Influence of prospect payments on pricing OR should you charge more for your iPhone app?

While discussing the issue of how consumers get converted from prospects to customers in one of the MBA classes and later on in the Marketing Research class, a thought occurred in my mind. Should (and do) companies take into account and adjust the pricing of their specific offering according to the customer propensity to purchase on a specific eco-system?

As I read somewhere long ago, Amazon did that till 2001 using cookies but had to stop that practice. However, if a small scale supplier does it, will it actually be noticeable? How ethical would that be?
Let me take an example. We all know that Apple consumers generally pay more for every mainline and peripheral product in comparison to their PC counterparts. I do not wish to dwell on the functionality comparison and such other issues but in reality when you are prepared to pay more for within a particular eco-system, can it be exploited by others who also provide services within that eco-system?
Think about an app provider who supplies his apps to consumers on two competing mobile eco-systems of Apple app-store and Android marketplace. In this case, keeping in mind the propensity to pay higher amount of money from the Apple consumers, should the app provider charge more money for the app than on Android marketplace?

Like many consumers, who hardly compare prices (I know some of us do but most don’t), supermarkets exploit this window of opportunity like anything and supply products at different prices. If that is feasible between two supermarkets, can it not be taken into account by mobile eco-systems? So, should app suppliers take into account the prospect payment psychology in pricing their apps?

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A year ago, when it was launched, it was one of the most hyped products (service) from Google. It was hailed as the next generation of communication and the big G was promoting it as everyone will move away from regular email and will use Google Wave.

Today, it was announced that Google “doesn’t plan to continue developing Wave as a standalone product, but will maintain the site at least through the end of the year and extend the technology for use in other Google projects.”

Last December, after using it for a while, I wrote a blog post, ‘Will Google Wave really become successful?‘

One of the major faults I noted was that the service was “not engaging enough”.

One of the visitors on the post said “It’s like an Instant Messenger merged with email, but what’s new?” Another user stated “MSN does chat better, SKYPE calls better, GMAIL/Yahoo email better. So, where is Google Wave? Nowhere.”

What the above comments show is that the product didn’t have a clear positioning in consumer minds. I guess it was a positioning problem from Google’s end too. They were unclear as to what exactly was this service positioned in the overall package of Google’s services.

Integration is the name of the game in today’s technology marketplace. However, the integration needs a clear positioning. In one of his presentations at Google itself, Seth Godin discussed this issue in details, that it’s not engineering innovation, it’s how your consumers perceive your product to be, is what matters. I keep on saying that ‘success is the most successful recipe for failure’ and I guess the success of Gmail and Gtalk brought this for big G.

Many companies prior have also failed in their line extension and integration efforts. For example, in mid 1980s, Xerox diversified into financial services industry by buying insurance companies and investment banks with one of the logic being, insurance will be a good extension service which will integrate itself with the sale of the costly photo copier. However, in about 5 years time the realisation hit fair and square with Xerox losing billions of dollars overall. By the mid 90s Xerox left the financial services portfolio and re-positioned itself as a document company. The whole diversification idea by integrating an ill-positioned product and service mix boomeranged.

There are many other positioning examples which boomeranged, including the video phone which was launched in mid 1970s and never caught the wave or similarly dishwashers and microwave ovens in Asian and Latin American markets. The consumer reluctance was a results of poor positioning more than anything else in these cases. And big G is no exception to this!!!

Google chief executive Eric Schmidt said it was hard to say why Wave did not strike a chord with a majority of users. “It’s a very clever product. You never know why it didn’t work.” He also said “Google will take what it has learned and apply it to something new”. I guess the biggest lesson learnt here is positioning than anything else.

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Most consumers in developed and emerging markets are now facing an interesting choice making dilemma. It’s the dilemma of plenitude. This relates to most purchase decisions which includes a wide spectrum of products and services from buying corn flakes (a fairly low ticket item) to a car (a fairly big ticket item) and even the car insurance as well as accessories. The plethora of choice creates two major psychological conditions in consumer minds:

1.    Consumer confusion: I have dealt with this in some of my earlier posts focusing on antecedents and consequences of consumer confusion.
2.    Consumer compromise: This post focuses on the compromise effect in our decision making.

The compromise effect academically has been given another interesting name ‘perceived sacrifice’. Let’s take an example of how it happens. Imagine that you are planning to buy a new phone. There are several major considerations when you are thinking of buying a mobile phone:

1.    Service provider
2.    Type of contract
3.    Brand of phone
4.    Type of OS
5.    Size of Applications market
6.    Features of the phone and so on…

Let’s say you want a sleek phone which is very quick (for example, HTC LEO) however, you don’t want to be stuck with the old OS which is as such going to be replaced soon (i.e. WinMo 6.5). Then you read about the holding issue relating to iPhone 4 and now look at Symbian based phones. However, you want WinMo type of connectivity and freedom. And we are back to square 1.

As there is no perfect phone we try to compromise (or sacrifice) several benefits to the cost of the product or service. Researchers have observed that buying behaviour may change depending on how the perceived compromise balances with the cost. Perceived compromise consists of monetary aspects such as price and non- monetary aspects such as time, search costs and physical efforts. Most of the research has identified monetary aspects as the major contributor to perceived sacrifice. However, I believe with the extending features based battle in the marketplace and price points remaining fairly constant across brands, non-monetary aspects are becoming ever so prominent in consumer decision making. This increases the compromise effects.

Such compromise effect can have a direct effect on consumer choice goals (anticipated regret, evaluative costs, choice confidence and justification) and perceived value of the product or service. This is because buyers’ perception of value is based on trade- off between the product compromise they perceived in comparison to the sacrifice they perceived in monetary terms.

So, the higher the compromise:
a)     the higher the anticipated regret
b)     the higher the evaluative costs
c)    the lower the choice confidence and justification.

Therefore, compromises can have a significant impact on value and future behavioural intentions of consumers.

This is a really ripe of area for research and the compromise effect needs much further empirical attention. Experimentation as a technique can greatly help us understand the impact of consumer compromises on final decision making.

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In this post, I want to focus on how a completely new and highly strategic internet marketing revenue model has been created by the brains behind Indian Premier League (IPL).

Most of the readers of this website I believe are aware what is cricket? It is a game of umpteen nuances and is being followed by more than 2 billion people around the world (I being one of them). In recent years, a new format was added named Twenty20 (T20) wherein only 20 overs are bowled. Presently, there is one regional contest going on called the ‘Indian Premier League’ (IPL). India is one of the major countries where cricket is taken quite seriously and is the most popular game. The model has similarity to the Football Leagues around the world wherein local clubs recruit local and international players and compete for winnings.

Let me first pose the problem. Most sporting tournaments require funding and a substantial chunk of this funding comes from Television rights and TV advertising followed by various other tactics such as merchandising and recently online rights. The advent of new technologies including peer-to-peer networks mixed with higher broadband coverage across many countries has created parallel channels for viewing the live event broadcasting without paying the required fees. It seems that such practice is quite popular among younger generation. This has a direct impact on the revenue an organizer of sporting event can generate.

Most event organizers dread these new media of live event broadcasting on internet by an individual sitting in his o

r her own house with a broadband connection which then is being watched by many others. These individuals using their own websites charge nominal fees for the broadcast and sometimes make these events available for free. Some of these websites use elaborate email marketing, web advertising, web marketing and mobile marketing to lure consumers. This in turn means that the original broadcaster loses revenue due to an illegitimate supplier. Most times corporate event organizers try to go behind these individuals following legal route which in itself is quite resource intensive.

IPL which is in its 3rd season is also one of the quite popular cricket events watched by more than 1 billion people across the world. Such event will surely face the problem of live event broadcasting by various individual cricketing websites.

However, the organizers have created a completely new streaming model which has put all these problems to end. They have partnered with one of the most trusted brands in online viewing of various media – YouTube. The event is being broadcasted live on YouTube for free. The model has some interesting strategic implications for all involved including consumers, IPL organizers, advertisers and YouTube (Google).

1. It stops those illegitimate suppliers of streams as the event is broadcasted for free.

2. Using YouTube’s technology the event is broadcasted with quality optimal for an individual’s connection speed. This in turn, created a better user-experience.

3. It increases the reach of the event to a much wider audience. Not all viewers on YouTube will be aware of cricket but some of them will be exposed to the sport.

4. Two new sources of revenues can be observed: (a) google’s online ad revenue network which is one of the most sophisticated and (b) advertisers who wish to advertise on the live event.

5. This also provides an opportunity for advertisers to geo-target the audience to utmost finesse. The reason for this being google’s advance geo-targeting mechanism. In turn, this can reduce the overall spend and bring much more focus in terms of overall revenues.

6. This event also provides YouTube (Google) with an added weapon in their armoury, which is to go to other event organizers and get the online rights to broadcast events on this massive scale.

I believe that this strategic masterstroke delivered by IPL organizers have created a completely new revenue model for event organizers which brings about a win-all situation. The only loser being the illegitimate online broadcaster. I believe other event broadcasters should seriously look into this new way of generating revenues and utilize the opportunity to the fullest extent.

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Call me a cynic, but I have been using Google wave since last 4 weeks and one of the things I find is, IT’S NOT ENGAGING ENOUGH. There you go, I said it.

I don’t find any compelling reason for using it. One can argue that, you don’t have all your friends using it, however, in my case approximately 60 other friends are using it. And most of them can be put in as innovators or early adaptors in terms of technology products.

I guess Google tried to create that initial buzz which gave it tremendous success with Gmail and several other application by making it invitation only however, I don’t see the engagement. I was amazed how quickly I changed to Gmail from Yahoo and Hotmail as my main webmail.

Do you really see Google WAVE as future of communication as Google suggested or is it really proving the old saying ‘Success is the most successful recipe for failure’… What’s your opinion?

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