Wednesday, October 10, 2007

The problem with Raidioheads's latest experiment

I downloaded the latest Radiohead album today. It's not bad. Very mellow. I think I definitely got my money's worth.

What did I pay for it? $10 USD. Why? Because an album in the US costs about $14 and I thought I would pay a little less as I know there is not a lot of overhead on the product. And therein lies the problem with this experiment. A problem that you encounter any time you let a consumer make a price decision - they try to put it in context.

In this case, the context most people will use is the standard $14 for a CD (I think it is about the same in pounds in the UK). This is an effective ceiling for most people - why would you pay more? We've been trained to believe that even the best albums in the world are $14. And, of course, the worst ones are worth that as well. Given this, the average price of a new album where you let the customer decide has to be less than the $14 context - you are always going to hedge slightly by paying less just in case the quality is indeed poor.

And if the album is great? You got a bargain. And I agree with Joseph Jaffe that Radiohead should have a follow-up option for people who want either their money back or to pay more - they might be surprised at the results.

I'm prepared to put my forecasting reputation on the line here (which is not much as I don't really have one) and say that the average selling price of the Radiohead album experiment will be $8-$9. If 5 million people download it, not a bad return.

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2 comments:

Decision Support Analytics said...

Good post and I agree that we are trained to accept $14 as the price of a album. I can't tell you the last time I bought a CD or a whole album. Now it's all about the songs I like. Some artists, like U2, only let you download some "special" songs if you buy the whole album. Worked on me!

Decision Support Analytics said...

Paul - can you please drop me an email with your email address. I wanted to discuss something with you, but couldn't find any contact info on your blog. Thanks.

tony@supportanalytics.com