Tuesday, April 18, 2006

Confusion Pricing

Tim Harford has an article in Slate about "Confusion Pricing". Cell phone and other companies offer pricing plans that are so complicated it's difficult to tell what is or isn't a good deal.

Two key points from the article:

  1. "They are good at judging which calling plan will cost least, and good at switching if their initial guess is wrong."
  2. "The whole experience suggests that confusion pricing is not really about trying to entangle every customer in an impenetrable web of complex offers. Instead, it's a very simple screening device to spot customers with money to burn. If you don't care enough about your phone bill to ask Katie for a spot of advice, then you can obviously afford to pay a little more."
In other words, insofar as "confusion pricing" has any merit, it's that it segments the market into two different types of customers: price-sensitive customers versus those willing to pay more more money. However, it's possible that most customers will eventually settle on the better deals, anyway.

I wonder whether some customers would be willing to pay more for simplicity in pricing.

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