Dean Singleton: Please Explain How Charging For Something Magically Gives It Value

from the it-doesn't dept

Mathew Ingram points us to a ridiculous quote by MediaNews CEO, Dean Singleton, who also happens to be the Chairman of the Associated Press, talking up his decision to make one of his papers start charging for online news, claiming that charging magically imparts value:
"When you give it away for free it has no value. When you begin charging for it it has some value."
That's wrong on both counts, and you would think that a major American media CEO would understand the difference between price and value. It's a bit scary that he seems to think that putting a price on something automatically gives it value. Unfortunately, he may have to learn that lesson the hard way. I could say that the blank pad on my desk has a price of $10,000. But that's meaningless, because no one would value it that high. The price you put on something is entirely independent of the value that buyers have for it. If the price you put on it is lower than the value they get from it, then they may decide to buy. But that value isn't created by the price.


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    Nick (profile), Sep 30th, 2009 @ 8:32am

    Really...?

    Sometimes I'm compelled to click on the article link just to be sure someone isn't making this up. Then, I check the calendar to make sure it isn't April 1. Finally, all that's left to do is sigh and shake my head.

     

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    Anonymous Coward, Sep 30th, 2009 @ 8:42am

    Diamonds, as I understand it, are fairly worthless except for the fact that they have been made desirable by the diamond cartel. Thus the value they have is dependent upon the fact that someone started charging for them (and that someone is monopolizing the supply etc...). That's the best justification/explanation I got.

     

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      Chronno S. Trigger (profile), Sep 30th, 2009 @ 9:03am

      Re:

      No, the diamond cartel is keeping the value of diamonds high because they keep them rare. If all the diamonds that were available were put on the market, the price would plummet. This isn't putting value to an item by adding a price, it's artificially inflating the value by keeping the item limited (like the Wii when it first came out). This is also the same thinking the RIAA had with DRM, except it won't work for infinite goods.

      Vary, vary few items become more valuable exclusively by adding a price. And most of the people who buy those items do it exclusively for the price tag, a vary small market.

       

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        James (profile), Sep 30th, 2009 @ 11:35am

        Re: Re:

        Value is subjective still. Can a starving man eat a diamond? If everybody stopped buying them, the price would plummet no matter the supply.

         

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          Chronno S. Trigger (profile), Sep 30th, 2009 @ 12:30pm

          Re: Re: Re:

          Correct, but in the situation given, the rarity of the item is what is keeping the perceived value high. Yes, there has to be some demand for it, but in this case a lot of the demand is caused by the rarity. If the market were flooded, no one would want them any more because it's just like a cubic zirconia, nothing special.

           

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            Jim O (profile), Sep 30th, 2009 @ 2:34pm

            Re: Re: Re: Re:

            Interestingly enough De Beers controlled not just the supply, but the demand. 80 years ago the idea that a proposal mandated a diamond was non-existent. Through intensive marketing they hammered people to believe that diamonds are how we show our love. Now the idea is so pervasive that there is a real social awkwardness if you don't propose with a diamond in tow. Interesting read.

            I myself recently proposed, and did so with a wooden ring. I was uninterested in supporting the diamond cartel's efforts. Even though I consider myself a steadfast individual, I still occasionally have a moment of awkwardness when people realize what the wooden ring is indeed an engagement ring. Advertising is a powerful thing.

             

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      Anonymous Coward, Sep 30th, 2009 @ 9:27am

      Re:

      Eh, it's really more that the diamond companies made them valuable in the minds of consumers by creating societal expectations: "Show how much you love your fiancé by buying her a diamond. If you don't, you don't really care about her." Plus paying movie stars to wear them and Marilyn Monroe to sing about them makes them seem glamorous.

      This is more a proof of the power of marketing than a proof that charging for something really creates value.

       

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      L. Diamond, Sep 30th, 2009 @ 10:59am

      Re: Diamonds

      Actually... that's not quite the case.

      The diamond cartel MARKETED the diamonds, they became desirable and people decided they had value, so people pay for them.

      Just giving them price didn't create value. Showing people where the value lies created value.

      The newspapers are foolish to try to say that news in and of itself has value and then trying to put a price on it. That's like me saying the air around me costs $20 to breath. The air is just there. If you want to, you can walk away from me and breath the air a few feet away. It doesn't have VALUE, no matter what price I put on it.

      If however, you are underwater and I tell you the price of the air inside my diving bell costs $20 and you're out of air in your tanks... suddenly... it has VALUE.

       

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        interval, Sep 30th, 2009 @ 11:38am

        Re: Re: Diamonds

        Diamonds STARTED with a high value (before the Victorian era, specifically) because they were rare, diamonds have had a market ages. Then some one found a huge diamond in S. Africa, starting a major diamond rush, and the Boer Wars (partially). Is was discovered that S. Africa was pretty much the source of all diamonds. Then a man by the name of Cecil Rhodes joined up with another by the name of Barney Barnato to form the De Beers Mining Cartel, which controlled all the major diamond production in S. Africa, which is 90% of all the production in the world. De Beers didn't create demand for diamonds, just simply kept the supply carefully controlled.

         

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    Robb Topolski (profile), Sep 30th, 2009 @ 8:56am

    Well, kinda it does ...

    Consumers have a weird relationship with "free."

    When my group started gigging, we found that "free" was terrible for marketing and gigging. To put it bluntly, when we did free gigs, we were treated like we were doing free gigs. When we charged as little as $50 ($12.50 for each four singers and the gas to get there), we had just as many gigs but they were better attended, the performance was better appreciated, and we were less jerked-around in our schedule.

    We weren't awesome, and we knew that. We felt bad for charging anything (and often donated it back if the gig was a non-profit and if it was appropriate). All we wanted was an audience. The idea to charge was a suggestion by another group who had realized the same frustrations, it worked for them. It worked for us. It was a lesson learned, and if I were gigging today, there would be a fee.

    Consumers like free, but they may not value it.

    I'm not sure any of this translates to newspapers, FWIW.

    Robb

     

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      Designerfx (profile), Sep 30th, 2009 @ 9:25am

      Re: Well, kinda it does ...

      bingo. People have a different perception of what is free, thanks to lots of marketing from companies like MS who get people to perceive that software has no value if it's free.

      It's a psychological aspect that underlies everything which gives people a suspicion of free products but not of ones that charge for the same thing. Literally the more you charge the more perceived value by many customers (even if your product is inferior). I can easily cite microsoft on that one.

       

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      Free Capitalist (profile), Sep 30th, 2009 @ 9:36am

      Re: Well, kinda it does ...

      I agree with you that people tend to miss the value of something if it is "free". It is kind of analogous to the privileged teenager given a car outright by their parents -- everyone has met one of these.. you know the one that cracked up his car the first week he got it by crashing into a pole while doing donuts in a half-filled parking lot.

      However I agree with Mike in that simply pricing something does not automatically convey value to that "thing". There still has to be a reason people want, or "need" to make the transaction, and then to get a return transaction they have to believe they got what they paid for.

      Before the Internet, a newspaper represented access to information. These days, access to information just isn't the commodity it used to be on a piece by piece basis. It would some excellent journalism to be able to pull in enough subscriptions for an Internet service. That quality of reporting just doesn't exist in most rags, and charging for it is not going to make it look any less a turd than it is when held up to alternate sources.

       

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        Designerfx (profile), Sep 30th, 2009 @ 9:39am

        Re: Re: Well, kinda it does ...

        uh?

        try to give something away free. Then sell it online for $10. You'll notice which one gets a lot more interest, and it's the $10 one.

         

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          Free Capitalist (profile), Sep 30th, 2009 @ 10:04am

          Re: Re: Re: Well, kinda it does ...

          try to give something away free. Then sell it online for $10. You'll notice which one gets a lot more interest, and it's the $10 one.


          Again, that's all well and good, and I pretty much agree. I'll grant too that critical analysis is trumped by the *impulse to buy in many, many people.

          My opinion is that access to information is no longer the exclusive domain of classic-model newspapers (and libraries). Additionally, its my opinion that more people "surf" news than read an entire news site or rely solely on one site for news. This "spreading out" has encouraged further saturation of the information market thus reducing the perceived value of a single piece or source of information.

          Along the same "saturated market" lines, I'm saying most newspapers limit their own value by regurgitating the same headline news that is replicated *everywhere (whither journalism?). Why pay for one source of information when what you pay your ISP already gets you access to the same information without having to get another bill?

          People are impulsive buyers, but most still don't like to pay for the same thing twice.

           

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          Anonymous Coward, Sep 30th, 2009 @ 12:37pm

          Re: Re: Re: Well, kinda it does ...

          I completely agree. I once put a broken BBQ out by the curb with a free sign next to it. It sat there for a week. I changed the sign to say $5. The BBQ was gone in a day.

           

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      Doug B (profile), Sep 30th, 2009 @ 9:39am

      Re: Well, kinda it does ...

      Agree.

      I've seen this with my wife's business. She's under-priced compared to her competitors. We've had people who left her for one of her competitors (who charged 10-15% more) because they figured that the higher price meant better instruction/more value. That wasn't the case and they returned to her.

      I'm unclear as to why people think this way but they certainly do. Of course that doesn't mean that people will be willing to suddenly pay for news, but it is an interesting thought none-the-less

       

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        Anonymous Coward, Sep 30th, 2009 @ 9:50am

        Re: Re: Well, kinda it does ...

        'That wasn't the case and they returned to her.'

        So which service has the higher value then?

         

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      Chronno S. Trigger (profile), Sep 30th, 2009 @ 10:01am

      Re: Well, kinda it does ...

      This is an old way of thinking and will change with people getting used to the free online stuff being just as good, if not better, then the pay stuff.

      I would also bet that your audience would have grown even if you kept it free. That's word of mouth and experience overcoming the "you get what you pay for" myth (it's why AOL died).

       

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      Bas (profile), Sep 30th, 2009 @ 11:44am

      Re: Well, kinda it does ...

      Price is psychological, so it really depends what you're giving away for free.

      Giving away for free what others can easily share (like MP3s) might actually work better than giving away what cannot be shared (as a business model).

       

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      Derek Kerton (profile), Sep 30th, 2009 @ 12:30pm

      Re: Well, kinda it does ...

      Agreed.

      Mike, you point out, correctly, that there is a big difference between value and price.

      I will add to that. There is also a difference between value, and perceived value.

      A seller can raise the perceived value by assigning a higher price. There are lots of examples, Robb's band above being the first. Think of stores that put a high price, but sell at 50% off. They are trying to raise the perceived value while keeping the real price low. MSRPs for cars are not the real price, but set perceived value.

      Many people will buy a designer dress for near $1k, when that same dress is for sale at a different store under a different label for $100. The $1k price affects the purchaser's perception of the value of the dress. In some sense, the marketer uses the buyer's cognitive dissonance to their advantage. The buyer, having paid $1k, must now justify to themselves that the dress was WORTH $1k.

      At Costco we see many products branded as Kirkland, even though they're obviously from other companies, like Duracell or Kellogg. These brands don't want to sell THEIR branded product at the costco price, because it would erode the perceived value of their goods. But they DO want to sell their goods...so they use the store brand.

      As a consultant, I have seen what Robb describes with his band. Many people ask me "to do lunch and chat about the industry". Well, I'm a consultant, and I charge an hourly fee for exactly that. I have found that when I agree to work for free, there is very little appreciation that I have offered value over lunch. If, however, I say no, and suggest we use a conference room and a whiteboard for the same hour discussion, and bill a good hourly rate; then the person sees more value in my work, and is more likely to hire me again or recommend me. The free lunch host? They are more likely to invite me to do more work for free. Free is a very tricky loss leader in businesses like mine where perceived value is as important as value. I need to consciously try to deliver both.

      The sad reality is that we humans are easily influenced, and easily biased. Thus, things like brand names can affect our perception of value in a product, regardless of the utility the product actually provides. Along with brand, price is a powerful influence in perceived value.

      I don't agree with Singleton. That's because while his product may have a fee, there are ample substitutes available for free, so the market will simply respond. However, I do think his quote only needs one tiny change to be correct:

      "When you give it away for free it [is often perceived to have] no value. When you begin charging for it [some will perceive a higher] value."

       

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        nasch (profile), Sep 30th, 2009 @ 1:08pm

        Re: Re: Well, kinda it does ...

        I think the only problem with your theory is that it seems to assume that there is such a thing as the "actual" value of a good. As far as I know, there is not. Each person values something a different amount, and it's pretty difficult to measure that value other than through price. It's impossible to determine which of those values, or none of them, is the "correct" one. The closest you can come is market price, which as we know is not the same thing.

         

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    Geeb, Sep 30th, 2009 @ 9:25am

    Possibly misinterpreted him?

    If you watch the clip, it's not clear that he's saying that charging for something magically imbues it with value for the customer. Maybe he means that giving all his content away has no value for his company, i.e. he hasn't yet figured out how to make any money from it.

     

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    Jeff S (profile), Sep 30th, 2009 @ 9:29am

    Tommy Boy Understands the Value of the Guarantee

    As we have learned from Tommy Boy "Because they know all they sold ya was a guaranteed piece of s--t. That's all it is, isn't it? Hey, if you want me to take a dump in a box and mark it guaranteed, I will."

     

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    PrometheeFeu (profile), Sep 30th, 2009 @ 9:36am

    To be fair Mike, if you put a price tag on something, people do perceive it as having additional value. (There is a number of psych studies about that) However, it's not enough to make people buy the thing. You also have to make the thing actually have value.

     

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    TheStupidOne, Sep 30th, 2009 @ 9:37am

    Sales 101 Program

    Price = SellerInput
    Value = f(Quality, Need, BuyerPerception)

    If Value Price Then
    Sale
    ElseIf Value = Price And Buyer = "Happy" Then
    Sale
    Else
    NoSale
    End If

     

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    Kyros (profile), Sep 30th, 2009 @ 9:38am

    Value

    To agree with post #2, charging can alter how people value something. That's not to say that simply because I charge 25$ for my feces that the sewer company desires it anymore, but I have always noticed when doing websites or being an audio tech for a concert that I tend to be considered "better" if I charge more.

    I did this as an experiment once. I built a website for a group I was involved in for free. They thanked me and moved on, but never used it much.

    Yet for a small company (of whom I detested the owner) I charged them 300$ for a very similar website. Yet they love the website and are constantly asking me to do more work on it and continue to pay me well.

    Whenever I've run benefit concerts, I usually get thanked a bit and the musicians are always nice, but that's the sum of it. Working for paid gigs at 25$/hour, I notice that I get much more respect, much more power and am treated much better by musicians, the people employing me, and so on.

    Adding cost does have the potential to add value in some circumstances. There may also be more to the equation (I'm certainly not an economist) but it's been shown that charging more for an equivalent product can cause sales to rise for itself, and certainly for a lower priced twin.

    There is a very weird relationship between consumer, price and value. I don't understand much of it beyond that when I charge more, I get treated better as an employee or contractor as long as my bill is reasonable. Why exactly? I have not a clue.

     

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      Matteo Fabiano, Sep 30th, 2009 @ 3:24pm

      Re: Value

      Indeed, taking Mr. Singleton statement at face value and decrying it is looking at the whole issue of media content and distribution pricing in over-simplistic terms. There's plenty of literature and practice in behavioral economics that suggest that, indeed, in the absence of a market with sufficient liquidity, consumers will take price signals as proxies for value. In his book, Predictably Irrational, Prof. Ariely, for example presents many real-life examples of how pricing can very materially influence perceived value by a consumer.

       

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    Anonymous Coward, Sep 30th, 2009 @ 9:42am

    exactly what's wrong with media companies. A monkey in a suit can't set the value on something, the "free" market determines the value. Price it to high? Consumers find a way around paying. If you want to control piracy, control your price to that end.

     

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    fogbugzd (profile), Sep 30th, 2009 @ 9:46am

    Well, it worked for kittens

    There is an urban legend about a guy that advertised "free kittens" and never gave away any. He changed the ad to "kittens, $50 each" and sold them all. Sometimes consumers do think that a higher price means better value, but that is based on people being fools. No matter how cynical we like to be, people are not fools on that kind of things forever. If a product is something that people consume every day, then they are pretty quickly going to find the most economical ways to do get the product.


    It amazes me that so many business executives are completely ignorant of basic economics.

     

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      PrometheeFeu (profile), Sep 30th, 2009 @ 12:51pm

      Re: Well, it worked for kittens

      This has nothing to do with people being fools. There is WAY too much information and decisions to be made for us to actually be rational actors and base all our decisions on all the information available. Our brains just cannot handle such a load. So instead, we use heuristics: Rules of thumb or shortcuts which are easy to apply and most of the time work well. One such heuristic is that we assume that price = value. So if someone tells us something is worth $10 by setting the price at $10 we'll tend to assume it's true until something comes along to change our mind. If something is given away, we tend to assume it does not have a very high value until proven otherwise. And guess what? Most of the time, it works great! When someone gives something away for free, it tends to be a crappy pencil. When there are two brands, one being more expensive, the more expensive one is usually the higher quality one. And that's really helpful, because nowadays, if you had to compare the prices and quality ratings for every alternative whenever you buy a can of beans or a steak, you would never do anything else. So suddenly charging can increase the perceived value, (is there any other kind?) but there is no guarantee that the increase in value will be sufficient to make up for the increased price.

       

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    fogbugzd (profile), Sep 30th, 2009 @ 9:48am

    Well, it worked for kittens

    There is an urban legend about a guy that advertised "free kittens" and never gave away any. He changed the ad to "kittens, $50 each" and sold them all. Sometimes consumers do think that a higher price means better value, but that is based on people being fools. No matter how cynical we like to be, people are not fools on that kind of things forever. If a product is something that people consume every day, then they are pretty quickly going to find the most economical ways to do get the product.


    It amazes me that so many business executives are completely ignorant of basic economics.

     

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    Tor (profile), Sep 30th, 2009 @ 9:59am

    The reason why people draw conclusions about value from price is that price often (but far from always) reflects how much other people value the goods, which may be useful when you assess the value yourself. It's a way, although not always reliable, to tap into other people's knowledge.

    Another reason for why people value free differently from non-free is that the non-free goods normally need to pass through some gate-keepers who ask themselves if this stuff is worth advertising for and taking to the market. So there's some kind of quality control. Social media however introduces these kinds of filters for free content too, so I think it's only a matter of time before we will no longer experience this difference as strongly as we do now.

     

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    TSO, Sep 30th, 2009 @ 10:24am

    There must be a reason...

    ...why this guy's last name is Singleton...

     

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    Dave Records (profile), Sep 30th, 2009 @ 10:30am

    Scarce vs. Infinite Goods

    There are some comparisons to scarce vs. infinite goods here. For example, diamonds are a scarce good, performances are a scarce good, but news is fact and can be found, perhaps not infinitely, but certainly abundantly. So to compare the "value" of news and the value of a diamond is apples and pears. I read all my news off of the internet and have no use for a newspaper any more. Before the internet, and before television, all we had was newspapers and journals. Mr. Singleton is trying to make scarce goods out of infinite and put value on facts that can be easily found.

     

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    Peter, Sep 30th, 2009 @ 10:33am

    it does impart value in the courts

    What he is trying to do by selling his work is imply some value. If it has value, because one person at some time purchased it. Then courts can deem that another person using that news article without compensating him is stealing it. He is trying to replaces copyright laws with property laws.

    I am not a lawyer, but would play one on TV if asked.

     

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    reboog711 (profile), Sep 30th, 2009 @ 10:36am

    Why not sell that blank pad as part of the CWF_RTB experiment just to be sure you're not wrong.

    There is a often a perceived value of things, which in some cases can be influenced by the price.

    Back when I was in a gigging band [quite a while ago], there was a perceived value to band CDs. If you sold it for $5 people wondered what was wrong with it. If you sold it for $15 people would gawk at the price. But, $10 seemed to be the sweet spot. They already had it in their mind that "Indy Bands sold CDs for $10."

    Consulting services is another example. It is easier to sell a company on a $125 an hour consultant than a $50 an hour one.

     

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    New Mexico Mark, Sep 30th, 2009 @ 10:41am

    Legal differences based on price might change actual value?

    I'm not a lawyer, but aren't there are differences under the law pertaining to free, and sometimes even pertaining to how much is charged for goods and services?

    If you give me a free kitten and it dies a week later, but incurs large vet bills first, I'm probably going to have a harder time recovering any damages from you than if you sold me that kitten, even if it was for a dollar. Furthermore, if you sold me that kitten for $200 and it had received substandard care from you, which lead to the medical problems later, I might have an even better case. After all, the higher price could lead to reasonable conclusions about the standards of quality and care applied to what I'm buying.

    Questions about consideration (legal definition) and whether a contract(and whether unilateral or bilateral) has been entered into could change when dealing with free goods or services vs. those assigned a price, however small. This may be part of the "value" Mr. Singleton is trying to describe, and it may be far more than simply perceived value.

     

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    mike42 (profile), Sep 30th, 2009 @ 10:59am

    Everyone overlooking the obvious...

    Air is free, and by this logic, has no value. Let's just hope that Dean removes this "valueless" commodity from himself.

     

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      Free Capitalist (profile), Sep 30th, 2009 @ 12:49pm

      Re: Everyone overlooking the obvious...

      Air is free


      Shhhh Sh Sh Sh

      Don't say that so loud. Dark Helmet has been working a business model running Perriair across the border in an attempt to "Steve Jobs" the air market. iAir or something like that he's calling it.

       

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    Leviathant (profile), Sep 30th, 2009 @ 11:20am

    Dean Singleton hasn't had a clue in a decade.

    I used to work in 'new media' for a Pennsylvania newspaper company back in the late 90s, and was at a fairly decent-sized regional meeting where Dean Singleton presided. Some of the things that came out of that guys mouth made me wonder if he'd ever used the internet.

    His idea of newspaper website perfection consisted of forcing everyone into cookie-cutter templates without variation (the only variation being the masthead), and a de-emphasis on local content. He specifically addressed the idea that some papers had of running their own custom websites - "Tough shit!"

    Never mind that the custom site I'd help launch for our paper completely spanked the cookiecutter Medianews sites in traffic, usability, and just about everything else.

    Apparently ten years later, the guy still doesn't have a clue... although I'm sure he still has his amazing new house in Denver. He was complaining at the time about how he was on a waiting list for a land line because the city's tech industry was booming so hard.

    Singleton leads the pack of folks who refer to articles as, quoting, "The stuff between the ads."

     

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    roxanneadams (profile), Sep 30th, 2009 @ 11:23am

    I have to agree with Dean Singleton. In the used book business, the destroyer was simple - amateurs and hobbyists who sell their used books for a penny online, which is, in effect, giving the item away for free. These dilettantes don't pay taxes, salaries or anything else with their sales - they add nothing to society yet they have been allowed to destroy the livelihood of millions of Americans, not just company owners but all of the people who made a living as clerks, warehouse workers and managers of book distribution centers.

    There was never any reason to give the books away for free. Even at a base price of $5.00 per book, most of the workers who lost their jobs in the used book industry would still be fully employed. It was the moronic dropping of everything to .01 cent that destroyed the industry, and I completely agree with Dean Singleton's observation:

    When you give it away for free it has no value. When you begin charging for it it has some value.

    However, as much as I agree with Singleton, it's too late for the news industry to stuff the genie back into the bottle, just as the used book industry will never be returned to any form of profitability.

    It's too late. Free has gone on for way too long, and it has permeated every corner of society. I don't pay for my news, whether online or in print, because I've spent the last 15 years of my life being able to access the news online for free.

     

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      John Fenderson (profile), Sep 30th, 2009 @ 10:17pm

      Re:

      That's odd...

      Although the used book business certainly isn't what it used to be, it's very far from dead. In my town, there are three very successful used book stores, and within a two hour's drive is one of the largest used book stores in the nation, which is also very profitable.

      But even if your hypothesis is correct, what are you saying? That's it's immoral to share? I think that any ethical system that puts profits first is a suspect one.

       

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    Crzen (profile), Sep 30th, 2009 @ 11:35am

    Let them do it

    Hey, this is supposedly a free market society, let them charge for something that can be acquired elsewhere for free. If they think they are so special, go for it. They can find another line of work. Maybe what they failed to learn in business class can be taught to them in the real world. The ONLY way something can have value is if someone else finds it valuable. An example would be: If I had a item that I said was worth $5, or cost $5 to make, its only worth $5 if someone gives my $5 for it. If I said it was worth $5 and someone was only willing to pay $1, then its only worth $1. No matter how much I cry and whine about it. In addition, if no one will pay me anything for it, or will only take it if its free, then its time to find something else to sell and use the free item as a "draw" to advertise another item. Thus giving the free item more value, not necessarily to the customer, but to me as a marketing tool. The better the free item is, the better the advertising and, hopefully, the more sales of the other item. That's not really from a business class. That's just COMMON SENSE!

     

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      roxanneadams (profile), Sep 30th, 2009 @ 12:21pm

      Re: Let them do it

      No matter how much I cry and whine about it. In addition, if no one will pay me anything for it, or will only take it if its free, then its time to find something else to sell and use the free item as a "draw" to advertise another item. Thus giving the free item more value, not necessarily to the customer, but to me as a marketing tool. The better the free item is, the better the advertising and, hopefully, the more sales of the other item. That's not really from a business class. That's just COMMON SENSE!

      Except that in the online business model, giving away books for a penny does not draw more customers. Most purchases of used books are one-time choices, with the sales venue owned by large online web presences - Amazon.com or Ebay, for instance. Even when I worked for a non-book business that was set up on Ebay, we rarely had repeat customers, although the company's feedback rating was always 100%.

      So the 'loss leader' concept has failed and no longer has relevance in the modern sales world. I had a closet full of cat litter that I bought from one of those now-dead online companies that gave most everything away for free. My cat litter supply lasted longer than the company did. The same with free clothes, toys and household goods that were given away in abundance by long-dead dot.coms. I took more than I ever paid for because it was offered to me at free or nearly for free. Even at the time, I knew it would never last, that these dot-coms were built on a flimsy premise: Give stuff away for free, go public with our stock, sit back and watch the profits roll in.

      The dot.com merchants that have thrived - Amazon and Ebay - always offered something tangible for sale, and they have constantly reinvented themselves. Never was anything given away for free in either of their business models.

       

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        nasch (profile), Sep 30th, 2009 @ 1:22pm

        Re: Re: Let them do it

        Except that in the online business model, giving away books for a penny does not draw more customers.

        Then don't do that. Find some other business model that does draw more customers, and no it is not my job to find a business for you.

        So the 'loss leader' concept has failed and no longer has relevance in the modern sales world.

        This reasoning is atrocious. Just because one (or a whole bunch of) loss leader business model doesn't work for you does not imply that all loss leader models are a failure in all industries. At all.

         

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    Anonymous Coward, Sep 30th, 2009 @ 11:48am

    How about I say I just won a new car on The Price is Right. They gave it to me for free, just because I guessed the right price. Correct me if I'm wrong, but I'm pretty sure that Kelly Blue Book will tell me it has value.

    This is like the argument that air doesn't take up space. If you think it doesn't, blow up a balloon and tell me what's inside it that enlarged it. Mmm-hmm.....

     

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    Hephaestus (profile), Sep 30th, 2009 @ 12:07pm

    yeah but whats our RtB???

    "I could say that the blank pad on my desk has a price of $10,000. "

    so whats our reason to buy? does the desk and all chair come with it ... GRIN

     

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    just this guy, Sep 30th, 2009 @ 12:08pm

    value = price

    I could be wrong here but in most of the cases where someone was giving away time/skill/object for free and they got more sales/respect when they charged for it are cases of something that has a perceived value already when you give it away for free that can drop the value or make someone wonder what is wrong with it. Price it too high and you have problems also. Good pricing is about the value = pricing if you want to raise the price you should raise the value first not raise the price and hope the value will raise to meet the price.

     

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    Anonymous Coward, Sep 30th, 2009 @ 12:21pm

    Here's an easy way to remember the difference between price and value: The price of air is free, the value of air to a drowning man is infinite.

     

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    Mikes, Sep 30th, 2009 @ 12:58pm

    $10,000 notepad

    Has anyone bought your blank notepad yet? I have $10,000 just burning a hole in my pocket. Do you have more than the one for sale?

     

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    Crzen (profile), Sep 30th, 2009 @ 1:35pm

    roxanneadams, I beg to differ with you. Amazon and Ebay are bad examples for you to use. They do not actually sell a product. They sell the service of selling a product (Ebay in particular). In fact even they offer FREE shipping for buyers, FREE listings for sellers, and even discounts for buyers to try and entice you to list and or buy. I did say "hopefully get more sales". After all, just because you have something to sell doesn't mean someone else wants it AND for what you are selling it for (even if its free). Getting upset with people for not wanting what you are selling is not going to force them to buy it, or take it if its free. Its called, give the people what they want at a price that they are willing to pay, not build it and they will come. The latter are the business models that are failing and the ones running them doing all the complaining. That is what corporate entitlements are all about. As for your Ebay endeavour, what you perceived as value in a product, or products, evidently wasn't shared by the people you were trying to sell to. Good feedback is only part of the value aspect. DEMAND + VALUE + PRICE = SALE. Without either of the first two...NO SALE...even if free.

     

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    blah, Sep 30th, 2009 @ 3:00pm

    blah blah blah

    He is correct from a certain perspective. If you give it away it is a limitless commodity with no value, if you require payment it is a limited commodity and has more value. It's a nice example of how absurdly abstract the corporate world is from reality.

     

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    Anonymous Coward, Sep 30th, 2009 @ 3:44pm

    I know of an other example of perception. You have a product that you can sell at a high price, but not a real high demand. You couple it with other products that you can sell to make it more useful (valuable). Together the price would be too high for mass sales but you lower the total price to increase sales and your product is perceived as free. You then create other products both free and for fee. This increases interest, customer base, and reputation for your initial product and company. I know this is very oversimplified. The company...MICROSOFT...the perceived product WINDOWS 95. the free product INTERNET EXPLORER.

     

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    keith (profile), Sep 30th, 2009 @ 5:01pm

    random thoughts

    Some very good points in the comments above.

    *Why (or how) can the price of an item affect a customers perceived value?
    *How do we relate this to the statement: "When you give it away for free it has no value. When you begin charging for it it has some value."

    What do the concert tickets, expensive dresses, professional consultation, etc have in common? I'd suspect that for a good or service there is a public value associated with quality -- "you get what you pay for". People expect that for a good or service (of limited supply) you'll pay for more higher quality work/service/item. When that good or service is offered for free, it is treated as it is free, easily replaced, cheap, or perhaps even unimportant.

    Hence, when a band offers a gig for free, people have an expectation of how a free ticket band will sound, and with no personal cost or involvement, may not 'care' as much about the show or the performers. If they drink too much and pass out at the bar -- who cares? Not like they paid to see the band. They are not personally invested.

    Likewise with the consultant, if its a free lunch session and they don't remember/pay attention -- who cares? They didn't pay anything for the advice, so no real loss if they don't use it, no opportunity cost.

    The difference (I'd propose) is that there is a public perceived cost associated with the quality of of those goods or services. The public perceived cost of a digital computer file (MP3, Movie, Whatever) is essentially $0. Therefore it doesn't matter how much you charge for it, everyone knows that it can be infinity reproducible. There is no difference between an MP3 you buy for $1, and an MP3 that you download for free (actually, the free one is typically more useful, but thats a different story).

    So, the quote has some real life applications that should be taken into account, but in this case I'd argue that it has been misapplied. Pricing will only affect the perception of value if there is also a public perceived (real or imaginary) quality distribution. Where no quality differentiation exists the price will be flat.

     

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    Irate Pirate, Oct 1st, 2009 @ 6:15am

    Perception.

    Jim O. Said: "Advertising is a powerful thing."

    So is placebo. Monster brand cables come to mind. There is this deep seated belief that the more something costs, the better (ie more value) it must be. It's flawed reasoning we learn as a child and carry with us into adulthood which only the wisdom that comes from experience can correct.

    Someone commented about a BBQ and I thought it was interesting, though perhaps not too surprising. I think most people would be suspicious of a BBQ labeled free sitting there on the curb. In general most people will automatically assume something has value even if they have no idea what that value may be. Since they perceive value, they reason that the BBQ should therefore cost something. The second assumption that follows is that something must be wrong with the BBQ because nobody would give a properly functioning BBQ away for free. Change the sign so that a dollar value is now attached and a new assumption forms, one that says this BBQ must work fine since no sane person would charge money for a broken down one.

    So we've made several assumptions about the BBQ, it's value, whether we're correct or not and a big assumption as to how the person selling the BBQ thinks (we tend to assume everyone thinks the same as we do). It's just one of our many fallacies. I think most people tend not to realize just how many assumptions they make on a daily basis. We even make assumptions about assumptions. I suppose it is necessary though as it is part of our survival mechanism. After all, it is better to assume there is a monster in that cave than go in and find out. Right? :)

    As for diamonds, all they are is compressed carbon atoms and carbon is hardly a rare substance. While kept artificially rare in order to keep prices high, they have little value to me personally (unless you wanted to give me some for free hehe). The first episode of the latest season of Nova ScienceNOW actually had a really interesting segment on them. They have some truly amazing properties. I feel that diamonds will one day be so abundant as to cost practically nothing. That doesn't mean they have no value though. Quite the opposite in fact. Artificial diamonds whose lattice structure is identical to those found in the ground and are thus indistinguishable from one another have a great deal of value to the field of electronics, far more so than that of jewelry. Once the cat is out of the bag (nothing stays a secret forever) everyone will be making them and computational devices, where there is always a demand for more power, will see an astounding revolution. Well worth checking out if you're a geek like me.

     

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