Airline / Behavioral Economics / Unbundling

Training The Readers To Pay For Articles

The Pay-for-content argument should not be an argument at all. When material goods are not available for free, why should information goods be? But the reason for the current arguments  from those who want the online news to be free and from those who say this is bound to fail is rooted in the reference price in the minds of customers. Until now most information has been given away for free before. The problem with moving from free to fee model is exactly this, consumers have been trained to expect the newspaper to be free despite the value they receive. Hence in their minds the reference price, t the price they are willing to pay for the service, is $0.00.

Some of the objections to the fee model and unbundled newspaper are around the technology limitations of micropayments. Those are easy to address, for example a Korean gaming company Nexon offers free to pay model but charges for game paraphernalia like weapons and shields. They solved the micropayment issues by selling high value gift cards  in Target and other retail outlets.

So the question is not technology and will it work, but how can the newspapers train their free readers to value free? The answer is how to improve the reference price.

We saw this in the experiment conducted on MBA students on valuing free soft drinks in airplanes. This is not much different from the current argument on charging for online content. As our experiment showed, when we improved customer reference price the resistance to pay for “free” reduced considerably.

Before moving to fee model the product mix and marketing communications should be about improving the reference price. I will be happy to help any news media planning to move from fee to free model.


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