Deflation and Introductory Pricing

If you don’t think about it too much, you might think that deflation increases demand. After all, if things are cheaper, you’re more likely to spend money.

The problem is that people are aware of deflation, and they expect prices to continue to drop, so they postpone purchases.

On the other hand, inflation increases demand — people think they should buy now before the price goes up.

This relates to App Store pricing. When prices continue to drop, people may look at an app they want and then decide to wait, since prices tend to drop on the App Store.

At first glance, I think this argues in favor of having introductory pricing when releasing a new product or a major new version of a product. It increases demand in the short term, since people know that the price will go up.

The problem is this, though: after the price goes back up, people may remember that you had introductory pricing, and they then expect you’ll do another round with another release, or you’ll put it on sale for Christmas. They think that they’ll never have to pay the regular price if they just wait. So demand dries up after the initial burst of sales — not only because it’s more expensive now but because they think it will be cheaper again.

I’m convinced — at the moment, at least — that the better approach in almost all cases is to launch with the regular price and never change it. (Unless you have very good reason to raise it.)

There’s also something to be said for stability and trustworthiness, which is reinforced by stable pricing.

So much of the App Store is junk from people you’ve never heard of. I’d rather buy software from people who make a great app and set a good price and who don’t try to make a game out of pricing. Those are the people I trust to be in it for the long haul and who I believe are focused on what counts: quality software.

14 Mar 2012

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