"I got a phone call one day from a friend who had recently opened an Indian jewelry store in Arizona. She was giddy with a curious piece of news. Something fascinating had just happened, and she thought that, as a psychologist, I might be able to explain it to her. The story involved a certain allotment of turquoise jewelry she had been having trouble selling. It was the peak of the tourist season, the store was unusually full of customers, the turquoise pieces were of good quality for the prices she was asking; yet they had not sold. My friend had attempted a couple of standard sales tricks to get them moving. She tried calling attention to them by shifting their location to a more central display area; no luck. She even told her sales staff to "push" the items hard - again without success.
Finally, the night before leaving on an out-of-town buying trip, she scribbled as exasperated note to her head saleswoman, "Everything in this display case, price x 1/2", hoping just to be rid of the offending pieces, even if at a loss. When she returned a few days later, she was not surprised to find that every article had been old. She was shocked, though, to discover that, because the employee had read the "1/2" in her scrawled message as a "2", the entire allotment had sold at twice the original price!"
This is an extract from Influence, Science and Practice, by Robert B. Cialdini, showing how people equate value with price. Over the past couple of years a 'virtual item' economy has been cropping up - from Facebook's digital gifts, Habbo Hotel's virtual items, and Second Life's user-created economy. However, when I've mentioned some of the estimated figures and real money being spent on these to clients, many of them are incredulous - why would people spend money on a 'fake' gift??
The truth is, as human beings we equate price and cost with value. We have the general assumption that if something costs more, then it is worth more, and although this may seem shortsighted, it's actually an extremely valuable tool. If I wanted to buy a diamond, how would I know the different values? I have the choice of a) learning everything about diamonds so that I am able to personally value them b) paying an independent expert to accompany me shopping or c) going by price.
Now, diamonds are pretty, but I know I haven't got the time or inclination to learn everything about them, and paying an expert to accompany me shopping just seems a bit... over the top. Of course diamonds are only one product, but the same applies across the board. We have trained ourselves to use these kind of short cuts in many areas of life - rules of thumb. They help us operate in an extraordinarily complex world.
The same thing applies to virtual items and gifts - as soon as you put a price on them, that effectively becomes their value. As long as a buyer can't get the same gift for free next door, then the item has that real world value. This can carry over into gifts as well - if I receive a gift that I know is worth £1, then the value of that gift is £1, plus the value of having someone who cares about me enough to actually buy the gift and give it to me.
Although they don't release any figures, the recent move by Facebook to remove the 'gift of the day' from the homepage suggests that this is become a less meaningful revenue source - not a surprise when you consider that it's so easy to send free gifts to each other on Facebook with different applications. This is a problem for any business strategy revolved around selling virtual items - you need to ensure that someone else can't come in and undercut you with the same features. This has been a problem for Facebook because their gifts were essentially extremely simple 2d graphics. It hasn't been so much of an issue in the Second Life economy because building new items is complicated and requires significant knowledge, and isn't an issue at all in Habbo Hotel where they hold a monopoly over creating and selling items.
So, selling virtual items can work - but only if a virtual scarcity is created. If you can create this, either through the complicated nature of the virtual item or by holding a virtual monopoly, it can be a very effective business strategy.
2 comments:
Always fascinated by this, and something you see so commonly, probably without even noticing. Take, for example, the difference between supermarket foods: you have bottom-shelf ("value"), middle-shelf ("norms") and top-shelf ("organic") food/packaging, all at different prices. Do the prices reflect different food qualities? Probably not. Do people choose based on the food they want? Or how rich they're *feeling* at that time? Bearing in mind that proper rich people probably don't go to supermarkets, is the top-shelf stuff simply a way of marking something as a "luxury", to be indulged in and feel all posh when you need something to cheer you up? I suspect that the range of items on offer at this point is the crux of all of this - we have *some*, but *limited* price-value-judgement mechanisms, so what's "posh" or "cheap" is entirely relative to what else is on offer at the same time.
I'm also intrigued by attitudes towards rarer items, such as scotch. Over the years, I've learned that expensive does not necessarily mean that either the stuff inside the bottle is *better*, or is more *preferable* on a subjective level. But it's always interesting to see who likes what before and after they get told the price...
And finally, what can be said out of all of this for economic theory? If perspectives of economies and "wellbeing" set out to define individuals as "rational beings", who pay least to get most, then surely this is at odds with that theory? Does modern economics (rather than modern marketing, which seems more based in reality) take such behaviour into account? If not, then aren't we missing a giant piece of the puzzle, a whole input lacking from the question "what's the economy good for?"
At the end of the day, money has become a symbol for status. Maybe the things we pay for don't actually matter any more.
Oh dear, I can just never bring myself to pay even $1 (or £1 as it may be) to pay for pixels. Call it a matter of principle...
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