Were the creators of OfficeSuite reeking of foolhardiness when they slapped an incredible $14.99 price tag on their mobile office app? Didn’t they realize there were many other app developers out there struggling to find sufficient downloads even with their apps put out for free?
But looking at the number of installs OfficeSuite seems to be getting (500k -1 million as of today), they were far from being senseless. They probably knew a little about how irrational we consumers are.
The traditional economics supply-demand model has never worked, and will never work in the real world. The theory that consumers are a rational lot is terribly flawed. The notion that consumers possess perfect information is equally unsound.
Consumers Are Irrational. One would think that with most apps being free or priced at $0.99, a $14.99 app would scare any potential users away. Au contraire! We, the irrational ones, always tend to value something more if that something is pricier. Exploit this irrational mentality to price your app higher. If you own a cool app that sits in a unique category, why should you give it out for free or sell it at $0.99? Why not put a premium on the app and make users perceive the app as valuable?
Consumers Will Not Have Perfect Information especially if your app sits alone in the blue ocean and is category-defining. Pricing your awesome app at $29.99 a pop may be a random act on your part, but consumers will have no idea. Why? Because there are no competing apps for them to compare your app against. How then would users react to your $29.99 app? If it’s pricey, it must be wonderful.
In the app world, all these are good and well only if your app is cool and makes a difference.
When copycats come in with similar apps at competitive prices, consumers will finally have something to compare your app against. And they will start making some rational decisions. Many will buy the cheaper, competing apps. And when you, at long last, run out of bullets in the price war, you will give your once overpriced app away for free, resulting in a second download spike.
Then it’s back to the drawing board for the next killer app.
Consumer Decisions Through Scarcity and the Perception of Value by Yu-kai Chou
Featured art: rationallyspeaking.blogspot.com