).

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