New iTunes pricing: A neuro perspective
Image by Lee Bennett via Flickr
As you probably know if you buy any online music, Apple this week abandoned its one-price-fits-all approach to selling in its iTunes Music Store. Instead of all tracks costing $0.99, they’re now variably priced at $0.69, $0.99, and $1.29.
Is this a good idea?
Music labels have been pushing for this for a while, the idea being that hits are worth a lot, and consumers will pay more for them; while back catalog and obscure songs are worth less (worth less, presumably, not worthless).
But that $0.99 to $1.29 jumps feels big to me — I know it will make me significantly less likley to buy songs priced at the higher point. Meanwhile, I’m pretty sure the $0.69 price won’t lure me into buying more songs at the lower price point. So: a $0.30 increase feels huge to me; a $0.30 decrease feels non-existent (it doesn’t help that you can’t really find any $0.69 songs anyway).
Why is a 30-cent price move, in one direction or the other, treated so inconsistently in my brain? And what will it mean for the success or failure of the new model?
I decided to get in touch with a neuromarketing expert for some perspective. Roger Dooley of the Neuromarketing blog, a longtime RSS feed favorite for me, was kind enough to offer some thoughts over email.
First off, Dooley definitely expects some disgruntled consumers: “I think there will be some pushback from customers on the higher priced tunes, if only because they have been trained that a song, even a popular song, is worth $.99. [George] Lowenstein’s work at CMU showed higher ‘paying pain’ activation levels on brain scans when the price was too high compared to the expectations of the subject.”
(You can read the Lowenstein paper here.)
However, Dooley notes, those pain thresholds can change rather quickly as expectations change. And, given that other online music stores are futzing with their prices, expectations could definitely undergo a rapid revision.
What’s more interesting, perhaps, is the aesthetic impact of the price jump. “[The] price is not only a third higher than the previous price it’s also a visual jump,” Dolley says. “Not only is it above the next dollar level, the new price is three digits instead of two. There’s a reason that experienced retailers tend to price products at $9.99 or $9.95 instead of, say, $10.10.”
In fact, it’s pretty much one of the oldest rules of retail. And Apple is violating it. Three-digit price, big jump; one two-digit price down to a lower two-digit price, not much of a discount. The same size move in price; totally different register in the brain.
Another neuromarketing-related problem Apple is running into with iTunes: The problem of the excessive “buying pain” associated with selling things a la carte. As Dooley puts it: “Selling products in a way that the consumer sees the price increase with every bit of consumption causes the most ‘pain’.”
As this Wired article goes into, many think the future of online music is in various kinds of subscriptions, where you make the “painful” decision to spend the money once — or in signing up for recurring monthly billing — and then are locked-in.
Now, I’m not so sure the future is streaming. There will probably always be, as there has always been, some sort of mix of purchased (active) and radio/streaming (passive) ways of consuming music. Currently, I consume most music through a combination of Pandora (free, ad-supported), buying particular tracks from Pandora that I like through iTunes or Amazon (paid), and buying whole albums through Amazon (okay, I’m a dinosaur, but I like my physical CDs in case of mass electronics failure).
But will I download a song as quickly, and with as little thought, after bookmarking it on Pandora, now with the price jump?
I’m pretty sure I’ll hesitate. Of course, I have no idea if I’m typical.
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[...] Folks, I’ve started a new blog on the new True/Slant network. It’s called Neuroworld. I like to think of it as a newswire of human stupidity. Basically, it follows advances in neuroscience and humanity’s ever-expanding understanding of its own irrationality. Recent posts include: * New iTunes Pricing: A Neuro Perspective [...]
Jobs and co knew – instinctively and with empirical data like these – that a single, sub-dollar price point works. the recent changes are capitulation to the record cos for itunes going Digital Rights Management-less.
it seems doubtful the dissonance created by the 30% price increase will be offset much by the fact purchases can now be played on all 7 of one’s mp3-playing toaster ovens in addition to her ipod.
It may violate rules of Neuromarketing, but one thing is for sure, Apple is doing just fine.
For the new price to be detrimental to profit, sales would have to fall more than 23%. Thus far apple has seen a decline in sales – of around 5% to 6%. Which, for Apple, means a good deal more coin.
I’m a little sad to see that article about a la carte pricing, as it has always been one of my great wishes that cable TV would go that way (I currently don’t get it). But your article makes the cable industry’s vehement hatred of that idea make more sense – and thus, a la carte, further away.
Interesting take. I’m not sure I buy the argument Apple seems to be making (at least implicitly) that the hit imposed by the new $1.29 price point will be offset by catalog tracks being available at $.69. A quick and very unscientific run through the iTunes store doesn’t reveal many tracks available at the lower figure. Which makes me suspect tiered pricing is a sort of Trojan Horse to justify an eventual 30% price hike across the board. Not that the world’s largest music retailer would ever do anything that cynical.