Pricing is Product Management – $450 Chase Sapphire Reserve sells out

Value-Seekers Warm to a $450 Annual Credit Card Fee – New York Times.

This is really interesting to me. Not because I’m going to run out and spend $450 on a credit card – but as a product manager.

Many product people assume a price sensitivity which is greater than the market actually feels. Chase now has three price points on their rewards cards – free (Chase Sapphire), $100/yr (Chase Sapphire Preferred) and now $450 (Chase Sapphire Reserve). The $450 price is on par with the MasterCard Luxury Card (formerly Black Visa) promoted by Barclays, and significantly lower than the Amex Centurion ($2500/yr). Even more interesting is the fact that Chase has not heavily promoted the card – it has gone viral through word of mouth. And in a world where consumers are saturated with messages, the ability to successfully use word of mouth marketing is gold. Or should I say Sapphire? 🙂

 

Chris Anderson on Free

We get a sneak peek at Chris Anderson’s new book Free on wired.com. Free is a fact of life, and if you’re a software developer like I am, you’re competing with free. This is also true for other media and content developers – so instead of whining about how it’s impossible to compete with free or make money off free, the thing to do is start doing it. Dasani is tap water, yet they make money selling it. JBoss and Red Hat both offer free software – and yet they’re very profitable businesses. Wired has a wiki page for content providers describing ways to make money from free content. For service providers, I would add the following ideas:

  • Upsell and cross-sell additional products and components
  • Sell warranty plans.
  • Sell customizations
  • Sell professional services, such as installation and support.

Free Shipping

Free Shipping from Amazon
Smart Money is talking up free shipping in their latest issue:

Surveys suggests that many consumers are obsessed with free-shipping deals. “Fifteen percent off might be a better deal, but people prefer free shipping,” says Dealnews.com CEO de Grandpre. The good news: It’s getting easier to get bargains.

When in doubt, remember “math is hard.” The optics of free shipping are compelling – even I get sucked in to spending “$11.43 more to get free shipping on Amazon.”

The Free Model

Last week, I blogged about Radiohead’s pay what you want release.

I’d like to explore this idea a little more deeply. After one more reference to the idea of free music, I’d like to talk about free writing.

Now it’s not surprising that Scott Ginsberg (Nametag Guy) is enthusiastic about this:

After all, positioning isn’t about MARKET share; it’s about MIND share.
Become the person people think to call before they take another step.

And it certainly isn’t surprising that Seth Godin is a huge fan of doing it this way:

A Google search finds more than 200,000 matches for the word ‘ideavirus’, which I made up. Some will ask, “how much money did you make?” And I think a better question is, “how much did it cost you?” How much did it cost you to write the most popular ebook ever and to reach those millions of people and to do a promotion that drove an expensive hardcover to #5 on Amazon and #4 in Japan and led to translation deals in dozens of countries and plenty of speaking gigs?

It cost nothing.

A different take is provided by author Jonathan Lethem, who discusses “second sourcing,” a term he has coined to denote the appropriation and reuse of intellectual property.

The dream of a perfect systematic remuneration is nonsense. I pay rent with the price my words bring when published in glossy magazines and at the same moment offer them for almost nothing to impoverished literary quarterlies, or speak them for free into the air in a radio interview. So what are they worth? What would they be worth if some future Dylan worked them into a song? Should I care to make such a thing impossible?

And then there’s another kind of writing: writing software. Matt Mullenweg, the creator of WordPress goes even further,

“For me, open source is a moral thing. Software should be free; it’s our philosophy as a company.”

<rant>
I hate it when people conflate free and open. Open source may or may not be free. Free software may or may not be open. Furthermore, although I think Matt Mullenweg is an incredible genius, but this kind of Richard Stallman-esque thinking just seems frivolous to me. Sure, it’s nice if it’s free. It’s even better if it’s open so that I can change it. But the ultimate acid test of utility is fitness for use. Does it do what I want?? If it doesn’t, who cares if it’s free! And if it does exactly what I want, why should I begrudge having to pay for it?
</rant>

I mean, what’s the difference between saying, “software should be free,” and saying “massages should be free?” They both strike me as absurd.

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 Idolator.com 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!”