Humble Bundle (pay whatever you want)


Humble Bundle

Last Monday in class we talked about “the effect of multipart pricing on consumer purchasing behaviour”, and “pay what you want” (PWYW) pricing models. Radiohead & NIN both tried PWYW (pay what you want strategy); the one (Radiohead) being more successful than the other as we learned in class.

By using such a pricing model you allow for the market to segment itself. An emerging problem inherent to this type of pricing is that a lot of consumers may choose to pay as little as possible (except if they want to really support the artist/developer because they are “avid fans”).

I would like to share with you today a different example of PWYW pricing (HumbleBundle) which has some subtle differences compared to the ones we originally talked about in class.

Humble bundle is a site/platform where you can buy bundles of mobile- (and to a less extent pc-) games and software (nowadays even bundles of e-books) and pay how much you choose to. However, HumbleBundle have implemented PWYW differently than the previous examples.

The 3 factors differentiate humble bundle from the previously discussed PWYW pricing models are:

  • The bundles sold on the site are offered only for a limited duration of time (sometimes only one week); this increases “scarcity” thus increasing customers’ willingness to pay).
  • If you pay more than the average price paid thus far, you get additional bonus content (additional software/games). This motivates the customers to pay more than the current average and moves the price upwards while the duration of the current offer lasts.
  • The consumers can choose how their proposed price is divided between the following 3 parties:
  1. HumbleBundle themselves
  2. A Charity chosen by HumbleBundle
  3. The developers (or author in case of e-books).

How does HumbleBundle differ from other platforms selling games, software and books (when not looking at the pricing)?

  • Firstly, you can only buy bundles, so you will probably always get some games/software that you were not really interested in. However, this bundling increases the chance that you are willing to pay for at least some software in the current offer (even if you do not care about the rest and see it as a “bonus”).
  • Secondly when you buy a game/software from HumbleBundle you get access to this on all platforms that it exists (meaning you will get the game on your PC and on your mobile device (provided that the software is available for both). This is a huge difference to other platforms such as Steam or even the PlayStore/appstore. This second part is an innovation that I think is very welcome to the consumers since everyone owns so many devices nowadays.
  • Last but not least; products included in the bundles bought from HumbleBundle do not have any form of DRM (digital rights management) allowing you to actually own the products that you buy.

It seems that using this pricing method the total profit of participants are often lower; however, their sales volume is higher. For a lot of participants this is acceptable because most of them are indie-developers that do not have a lot of money for marketing purposes; using this pricing scheme they enhance their sales volume thus increases their products’ familiarity to the public and subsequently increasing future sales (when the product is no longer offered on HumbleBundle).

Furthermore, research suggests that privacy negatively affects the consumers’ chosen prices. When the artists/developer would be able to see your name you might be inclined to pay more (especially if you really enjoy that artists or the product). However, I believe that this does not have such a significant effect in HumbleBundle’s case because they only offer bundles (with products created by lots of different developers/artists).

Is the PWYW phenomenon here to stay; what further innovations can we expect in this field?


www.humblebundle.com

https://en.wikipedia.org/wiki/Humble_Bundle

(Tobias Regner, Privacy is precious: on the attempt to use social pressure on internet to increase revenue, 2014): http://www.eea-esem.com/files/papers/EEA-ESEM/2014/1102/MagnatunesPrivacy_JEEA2014.pdf

(Tobias Regner, Voluntary payments, privacy and social pressure on the internet: a natural field experiment, 2012): https://www.econstor.eu/dspace/bitstream/10419/68231/1/734357842.pdf

Author:                Euclid Alexis Haralambidis

S.I.D.:                  313081eh

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2 responses to “Humble Bundle (pay whatever you want)”

  1. martinbraakhuis says :

    From an economic perspective a “pay what you want” pricing model will lead to a maximal increase in overall welfare in comparison with other methods, being tied with only perfect personal price discrimination. A consumer that is interested in a certain bundle will receive a net benefit of whatever the bundle is worth to him/her, minus the payment for his bundle. The net benefit to the producer is the payment for the bundle, because games, being an information good come with next to no marginal costs. Every consumer interested in the bundle will initiate such a transaction until all sources of welfare gain are exhausted.

    Compare this with a traditional business model. In this example a game is sold for a fixed price, say 30 euro. If I value the product at 15 euro, I will not buy this game. Assuming I am too honest to download this game illegally, I lose out on a welfare gain of 15 euro. Had this game been offered through humble bundle, I would have paid up to 15 euro, causing a welfare gain of 15 euro.

    The only problem with this pricing model is that the creators of humble bundle have no impact on the division of that welfare. A consumer does not have to pay what the developer might consider a fair price, or pay at all. The model only works if consumers show some semblance of generosity or goodwill towards the game developers.

    Because people already have the opportunity to get the games they want for free by illegally downloading them, I do believe the ” pay what you want” model of humble bundle has a permanent place in the software industry. The model has the potential to attract people who would otherwise pirate software or forego buying it because of price. As shown before, the effect humble bundle has on total welfare is a positive one. A way to ensure people pay a fair price would be to be visible as a developer and to engage consumers on forums or through blogs/vlogs. After all you might steal from a faceless corporation, but not the kindly struggling developer who talks to you on his forum, now would you?

    – Martin

  2. martinbraakhuis says :

    You might be interested to learn that this topic is also the subject of a blogpost from last year: https://informationstrategyrsm.wordpress.com/2014/09/27/humble-bundle-and-the-concept-of-pay-what-you-want/.

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