Saturday, May 23, 2009

Discount Prices - Really a Bargain?

Summary: Decide in advance how much something is worth to you based on only the features and utility of the product. Never pay more than that, and you should be alright. Don't think you're getting a good deal just because a price is marked down.

Three Examples: discounts practically everything. I don't know that I've ever seen something on Amazon selling at their "list price". Amazon gives different people different prices for things, and prices change over time, so I can't cite anything stable, but here's what I'm looking at right now: Valkyrie (Single-Disc Edition) (2008), List Price: $29.98, Price: $15.99 (47% off!). Since when do DVDs cost $29.98? I've only seen prices like that at Suncoast, and promptly left the store. The List Price is made up. It is a fabricated number that bears almost no relationship to the product's production cost, distribution costs, licensing fees, etc.... Licensing is the lion's share of the costs, which is why you can get Betty Boop DVDs for $1, but Akira Kurasawa films cost twice as much as most new American movies. Walmart does the same thing on their website (same list price for Valkyrie, but the price is $15.86), but walking in the store shows shelves of DVDs for $13 or so with no "list price". The MPAA, MGM, TriStar, and whoever else are not losing money on those sales. The worth of a DVD is a totally subjective thing, and any prices you see for a DVD are over its costs to get to you. Don't let a website convince you that a DVD is worth $30, so you should be happy to buy it for $16. Decide for yourself if a particular DVD is worth $16 to you while ignoring the extra, unhelpful information.

Steam's video game experiment is interesting. Here's a highlight:
"When Valve held its recent holiday sale, titles discounted by 10 percent (the minimum) they saw revenue (not unit) increases of 35 percent. At a 25 percent discount, revenue was up 245 percent. At 50 percent off, revenue was up 320 percent, and at a 75 percent discount, revenue was up an astonishing 1470 percent."

Also important to note is that "retail sales did not change at all". So, what happened here? It is hard to tease apart how many of the consumers just buy hyped-up new games no matter what, how many had a set price in mind for the value of a particular game (or the value of entertainment per hour), and how many were just attracted to "this game is on sale for $Y, even though it's worth $X!" Base game prices are largely fictional values, heavily related to what the industry believes will make them the most money, but they hardly ever experiment like this. There is a belief that selling games at a lower base price will make customers believe that the games are not as good. That belief is somewhat accurate. Most people do believe that price reflects quality, and there is at least one great experiment with blind taste-tests of wine that shows what a really horrible way that is of predicting quality. So, the best way to sell a game may unfortunately be to fabricate a really high base price that some people will pay, then put the games on "sale". This is how millions of other products are routinely sold. News flash: video games do not become less fun when their prices change, or when they're used, or when they're a few years old. To know how good something is, get reviews from a trusted source, and ignore everything else.

San Lorenzo Market is a great example of what most of the world is like when it comes to listed prices and sales prices. Haggling is relatively foreign to America. I found myself in San Lorenzo in need of a new belt. The proprietor of the first stall I saw offered me a belt I liked for 40,000 lira. I said that I wanted to shop around before making a decision. Within twenty seconds, with me only repeating that I was going to shop around, the price dropped in stages down to 15,000 lira. My friend decided to buy a leather trenchcoat. The coats had prices printed on them that, again, everyone knows are complete fabrications. No one pays those prices. We stopped in to haggle once or twice per day for three days before he finally bought the coat he liked for less than half the listed price. Each salesman's job is to make the customers think they are getting an expensive (and therefore high-quality) product for cheap, when really each item has a real price the salesman won't go below, and every time an item sells for more, it's gravy for the salesman.

Exceptions - When a Bargain Really is a Bargain:
Sometimes businesses accidentally order too much inventory and need to get rid of it to make room for other products. Sometimes products are discontinued and have to get dumped. Sometimes companies go out of business and their assets have to be liquidated quickly for creditors. Sometimes no one will buy a totally safe baby's carseat at regular price just because an earlier model was recalled. This is how we end up with Woot and

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