by Adam Juda on Monday, August 31, 2015
In many immature economies, the price paid for a given good must be negotiated at the time of each transaction. A man who wishes to buy a loaf of bread will discuss his proposed purchase with the baker until (hopefully) both parties agree upon a price.
As economies mature, market participants lose both the ability and desire to negotiate. Far more civilized is for the seller to simply name his price. The buyer then makes a simple decision. If the price is acceptable, he makes a purchase. If not, he walks away. Although take-it-or-leave-it pricing is less economically efficient in textbook conditions, it's a much simpler process for both buyer and seller.
The functionality of these buttons is straightforward. Each one displays a product's logo. Whenever a user presses a button, Amazon ships the represented item to his door. So simple. So elegant.
There's just one problem: the buyer has no means of price discovery before he places his order. Use of the button therefore requires a level of trust that is rare in this world. The buyer effectively allows Amazon to act as his proxy, providing him with a carte blanche to charge whatever it desires. Fortunately for Amazon, the odds of customers complaining when the bill comes due a month later is quite low - even if the selected price would have cost a good deal of consternation at the time of purchase. I say this not as an unfounded assumption, but as a prediction based upon well-tested psychological concepts such as choice-supportive bias and post-purchase rationalizations. In other words, users of the button will convince themselves that whatever price they paid was reasonable.
To add insult to injury, Mr. Bezos' firm has convinced his victims consumers to finance the erosion of their own purchasing power. After all, the Amazon Dash is hardly free. Each one is priced at $4.99.
Hat tip for this story goest to The New Yorker. While one of its writers beat me to the punch in discussing the horrors of the Amazon Dash, he somehow missed the pricing angle completely.
If you need someone to help with your business' pricing, make sure to contact me for an economic consult. Not quite ready to speak to me in person? That's OK - my book on software pricing is the next best thing.