The Three Prices--more than zero, zero, and less than zero

My book is mostly about two prices--something and nothing--but at dinner in NYC with Jay Walker this week, he convinced me to include a discussion of a third price: less than nothing. That's right, a negative price: you get paid to use a product or service, rather than the other way around.

This is more common that you might think. Online, you see this in things like Microsoft paying you to use their search, but it actually has a long tradition in traditional marketing. You find it instant rebates and cash back marketing, and in the cash rewards, frequent flyer miles and other payments you get for using credit or loyalty cards.

Jay pointed out that a cashback rebate invokes a very different psychology than simply saving the money in the first place. For instance, he says that studies of how people spend the $1,000 (or whatever amount) check they get when they buy a new truck (or, more to the point, finance it), show that they tend to spend it like a lottery winning--an unexpected windfall. Guys would buy golf clubs that their wife would never normally let them purchase, and their wives wouldn't stand in their way. This despite the fact, which they must know, that they'll be paying that money back over the years to come, just like a credit card debt.

FWIW, TechCrunch says the Microsoft search cashback program has not been very effective. And, as it happens, such cashback schemes may run afoul of the anti-interest provision of Islamic law.

Comments

[Chris]

More and more musicians, in their desperation to find an audience that no longer pays and has less and less time to pay attention, seems to be moving to versions of this -- a new retail version of the "pay to play" phenomenon that has long dominated premium gigging in very competitive markets like L.A.

[Steve Nicewarner]

Another example of this change in philosophy is the recent Federal stimulus program. People spent their money a lot more freely when they got a special check back from the government than they would have if their taxes were just reduced by the same amount.

[Derek Sivers]

There's a beautiful example of this in Dan Ariely's book Predictibly Irrational, where he told his class that he would be doing a reading of poetry, but didn’t know what it should cost.

He handed out a price survey to all students, but secretly half of the surveys asked if they’d be willing to pay $10 to hear him read, and the other half asked if they’d be willing to hear him read if he paid them $10!

Those who got the question about paying him were willing to pay. They offered to pay, on average, $1, $2, $3 for short, medium, long readings.

Those who got the question about being paid demanded payment. They wanted to be paid, on average, $1.30, $2.70, $4.80 for short, medium, long readings.

Great reminder that some business models we take for granted might be reversed.

I wrote about this more in Reversible business models, if you're interested.

[Levi Benkert]

I just don't want it anymore if I get the impression that they have to pay me to get rid of it...

[Paulo Pupo]

Well, there was a company called "click rewards" and their business models was that advertisers pay target public to read their advertising online. Actually they change to a model that if audience buy through their web site, they get points.

[Jagadish]

Not sure if this has been posted here, but a couple of weeks ago, the New York Times had an article on how some college textbook authors are making their books available for free online.

URL: http://www.nytimes.com/2008/09/15/technology/15link.html

[Perry Belcher]

The loss leader is as old as the hills and is alive and well in the new economy, at least a hyper version is. In e-commerce I predict it will become the norm of direct marketing companies in the next 12 months as online advertising costs rise. The two step selling process is sure to rule.

Perry Belcher

[Kurtlar Vadisi Pusu]

Well, there was a company called "click rewards" and their business models was that advertisers pay target public to read their advertising online.

[Viagra Online]

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