A Future Of Dynamically Priced Everything
I read an article the other day talking about how mobile apps are becoming flooded with in-app purchases. He claimed that in-app purchases were a bad thing. He said they ruin the experience and target you when you in your weakest moment. Well, he’s right...for now.
Today’s implementation of in-app purchases in many games are similar to the urge of gambling. I need to do just one more thing.
However, there’s something bigger going on behind the scenes. Let’s set our current reality aside for a moment and imagine what the possibilities could be in the next 10-20 years if we continue innovating.
We’re all familiar with the dynamic prices on Amazon.com and airlines websites. The prices fluctuate based upon the day, hour, week, and month.
Sometimes the price goes up if you visit the page two or three times.
Why does this happen? They know the more times you visit a page, the more tempted to buy the product. If you can’t make a decision, price goes up. It is a play upon your emotions to either get you to buy. In your mind you are thinking “Oh crap, I better get it now before it goes higher!”
Our minds are irrational about prices. It’s not a bad thing either.
The entire practice of finding the right price is simple: As a business, we want the price to be as high as possible to maximize the amount of revenue we make. That means that some goods make the most money by selling to fewer people but at a much higher price. Other things sell to lots of people but at a low price. These win on volume.
The problem right now is that everything is generally one flat price. You’re setting a single price for ALL of your customers and they’re aware of it. The thing is, some people are willing to pay more than what you’re asking. Some people a little less.
In an ideal world the way to truly maximize your revenue is to price dynamically based upon the person. You’d know their wants, needs, and purchasing history to determine what they might be willing to spend.
Imagine going out to dinner at a steak restaurant. You love steak. I mean absolutely love it.
Today, the price of your steak would be the same for you as it is with every other customer in the restaurant. Every single steak dinner they sell is $20. The primary way for them to make more money is to sell more steak dinners.
But imagine what this could be like 20 years from now. The restaurant knows that you absolutely love steak and that you’ve bought it regularly over the past 10 years based upon the data they know about you. They know you’re very likely to order the steak dinner tonight. To you this might be worth $40 to have a steak and they’re going to price it as such.
The person you’re eating out doesn’t like steak as much, then the price of their steak dinner will be less. Instead, they might really really love shrimp. Well guess what? The price of the shrimp basket just went up.
It’s clear that we are already headed this direction as a civilization.
The only major hurdle to get to this point will be overcoming the social stigma of not pricing fairly for everyone.
Once that is overcome, pricing dynamics will change rapidly. You will no longer see prices on the menu. There will just be items and they will be priced dynamically based upon the customer when they purchase.
It’s already beginning to happen with in-app purchases where there is really no specific price to play.
Games like Clash of Clans and Candy Crush have been reported to be making over $750,000 A DAY. That’s just insane to think about compared to everything else on the market right now.
The reason they can do that is because they’re one step ahead of the game. Users who truly value the game are willing to fork over lots of money to continue playing. Those who aren’t simply don’t and that’s okay too. The companies don’t need (and shouldn’t try) to make money off of those users.
A lot of people are up in arms about this and related things like Retargeting. It’s simply a sign of change towards a smarter future.
It sounds like a scary proposition for our wallets and it could be. But remember, this isn’t price gouging. Customers will stop buying if the price isn’t right. Businesses will be able gauge exactly what the value and demand of their products is worth. If the return on investment isn’t good enough, they will be able to adapt quicker into producing something that people actually want.
This is good news because it means that in the future society will adapt to change faster and faster. Who knows what will come of this data-driven future we are pursuing, but it certainly will be interesting.