Monthly Archives: February 2010

Idea Arena Podcast – The 1% Windfall with Rafi Mohammed

Posted on by under Books, Fixed To Flexible, Idea Arena Podcasts, Marketing, Sales

http://player.soundcloud.com/player.swf?url=http%3A%2F%2Fsoundcloud.com%2Ftoddsattersten%2Fidea-arena-podcast-one-percent-windfall-interview-with-rafi-mohammed Idea Arena Podcast – The 1% Windfall Interview with Rafi Mohammed by toddsattersten

In this interview, I talk with Rafi Mohammed about his new book The 1% Windfall: How Successful Companies Use Price to Profit and Grow.

"The strategy of pricing involves acknowledging that customers have different pricing needs and then making efforts to profit from these differences. Customer different in three primary ways"

  1. Desire a different pricing plan -> Pick-a Plan

     

  2. Have unique product needs -> Versioning

     

  3. Value a product differently -> Differential Pricing"

-The 1% Windfall, p28-29

The bulk of the interview is around those three pricing strategies and how business can expanded their views about how to use pricing to improve profits.

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The 1% Windfall is one of the books I recommend in the ebook Free to Flexible: Four Simple Lessons About Cost, Price, Margin and The Options Available to The 21st Century Business. You can download the ebook here.

Learning Curves

Posted on by under Economics, Fixed To Flexible, Technology

“So certain is the plummet of prices that economists have mapped the curve of their fall. The cost of making something–whether it is steel, light bulbs, airplanes, flower pots, insurance policies, or bread–will drop over time as a function of the cumulative number of units produced. The more an industry makes, the better it learns how to make them, the more the cost drops. The downward price curve, propelled by organizational learning, is sometimes called the learning curve. Although it varies slightly in each industry, generally doubling the total output of something will reduce the unit cost on average by 20%.

Smart companies will anticipate this learning curve. Very smart companies will accelerate it by increasing volumes, one way or another. Since increasing returns can exponentially expand the demand of items–doubling their totals in months–network effects speed the steep fall of prices.”

-In Follow The Free from Kevin Kelly’s New Rules for the New Economy (available for free at kk.org)

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“Costs Go Down” is the first section of the ebook Free to Flexible: Four Simple Lessons About Cost, Price, Margin and The Options Available to The 21st Century Business. You can download it here.

Fixed To Flexible in Paperback

Posted on by under Fixed To Flexible

Fixed To Flexible is now available as a short paperback book.

I got multiple requests to make it available as a p-book (physical book) and with little trouble, I would able to make that happen.

You can now purchase Fixed to Flexible at Lulu.com for $9.99.

Nothing else has changed.

You can still read the whole ebook for free at Scribd or check out a preview of the entire book at Lulu.

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P.S. You can get a 10% discount on Fixed to Flexible through February 28th when you use the code WINTERBOOK during checkout.

Pay-What-You-Want at Smashwords

Posted on by under Fixed To Flexible

We have been talking about pay-what-you-want as one of the options that gives creates more commercial flexibility. Content producers are understandably nervous about the possibility that customer could choose to pay nothing.

Smashwords, a company based in SiliconValley, creates and distributes ebooks for self-published authors and small publishers. With only a Microsoft Word file, their publishing engine can convert the document into nine different ebook formats and in recent months, they have built distribution relationships with more retail outlets including Barnes and Noble.

Smashwords CEO Mark Coker published some interesting data last week. When an author publishes work on the site, they have the option of choosing a fixed price or pay-what-you-want. Coker pulled a sample of 353 purchases made with pay-what-you-want pricing and here is what he found:

  1. 85% of customers choose to download their purchase for free. That is not a huge surprise. The comScore data from Radiohead’s In Rainbows experiment put free downloads at 62% of the total. This data is spread out across multiple titles and authors with, I think safe to say, weaker brands.
  2. I summarized the paid data in the chart below:

    The sample set of 54 points is on the smallish size to draw conclusions, but we can say customers favored a price point under $4 with that accounting for two-thirds of the purchases. The sub-$4 price point account for 44% of In Rainbows paid purchases.

  3. The total revenue for 353 purchases was $173. This again shows business models involving free require a high volume of prospects and customers to generate meaningful revenue.
  4. I wonder if the pay-what-you-want model needs an anchor. The In Rainbows experiment was able to generate higher chosen price pointsin response to past Radiohead purchases and the established pricing from the iTunes music store. The publishing industry is still in the process of establishing their ebook pricing and that could have a positive effect on these pricing schemes over the long run.

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You’ll find more detail about Radiohead’s In Rainbows pricing experiment on page 18 of the ebook Free to Flexible: Four Simple Lessons About Cost, Price, Margin and The Options Available to The 21st Century Business. You can download it here.

Reading Books

Posted on by under Books

There has been some good material posted recently on reading.

Gretchen Rubin of The Happiness Project provided Twelve Tips For More Reading. She share my view that you need to quit reading if something is not working and move on. "There are too many wonderful books to read."

Michael Hyatt posted his How To Read a Non-Fiction Book a few weeks ago. He takes notes in the margins, has a set of symbols for note taking, and dog-ears pages he wants to return to.

Brian Oates at daxle.net says you should jog, walk, and then stroll through a book. "Non-fiction is about learning and can be tackled differently. You should read a non-fiction book on purpose. The more clear you are on why you are reading it and what you want to learn the better."

And if you are really serious, pick up a copy of How to Read a Book by Mortimer Adler and Charles Van Doren. Here is what they authors say about reading practical titles like business books:

The most important thing to remember about any practical book is that it can never solve the practical problems with which it is concerned. A theoretical book can solve its own problems. But a practical problem can only be solved by action itself. When your practical problem is how to earn a living, a book on how to make friends and influence people cannot solve it, though it may suggest things to do. Nothing short of the doing solves the problem. It is solved only by earning a living. (p193)

I borrowed the title for my ChangeThis essay from Alder and the opening story has me making fun of a kid who is walking around with a copy of the book. Just for the record: I was wrong and would recommend How to Read a Book to anyone who is serious about getting more out of what they read.

EA Creates More Options with Downloadable Content

Posted on by under Fixed To Flexible

Many media formats have active used markets. Visit any college campus during the first week of classes and you'll find a used textbook swap. Amazon has created an active marketplace for pre-owned hardcovers and paperbacks.

The videogame industry is no different with retail chain GameStop leading the way as market maker. Wall Street analysts estimate the size of the second-hand market to be $2 billion a year and accounting for 1/3 of the games sold in the U.S.

Leading game publisher Electronic Arts (EA) is rolling out a program to try and recapture some of that lost revenue. Included inside new copies of their games is a one-time code which unlocks new characters, weapons, and gaming levels. Anyone who buys the game on the used market will pay money (currently $3-$10) to gain access to this additional downloadable content (DLC). These codes act as both reward to purchases of new product and new revenue source from the secondary market.

DLC is growing source of additional revenue for software companies. EA is going to offer Tiger Woods Golf for free online with club upgrades available at a cost. Hipstamatic, a camera application for the iPhone, allows customers to buy lens, film, and flashes to creates a variety of vintage effects. Social gaming sites for kids like Club Penguin and Moshi Monsters use a philosophy of free membership with additional features added with a paid subscription.

So, the question is: what's your downloadable content that could create another revenue stream and give you more options?

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"You Have Options" is the final section of the ebook Free to Flexible: Four Simple Lessons About Cost, Price, Margin and The Options Available to The 21st Century Business. You can download it here.

Idea Arena Podcast – Switch Interview with Chip Heath

Posted on by under Books, Idea Arena Podcasts, You

http://player.soundcloud.com/player.swf?url=http%3A%2F%2Fsoundcloud.com%2Ftoddsattersten%2Fidea-arena-podcast-switch-interview-with-chip-heath Idea Arena Podcast – Switch Interview with Chip Heath by toddsattersten

In this interview, I talk with Chip Heath about Switch: How To Change When Change Is Hard, the new book he co-wrote with his brother Dan Heath.

"What looks like resistance is often lack of clarity.
What looks like laziness is often exhaustion.
What looks like a people problem is often a situation problem." p17-18

The meme you are going to keep hearing with Switch is about the elephant, the rider, and the path. Chip and I talk about each of those concepts and their effect on our ability to change.

Paste Magazine’s Pay-What-You-Want Experiment

Posted on by under Fixed To Flexible

Shortly after Radiohead announced announced their pay-what-you-want offer for the digital version of In Rainbow, Paste Magazine made the same offer: choose what you want to pay to receive the publication for one year.

Here is what publisher Nick Purdy told Audience Development about the experiment:

If I had to do it all over again I would do the same thing. It paid for itself because we had enough new subscriptions and advertising. The PR value alone was worth doing it. As a sustainable model, I think there is some valid criticism that you undervalue your product—and it obviously doesn’t work when the ad revenue is not there.

For a young magazine that had not reached market saturation it was a fantastic way to get the word out about Paste. We got 30,000 subscribers out of that and they’re still with us. We would have needed 2 million pieces of direct mail to get that response.

We used it for only that one time as a subscription push, but for all of 2008 we continued to use it as a strategy at live events.

We’ve learned that people won’t subscribe at a festival, but they’ll come over to our table and pay what they want and take their first issue with them. It had a strange mystical power. And the shame factor drives the subscription price higher—the average Internet order was $7, versus $10 face-to-face. For a while it became a core strategy at festivals. We gained a few thousand more subscribers that way.

Pay-what-you-want works like free, creating a way for prospects to try your product or service. This case study also shows the potential for a stronger bond with high renewal rates for people who initially subscribed using the offer.

The final comment by Purdy about higher rates paid for people who paid in person at festival is interesting; does personal contact versus online anonymity increase amounts through some indirect peer pressure?

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You'll find more detail about Radiohead's In Rainbows pricing experiment on page 18 of the ebook Free to Flexible: Four Simple Lessons About Cost, Price, Margin and The Options Available to The 21st Century Business. You can download it here.

Meaning in a list?

Posted on by under Fixed To Flexible, Technology

I put together a Twitter list of all the people how gave a shout out for Fixed To Flexible.

I have been wondering if they have something in common (besides having read the ebook).

Are they all people who needed help thinking about pricing?

Do they prefer thoughts and questions rather than clear cut answers?

Are they visual learners?

Do they all share some view about the direction the world is going?

It is an experiment of sorts. I’ll let you know if I find anything.

Book Review – Priceless by William Poundstone

Posted on by under Books, Fixed To Flexible

Pricing has gotten more shelf space in the last few years. Through the lens of behavior science, Dan Ariely’s Predictably Irrational and Richard Thaler’s Nudge both provided glimpses into our limited ability to assess prices. Chris Anderson proposed in his book Free that 21st century companies would build business models around the price of zero. There seemed little room for another title.

Yet, Bill Poundstone proves us wrong in Priceless: The Myth of Fair Value (and How to Take Advantage of It). The book is a narrative that threads history, story, science, and business while complementing the aforementioned and others you will find in the business section.

Much of the work on modern day pricing theory started in a still obscure field known as psychophysics. Researchers in the field spent time studying sensory perception. Tests showed our sensory systems are highly dependent on contrast to create meaning. For example, if you want your house to look twice as bright as others in the neighborhood, it doesn’t twice as many lights; you’ll need to buy four times as many lights.

A number of researchers took these findings into the realm of decision making. Daniel Lahneman and Amos Tversky probably did the most to expand on these ideas.

Take a minute and answer this two-part question they developed:

1. Is the percentage of African nations in the United Nations higher or lower than 65?

2. What is the percentage of African nations in the United Nations?

It turns out that the answer you provide to the second question is heavily swayed by that first question.

When asked in research experiments, the average estimate for question two was above 45 percent. When the number in question one was lowered from 65 percent to 10 percent, the average estimation of question two dropped to 25 percent.

This effect, known as anchoring, has since been confirmed in hundreds of experiments. Real estate agents value homes based on the asking price. Negotiators make more profit on their transactions when they provide the anchor and then make the first offer. And retailers are smart to show the original price alongside the sale price than show the sale price alone.

Poundstone takes some great diversions into the design of restaurant menus, the fact or fiction of whether ending a price in ‘9’ helps improve sales, and the 20 years journey to sell Andy Warhol’s estate in Montauk.

One recommendation for readers is to take your time with Priceless. Over the fifty seven short chapters, Poundstone provides a dizzy array of permutations to consider and the slight varieties become hard to separate in the final pages. This is not an indictment of the book. Fewer examples would have removed precious nuance. A simple change in reading style will compensate.

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Priceless is featured in the ebook Free to Flexible: Four Simple Lessons About Cost, Price, Margin and The Options Available to The 21st Century Business. You can download it here.

ChangeThis Publishes How To Read A {Business} Book

Posted on by under Books

This week, the folks at ChangeThis published a manifesto I wrote titled How to Read a {Business} Book.

After writing The 100 Best Business Books of All Time, I decided to go back and document everything I had learned reading business books for a living.

Here is a small excerpt:

Leave Your Mark

Recording what it is you learned from reading a book should happen both inside and outside that book.

First of all, get over any fear you have of writing in a book. Business books are meant to be inter- acted with. Take a pen and leave notes in the margins. Get out that pink highlighter you used in college and mark up passages that strike you. The guys at Brand Autopsy used to keep a Dog- Ear Score for the number of pages folded over by the time they reached the end. Tim Sanders, in his book Love Is the Killer App, suggested that important learning points be written on the first blank page in the front of the book and great quotes for future presentations be recorded on the inside back cover. Personally I became a fan of 3-M Post-It Flags in writing The 100 Best for quickly marking pages that I needed to return to later.

Now you need to share what you have learned with the world. It doesn’t matter how. Pick a form and a medium and go with it. Steve Cunningham at readitfor.me decided videos were the best way to share his passion for business books. Chris Yeh builds book outlines on the aptly titled wiki, bookoutlines. Sean wrote short reviews and provided mind maps drawn on brown paper bags at stickybusinessbooks.com. John Moore uses SlideShare and creates quick presentations with the “money quotes.”

Just write a review—100 characters or 1000 words—and give it to someone to read. You get the idea.

Leaving marks in the book and leaving your own mark about what you learned will help you solve your problem and, in tandem, help others solve theirs.

Hope you’ll click through and take a look.

Again, Price is Just a Signal

Posted on by under Fixed To Flexible

“Luxury good prices are not directly linked to any type of costs.

The art of luxury pricing lies in quantifying the value-to-consumer regardless of cost, competitor or market prices.”

-from a marketing report by Simon Kucher & Partners, the leading consulting firm on pricing in the world

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This is great quote from Priceless by William Poundstone. It is one of the books I recommend in the ebook Free to Flexible: Four Simple Lessons About Cost, Price, Margin and The Options Available to The 21st Century Business. You can download it here.

A Side Trip At The Grocery Store

Posted on by under Fixed To Flexible

A few days before Christmas I was in the grocery store doing the normal weekly shopping and a large chalkboard sign greeted me as I made the first turn: “Christmas Items 50% off!” I stopped.

The first item to catch my eye was the 42-ounce bags of holiday M&Ms. These candies are a weakness of mine and $4.28 for a large bag seemed like a great deal. And then I realized I didn’t know what a good price was for M&Ms.

Sitting next to them were small plastic candy canes filled with same red and green chocolates. The stocking stuffers were $2.28. They were eight times more expensive per ounce than the bulk bags. But then I wondered about those little packages at the checkout counter. I suddenly got very interested.

I searched out every package of M&Ms that existed in the store. The christmas clearance section had two seasonal versions. The store stocked three different package size in the candy aisle. The rack at the checkout carried the single serving above the larger Tear ’n Share bag. The Mars Company tempts customers seven different versions from grocery store entrance to exit.

The graph isn’t too surprising. The more you buy, the better deal you get. Mars is following what economists call the law of diminishing margin utility. Our satisfaction drops with each additional unit we buy and the only way to encourage us to purchase more is to keep lowering the price.

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You might be interested in the ebook Free to Flexible: Four Simple Lessons About Cost, Price, Margin and The Options Available to The 21st Century Business. You can download it here.