This is the second in a series of posts about eMusic’s pricing strategy. (See also part 1.) In this post I discuss the possible motivations behind eMusic’s price points for the various subscription plans and booster packs, and including selection of the price points and the spacing between them, selection of per-track prices, and the use of .99 prices.
As every eMusic US subscriber knows (or should know), the three subscription plans offered by eMusic in the US are $9.99 for 40 tracks, $14.99 for 65 tracks, and $19.99 for 90 tracks. I suspect that eMusic first chose $9.99 and $19.99 as psychologically attractive price points, and then interpolated $14.99 as the Goldilocks price halfway in between. I also presume that eMusic first selected the number of tracks for the $9.99 price point to achieve the magic figure of 25 cents per track, and then chose the number of tracks for the $14.99 and $19.99 price points to show a clear discount from the base plan.
In particular it’s worth noting that the marginal pricing of tracks doesn’t change from the $14.99 plan to the $19.99 plan. In both cases paying $5 more per month gets you 25 additional downloads relative to the next lower plan, for a marginal price of 20 cents per track–a nice round figure that’s probably not a coincidence, and makes the pricing easy to understand: In effect you get an initial 40 tracks at 25 cents per track, and then can opt for either 25 or 50 additional tracks at 20 cents per track. However this means that you get only 90 tracks for the $19.99 price plan as opposed to 100 tracks, a psychologically more satisfying number.
The pricing picture for eMusic UK and eMusic Europe is less straightforward, but preserves key features of the US plans. In particular, it appears that the Basic price was set first, presumably to reflect the different cost structures for eMusic UK and eMusic Europe. (As I previously noted, the Basic plan prices for the UK and Europe are over 40% higher than the US price, even before adding VAT.) The prices for the other plans were then set in relation to the Basic price:
For eMusic UK the plan prices increase in increments of £3 (£8.99 for Basic, £11.99 for Plus, and £14.99 for Premium) for a marginal price of £0.12 per track.
For eMusic Europe the plan prices increase in increments of €4 (€12.99 for Basic, €16.99 for Plus, and €12.99 for Premium) for a marginal price of €0.16 per track.
Pricing of booster packs is more complicated, both in the US and outside it. Like monthly plan pricing, US booster pack pricing features a low initial price ($4.99) that then increases in increments of $5 for the higher-priced offerings (to $9.99 and $14.99 respectively). However the marginal per-track pricing changes: Starting from an initial price of 50 cents per track for 10 tracks, the next booster pack offers an additional 15 tracks at a marginal price of approximately 33 cents per track, and then the highest-priced pack offers 25 more tracks at a marginal price of 20 cents per track.
Note that unlike eMusic US, eMusic UK and Europe don’t maintain identical increments in pricing for booster packs:
For eMusic UK booster pack prices start at £4.99 (£0.50 per track), increase by £4 to £8.99 (marginal price of £0.27 per track), and then by £5 (not £4) to £13.99 (marginal price of £0.20 per track).
For eMusic Europe booster pack prices start at €6.99 (€0.70 per track), increase by €6 to €12.99 (marginal price of €0.40 per track), and then by €7 (not €6) to €19.99 (marginal price of €0.28 per track).
Finally, why the .99 prices? Everybody knows that companies set prices one cent or five cents below an even dollar as a psychological measure, because it makes people think the prices are lower than they actually are. However just because this is conventional wisdom doesn’t necessarily mean that it’s true. For a more rigorous look at the question, see the article Penny Wise and Pound Foolish: The Left-Digit Effect in Price Cognition by Manoj Thomas and Vicki Morwitz in the June 2005 issue of the Journal of Consumer Research. (If you find the full article tough going, check out Science Daily’s summary of the results.)
Thomas and Morwitz discovered that people do in fact perceive a .99 price to be significantly less than an even dollar price, but they also found that (contrary to the title of this post) the fact that the last digits were 9s was not in and of itself the cause of the effect. Instead the effect seems more related to the fact that the leftmost digit changes when comparing a price like $4.99 to a price like $5.00. The essential idea is that humans compare prices by mapping them to a mental analog scale (think of a ruler with somewhat fuzzy markings), with the prices ending as points on that scale. In order to perform this mapping operation the individual digits of the price are processed in left to right order, and apparently the magnitude of the first digit can bias the mapping, by causing the price to appear lower on the mental analog scale than it otherwise would.
This explanation implies that a price like $4.95 or $4.90 or even $4.82 would show the same effects as $4.99 against a price of $5.00. However given that a company would like to charge the highest price possible, it would be better off using a .99 price rather than a .95, .90, or other price; eMusic is no different.
Note that strictly speaking Thomas and Morwitz’s research applies only to situations where the leftmost digit changes, and in that case only when it changes to the next higher digit. Thus, for example, their left-digit effect clearly applies to the £8.99 price for the eMusic UK Basic plan, since consumers would be comparing £8.99 to £9.00. However it’s not exactly clear whether the effect would be present with the $9.99 price for the eMusic US Basic plan, since in going to the comparison price of $10.00 the leftmost digit actually becomes a “1”; Thomas and Morwitz’s studies didn’t look at this case. In the case of eMusic Europe Basic the effect may or may not be present, since in comparing the actual price of €12.99 with the comparison price of €13.00 the leftmost digit does not change. Similar considerations apply to the eMusic US Plus price of $14.99 (comparable to the case of eMusic Europe Basic) and the eMusic US Premium price of $19.99 (where there is a change in leftmost digit compared to the comparison price of $20.00).
In practice there is other research that generally supports the idea of using .99 prices; see for example the list of citations in the Thomas and Morwitz article. Thus eMusic is not just blindly following the retail equivalent of an old wives’ tale.
That concludes part 2 in my series on eMusic pricing. Next up: everyone has his price.