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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Filed Under: dean singleton, journalism, price, value
Companies: associated press, media news
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Really...?
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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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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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This is more a proof of the power of marketing than a proof that charging for something really creates value.
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Re: Diamonds
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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Re: Re: Diamonds
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Well, kinda it does ...
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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Re: Well, kinda it does ...
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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Re: Well, kinda it does ...
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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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.
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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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Re: Well, kinda it does ...
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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So which service has the higher value then?
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Re: Well, kinda it does ...
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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Re: Well, kinda it does ...
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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Re: Well, kinda it does ...
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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Re: Re: Well, kinda it does ...
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Possibly misinterpreted him?
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Tommy Boy Understands the Value of the Guarantee
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Sales 101 Program
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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Value
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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Re: Value
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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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Re: Well, it worked for kittens
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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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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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There must be a reason...
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Scarce vs. Infinite Goods
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it does impart value in the courts
I am not a lawyer, but would play one on TV if asked.
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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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Legal differences based on price might change actual value?
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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Everyone overlooking the obvious...
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Re: Everyone overlooking the obvious...
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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Dean Singleton hasn't had a clue in a decade.
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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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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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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Let them do it
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Re: Let them do it
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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Re: Re: Let them do it
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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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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yeah but whats our RtB???
so whats our reason to buy? does the desk and all chair come with it ... GRIN
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value = price
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$10,000 notepad
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blah blah blah
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random thoughts
*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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Perception.
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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