The last few days in the gym, I've been listening to Chris Anderson's Free on my iPhone. Most people will likely be familiar with the work of Chris, who also wrote The Long Tail. Free is available free for download from iTunes.
Anyway, so I've been listening to this book, and a key insight jumps out at me: there are only two prices worth considering for any product or service - something or nothing.
When you charge a price, even 1p, the behaviour of a consumer is different from what you get when the product is free. On the other hand, when you charge 5p, the behaviour isn't that different from 1p. The behaviour then tends towards classical equilibrium depending on price elasticity of the consumer as the price goes up.
Free, on the other hand, is a singularity. You get behaviours that you can't get in any other way, and it isn't always excess consumption.
The insight that there are only two prices - not an infinite range - is obvious in retrospect. I don't know why I didn't realise it for myself.
Is the world black and white or is it shades of grey? I think your points are well made and via Chris, you so well highlight the free threshold. I would say this is a good MBA thesis or doctoral dissertation on the concept waiting to be written if it already hasn't.
Posted by: Joe Young | October 08, 2009 at 01:23 PM
Check out Predictably Irrational by behavioral economist, Dan Ariely. In it, Ariely presents his FREE theory (free and any other price are two different animals) along with descriptions of experiments he conducted to prove the theory.
Posted by: Tom Brzezina | October 08, 2009 at 10:16 PM
Case in point: Witness the number of complaints on the Apple App store about 59p iPhone apps. That money wouldn't buy you a can of Coke in most places, and yet somehow for that price people expect the same quality and depth they would receive if they had paid £40 for a PlayStation game or some such.
Posted by: Tim | October 11, 2009 at 11:49 PM