I was reading Chris Anderson’s Free: The Future of a Radical Price.  It presents several good case study on pricing and a good academic look at the price “free”.  The premise of the book rested in that “free” is generally not really free.  There are multiple economic principles in play, but ultimately, someone is paying for it.

Today’s technology does allow us to get very close to free.  The book provides numerous examples of how we proximate free, how we sample extensively for free, etc.  However, even so, a business is only profitable when it charges someone for cash.  For each service / product that business offers for free, it’s charging someone else for something that particular service / product ultimately powers.  For example, Google search is free.  The data the searches collect and sold to advertisers is not.

However, aside from the economic principle of the book, Anderson discussed the concept of the free.  In fact, he briefly discussed the word “Free”.  In English, “free” is a word that contains multiple meanings.  Not so in other languages.  What does the word “free” mean in English?  Merriam Webster online dictionary listed 15 definition.  The two most interesting ones are free as in not costing any money and free as in not held as a slave or prisoner. 

Free and Freedom is a powerful association that is worth exploring more.

Marketer has long played with the idea of free.  Free after rebate.  Free shipping and return.  Both of these “free” were meant to relieve you of your feeling of obligation.  It’s free, just fill out a form. It’s free to return if you don’t like it.  There is a sense of freedom that’s associated with the idea of free sampling.

Then, swing the pendulum further beyond free is money back.  Of course, the money back is always built into the pricing structure.  However, the sense of being pay to do something gives you permission to do what you otherwise may not.  Credit cards have played this game.  We’ll pay you back $1 for every $10 you spend.  You feel free to spend.

Such association of free and freedom is one worth further pondering.  This is a gold mine for a multitude of creative expression of pricing promotions, etc.

While Freedom isn’t Free, Free is Freedom.

Photo credit:  Book image via LongTail.com.  Credit card image via ChaseFreedomNow.com

Related articles

• Free. How today’s smartest businesses profit by giving something for nothing. Chris Anderson. (regnordman.com)
• Editor-in-Chief of Wired Magazine Promotes Freemium Business Model on Wix Website (pr.com)

Today, I attended a sold-out sport event.  As always, it was great fun!

This was the first time I’ve been to this particular venue, and it was interesting, particularly when it came to parking.  There was parking at the venue.  Those were not cheap.  There was parking on side streets a little way away from the venue.  Then, there was the parking that lied somewhere in between far and near.

That’s where it got interesting.  There was quite a variety in those in-between parking.  The first variable was distance.  The second variable was whether you could get blocked in.  The last variable was the solicitor who held up the pricing sign and gave you directions.

Some of the first sign we saw featured an unblocked spot priced at $10.  The interesting thing was that the solicitor no farer than 3 feet away was offering an unblocked spot priced at $20.  We hypothesized the physical appearance of the young lady who was holding up the sign may contributed to the price premium.   A couple blocks away, stayed around $10-20, without consideration to blocking.  However, we observed again that prices varies greatly in a matter of mere feet.  How does that work?

The idea is higher you price it, the less parker you need to make a decent profit.  But what is the sweet spot?  That’s where market research comes in.  You could do surveys, or you could do it by trial and error.  The strange thing is that there is a good chance that despite the price differences, they all make the same profit.

This is call an equilibrium, where things are perfectly balanced.  Because if there was an opportunity to make more by raising or lowering the price, they would have already.  Each one of these solicitors have dozens of games to test out the perfect pricing, and each one of them had the chance to change their price.  The only thing that would throw off this beautiful balance is a newcomer with a new space.  This newcomer would change the delicate balance between supply and demand.  In which case, everyone has to adjust again to reachieve balance.

We see this on shelves tool  You sometimes see pricing of different products move in parallel, or in complete opposite, like a dance.  The dance gets a little thrown off when a new product comes to play.

What happens if the players don’t want to dance?  That’s when a price war happens.  Price wars are costly, and generally make everyone less profitable.  There is a natural resistance to price increases.  So, no one can generally cheat on their dance partners by raising prices.  If they want to cheat and lower prices, they could achieve a temporary gain as the other players adjust.  The problem is once consumers get used to the lower prices, it’ll be hard to raise them back up without some consumer uproar.  That’s why price wars are bad.  If parking prices all of a sudden go up, people will not tolerate that kind of price increase.  They will just park farer and walk.

Related articles

• Toy Price Wars Start As Holiday Season Heats Up (newyork.cbslocal.com)
• 4G data plans: Price wars already? (zdnet.com)
• Supermarket price wars are all for show (telegraph.co.uk)
• EA’s App Store price war (tuaw.com)

CNN started the article of rising postage with the following…

“Unless you’ve got a stash of Forever Stamps sitting around, it might be time for a trip to the post office.”

As I whine and complain about the never-ending increase of postage, I must remind myself what a genius pricing strategy this was!

I do NOT have a stash of Forever Stamps around. Why? I simply do not mail enough. I email. I pay virtually every bill online. I buy and ship online. I would lose that stash long before I would use any of time.

However, I know households that do. Why? They snail-mail on a more regular basis. It is to their advantage to continue to hedge against rising prices.

So, the Forever Stamp is simply another version of a frequent buyer program, a great example of price discrimination.

Link: CNN Article
Photo Credit:- Mail Day!! -, by Warm ‘n Fuzzy.

Well, they make a very good case, a solid case even. However, one thing they did not account for was the ability for company, or people rather, to lie to themselves.

The article asserts that only something that’s a necessity and unique can raise prices. Well, I can think of more than a few products that would say that they are unique, even though they really are not. There are more than a few products that would think that people can’t live without them, but really, people can…

Link to the Fortune Article