Filed under: Analysis / Opinion, iTS, Retail, Blogging
Joel's take on iTunes variable pricing
Joel Spolsky is usually right on target with his commentary, and his piece today on the possibility of iTunes variable pricing is spot on. Nail, head, hit. Seriously, he's right on this one. The bottom line is this: variable pricing has nothing to do with actual demand. It has to do with perceived value. We used to play this trick when I worked at Blockbuster all the time. If you go to "the wall" of new releases you'll see one or two copies of say, "Spun," but there are probably hundreds of copies of "Pop Star." When the average 'merican browses through, he's likely to assume that with all those copies, the movie's got to be good. Same thing happens with generic food, if it's cheaper, how can it be just as good as the more expensive brand name? The music companies want to create a perceived value of junk like the Britney's, and downplay the goodness of less mainstream fare. Joel begins with a very good analogy based on movie theater distribution and sales, which truly illustrates this point. My suggestion? Don't mess with a good thing. Would you rather pay less for less popular music at the risk of diminishing returns for lesser-known artists, or do you think $.99 is the way it should always be?
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Reader Comments (Page 1 of 1)
Alice said 5:10PM on 11-18-2005
Musical liking is opinion and your statement about britney spears is exactly why it shouldnt be variable pricing... Idiots think they're opinions are the only right ones, when in reality alot of people like certain bands and musicians. They can not value music differently, because there will always be a market for it.
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John said 10:54AM on 11-28-2005
The movie industry does have variable pricing. In my neighborhood there is what we call the "Dollar Cimena". It shows older movies (last month's hits) at discount prices.
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LD said 5:29PM on 11-18-2005
Veblen good.
http://en.wikipedia.org/wiki/Veblen_good
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Matt Green said 5:54PM on 11-18-2005
I would have a bit more respect for the record labels' reasoning if they did the same thing with CD's. Major record stores use the exact opposite pricing scheme. New and popular releases tend to have a slight discount to pump up sales numbers, older stuff is mostly selling at the full, inflated price. Someone needs to gather up all the record execs and give them a good beating with a Cluebat.
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Pieter said 6:09PM on 11-18-2005
Significantly changing the prices per song could force people to obtain music through piracy. It could ultimately lead to the downfall of this Music Store. I think that this is a terrible idea.
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arthill said 6:27PM on 11-18-2005
Joel makes a great point about influence & control. But I still think this is primarily about money. If the record companies manage to get variable pricing we'll just see the average price per song creep up over time with nary a sight of anything priced less than $0.99.
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iMatt said 6:46PM on 11-18-2005
Joel says that record companies want variable pricing NOT in order to profit from high demand for products, but to DRIVE demand for low-quality products.
I don't buy it.
First, I'm skeptical that demand can be driven by raising prices. The general economic view is that demand will fall off as prices rise. I would imagine that labels could only raise prices to a certain point before fans would decline to buy the product in large enough numbers to impact profits negatively.
But secondly, Joel suggests that the movie industry has figured out that this tactic doesn't work. The movie industry apparently does not attempt to drive demand by raising the prices on some movies, as proved by the fairly uniform pricing scheme.
So I agree that the movie example can be instructive, but I do not believe that it can be used to prove that the record companies want to use variable pricing to stimulate demand.
(Also, and somewhat tangentially, it's worth noting that movie theaters have an element of scarcity that might influence their strategy. Theaters have limited seats. Scarcity figures in a lot less w/ digital music stores, whose sales are limited only by bandwidth. I'm not sure what way that factor cuts, though.)
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Fabulo said 7:19PM on 11-18-2005
Perceived value is the key word. I'm not paying anything more than $0.10 per track. $0.99 is a rip off.
Music is everywhere, it is not perceived as that high value. I can turn on the radio and tune in into "free music" or for $15 per month get a trillion tracks - all you can eat style - from Napster and the likes. So why would I pop a buck PER TRACK. And it comes smeared with enough DRM to remind you that it is NOT YOURS. At least with a CD, you can resell it, swap it (or shred it). There is a physical token of property, the media the music comes with.
Even my local Wherehouse sells used CD (huge selection) for $5. And none of them really looked used to me.
$0.99 is a rip off, over that is insane. Amazingly pleople are happy to pay that much, and it's probably true they would pay even more.
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iMatt said 7:03PM on 11-18-2005
I just read the "Veblen Good" article that LD linked to. It makes a good post, but I don't believe music can be positioned as a "Veblen Good."
If this were the case, classical music, which has its own snob appeal, would be priced at record stores higher than pop music. But this generally isn't the case, despite the more rarifed air it conveys.
Record companies would be hard pressed to convince consumers that Britney is a status good while while Lindsay Lohan is not. There may me more demand for Britney, justifying a higher price, but I can't imagine that a high price can be used to pump up demand.
I still think that big flops--unpopular records released by big stars--can't be converted into hits by raising the price. U2's Pop or any of REM's later albums were basically flops, despite both bands' reputations as "high-end" artists. Yet some of their albums still find their way into the discount bin, because demand drives prices, not the other way around.
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F_D said 7:28PM on 11-18-2005
A variable pricing scheme isn't necessarily a bad thing, the problem is with the implementation. Strictly discounting the "Twinkie" tunes (yes, like the major mainstream record stores do) is probably a bad idea. HOWEVER...
One of the things that iTunes has going for it is the serendipity factor. Anyone whose office has un-firewalled iTunes Library sharing knows what I'm talking about. There's a more/less rudimentary implementation of it there. "Hmm... I wonder what Bob is listening to? Oh, that's cool!"
Why not reward that serendipity? Browse other users' music library and click the little arrow, download a paid version of the song - - built in 10% discount.
I've also written about how that might even go a step further: http://blog.founddrama.net/2005/11/programming-serendipity/ (though I wasn't thinking about the variable pricing scheme at the time)
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mike said 10:40PM on 11-18-2005
ah, someone around here really made a good point:
a) artists aren't seeing the benefits, they're already locked into contracts.. so don't think you're helping out Justin. You're not. It's the labels that want that margin.
b) more importantly, what songs do they want to price up? the popular ones. Okay. What songs are MOST readily available on p2p. Oh. The popular ones. So.. pretty much, if this goes through, iTunes will be a good place to get.. um.. cheap, rare songs.. and the singles will be picked up on p2p.
good idea record industry dinosaurs..
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anthony said 7:42PM on 11-18-2005
I think Matt Green has a good point there. How does this all makes sense compared to a brick and mortar model?
What's interesting is my perseption of "Pop" music is that mostly teen agers are listening to it - how many of them are purchasing music compared to downloading it? How many 13 or 16 year olds have credit cards?
Thankfully, I detest pop music and look forward to getting some good indie, chill and jazz music at a discount! Otherwise, I'm sticking to allofmp3 and emusic - both DRM Free!
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john spain said 9:13PM on 11-18-2005
to #8:
who buys CD's as status goods? tweens and teens.
who buys spends more of their disposable goods on CD's than anyone else? tweens and teens.
who doesn't download their music illegally and begs their moms and dads for the newest gizmo/toy i.e. the ipod? tweens and teens.
seeing a pattern?
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Steve said 8:53AM on 11-19-2005
Heh... Everyone now is smarter than 300 years of proven economic theory? The songs are obviously worth 99c - over half a billion downloads proves this. The argument of percieved value is baloney - with the generic food argument, the technique is known in the business world is "branding", and it's a time honored technique to increase the demand for a product. As for Britney, well, she fills stadiums, so whether you think her stuff is junk or not, demand is high, so the price is going to be higher.
The record companies, and yes, Apple, are looking for maximum profit. The variable pricing is an attempt to find the most profitable combination of volume+price. How American.
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Chris Meisenzahl said 7:49PM on 11-19-2005
It's an interesting analysis. But in the end, I'll still only buy the song if I deem it worth it to me.
If a song is $2.49 and I expect to get $5 of entertainment out of it, I'll still buy it.
I wouldn't download Fitty-Cent, Bay City Rollers, or Courtney Love songs if they were free! ;-)
Chris
http://amateureconblog.blogspot.com/
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DaveKCMO said 9:25PM on 11-20-2005
Can't we just stick with simple pricing? Everyone knows they're making MORE money already by selling legitimate downloads (subtract all CD replication/distribution and inlay printing costs). Lest we forget the price gouging that left the record companies paying $5 to every CD purchaser who'd "overpaid" for a CD. Wanna raise the prices again, Sony BMG? How's about another f'in class action lawsuit!
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