Sensitivity to small fees

I saw this article on Valleywag that quoted a New York Times analysis of the effect of small fees on e-commerce transaction size and volume. It seems that reducing small fees can greatly increase revenue. Money quote: has found other, somewhat puzzling, behavior among its customers. The company has for years offered $2.95 shipping fees on all sales. But according to Patrick Byrne, Overstock’s chief executive, the site will occasionally drop the fee to $1, “and suddenly people start ordering $400 bookcases and beds,” he said. “The average order size goes up unbelievably.”

Seth Godin argues that anything other than free shipping will deter customers, particularly repeat customers.

… Amazon has taught millions that free shipping is the way the world should work. As a result, anything more than free just feels wrong.

This article from about firms charging customers for bags is also instructive:

The Swedish retail giant encourages customers to use fewer bags by charging shoppers 5 cents for each disposable bag they take. … In the United Kingdom, the policy, which started in June 2006, cut bag use by 95%.

Are people so loss-averse that a nickel will factor into their decision making process? Apparently so.

Pay what you want

Today on NPR, Morning Edition had a story about indie band Radiohead, who are releasing their latest album on the Internet on a pay-what-you-want basis. Given that everyone is questioning the viability of the old model for music creation, will this be the new paradigm?

The New York Times says “maybe“:

Early reaction suggested that listeners would pay, but less than they would for a CD in stores. The blog carried a poll in which the plurality of voters — almost 40 percent — said they would pay from $2.05 to $10.12. …

Whether Radiohead’s move will lead to a shift for the industry is far from clear. In taking over more of its own sales, the band risks losing what connection it has with the mass market and turning into a niche operation.

Freakonomics author Stephen J. Dubner says, “why not?”

But perhaps the big labels should try an honor-system scheme, just as an experiment if nothing else. Perhaps there are certain configurations that would work well — allowing only three downloads per user at below-market price before locking you out, e.g., or perhaps rewarding the higher-paying customers with bonus material.

Marginal Revolution says “nope.” And Mankiw says, “who knows!”

Co-branding – Walgreens and AARP

Internet Retailer discusses the new co-branded website launch. The name builds on the credibility of both brands – but I think I like better 🙂 They’re using a couple of interesting techniques:

  • Strong interaction with the local store (local is huge with the senior community)
  • Making the site a destination (not just a shop) by providing information from

None of us is getting any younger. See you at