Pull into a parking lot, open the right [mobile] app and you may be able to save a dollar or two on your next fill-up. Over the course of a year, you might even save enough money for a decent meal out.
(Post by Bryan Drake, Leo Espindle, Eddie Liu, Hai Liu, Steve Yoshida)
Imagine a marketplace where consumers are able to sell used digital goods to each other. The envisioned marketplace essentially allows for increased price differentiation, which decreases deadweight loss caused by rigid pricing.
In this marketplace, Mary Moneybags is able to purchase a movie at the original price of $$$ from the retailer, and later has the right to sell the movie to Charlie Cheapo after a specified blackout period for a price of $$. To allow this capability, a small amount of money ($) is paid to the retailer as a fee to provide the clearinghouse, and, importantly, to the original content producer as well.
Under this framework, retailers benefit from charging a fee to provide an internet clearinghouse for resale content, and content producers benefit through the introduction of “droit de suite” for digital content, a rights law currently used in the European marketplace for fine art. We also anticipate that this system will reduce piracy, which costs an estimated $6 Billion a year in lost movie sales, and may introduce a type of social networking component to the marketplace so popular in physical used music stores.
The digital content marketplace is expanding in terms of offering content at various price points. The rental market, dominated by Netflix in the United States and including niche offerings in other countries such as eHit in Korea, allow consumers to spend less to consume content, but ultimately they do not own it. On the other end of the market, Amazon.com announced the ability to for users to “lend” eBooks via the Kindle marketplace for free to friends for a limited time. In light of these developments, the time certainly seems right for a full fledged digital resale market.
(Post by Jinho Suk, Jungmoo Park, Sangouk Kim, Allan Jaenicke, & Arkajit Dey)
The market for digital textbooks is expected to grow exponentially over the coming years, but we see the current approach to pricing as a significant barrier to rapid growth.
In particular, we have focused on the effect of the strong 2nd hand textbook market. A survey conducted at MIT Sloan shows that 60% of textbooks are purchased 2nd hand. Through mining Amazon.com pricing data, we conclude that the presence of the 2nd hand market has a significant impact on pricing. On the one hand, it has the effect of raising prices through indirect appropriability: Books can be resold at around 70% of the original price. We also see less price competition and less variation in pricing across new, used and digital formats then e.g. in the ‘fiction’ category, which has a weaker 2nd hand market.
Below is an example of our findings:
Time Warner will begin testing a new video-on-demand service that will allow consumers to watch movies at home 30 to 60 days after the initial theater release.
Pricing this service will be a challenge. The CFO estimates that customers would be willing to pay $20-$30 to watch a newly released movie at home.
How should Time Warner price this new service to capture as much consumer surplus as possible?
Thus begins a fascinating article at Bloomberg Business Week. Pricing strategies like these are especially important for information goods and in a world of well-informed consumers. In fact, if anything, the article overemphasized the psychology of pricing and underestimates how these strategies can be very effective even when consumers are entirely rational.
Next time you're sitting at an airport bar and hear two businesspeople debate whether Apple is a technology or design company, chime in: "Nope. What Steve Jobs sells is pricing."
Pricing? You bet.
Jobs is a master of using pricing decoys, reference prices, bundling and obscurity to make you think his shiny aluminum toys are a good deal. Apple's Sept. 1 announcement of new products was a classic example.
The popular iPod Touch media player has been revamped at three price points - $229, $299, and $399 - all costing more than the iPhone, which does everything the Touch can plus make phone calls.
What gives? Watch Apple, and you can learn pricing tricks for your own business.
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