101: Anchoring vs. Simplicity
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Welcome to Under the Radar, a show about independent iOS app development.
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I'm Marco Arment.
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And I'm David Smith.
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Under the Radar is never longer than 30 minutes, so let's get started.
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So today's episode, the topic for it sort of came from, as I think many of the best
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topics for this show do, came from an experience I had this week, and something that I thought
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was worth trying to unpack and trying to find a general lesson from.
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And the specific experience that I ran into is probably about maybe three or four weeks
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ago, I launched a relatively large update to Pedometer++.
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I think I mentioned some of the details about it on the show.
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It added badges, and I did some visual refreshing.
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But one of the things I also did as part of this, as part of my visual redesigns, is I
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changed the way that the tip jar in the app worked.
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So Pedometer++ is a free app, it has ads in it, and then it has in the settings area,
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there's a tip jar area that basically is the, "Hey, would you like to support the app?
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Give me a little bit of money."
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And if you do, A, it's just a nice thing, and people have an opportunity to support
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the app directly in kind of more of a less aggressive way.
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And then it will also remove the ads as well.
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And I used to have three different sort of like buckets that you could choose from for
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giving me a tip.
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I think they were, I had a 99 cents, I had $1.99, and I think I had one that was $3.99
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And sort of increasing in size.
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And the reason I had originally structured it that way was this general vague sort of
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like business advice that I remember hearing in a podcast somewhere or reading in a book
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somewhere that was talking about anchoring and about, you know, talking about, "Oh, you
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know, why do they have like the extra super large soda at McDonald's?"
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And it's like, well, the reason you have these extra, these sort of these bigger things is
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to not necessarily sell more extra large SuperGulp, but is to increase, you know, sort of move
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people up the line because people are sort of more tend to be afraid of the extremes.
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So, you know, they would rather be somewhere in the middle.
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And also, it has an anchoring effect where, you know, in this case, if I, one of the tips
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is $5, and then the other one is 99 cents, and then the one in the middle is $1.99, you
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know, the $1.99 standing next to the, you know, the $4.99 or whatever feels a bit smaller.
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And so it has these could potentially in theory, have this sort of this positive psychological
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Or at least that's what I told myself.
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I didn't really, it's kind of one of those things where it's this vague sort of notion
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that I remember hearing and reading and so I tried it.
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And it had been that way for years since I first introduced the tip jar.
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But in this update, I kind of had this feeling that like, I didn't like the design of it
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visually, I thought it was a little bit complicated.
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And also, there was some things I needed to do where there's a sort of a requirement now
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where you have to be able to restore purchases for thing, any restore a purchase for anything
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that has an actual effect.
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So if it was just a straight up tip, you wouldn't necessarily need to restore purchases.
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But in this case, I needed to make it a bit more simple and straightforward to make sure
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App Review was happy.
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And so I just dropped the two extremes.
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I got rid of the lowest and the highest tip value.
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And there's just a button now that says, you know, it's like, would you like to, you know,
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put $1.99 in the tip jar.
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And something interesting happened as a result of making this change.
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The total revenue that I received from tips in the app, now, and especially I can tell
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this now the story now because it thinks have settled down, you know, initially, there's
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a nice spike, when there's a new update, you know, people tend to be a bit more generous
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with their tipping right after an update, it seems, but things have settled down now.
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And the result is that I make now about 20% more from tips than I did previously than
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I did throughout, you know, so sort of the running average for the last few years even.
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You know, it's now this substantial sort of step up, even though I've removed the top
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And it seemed like an interesting lesson to unpack here where I feel like it's so easy
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as somebody who comes from a non business background.
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Like I enjoy listening to I listen to a lot of business podcasts and things like that,
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just for the purposes of trying to flesh this out, you know, sort of in my experience, but
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I don't come from a background where this is the kind of thing that I would have studied
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or been taught.
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And so I'm just kind of making it up as I go along.
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And it's easy, I something sometimes to somewhat blindly follow this kind of general advice
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that I in my mind, it's like, well, some fancy business person said that this is the way
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that you do it.
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Like, if you want to maximize the number of people who are buying the middle one, you
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need to put something you know, smaller below it and bigger above it.
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And that's where they'll go.
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In this case, it turned out that wasn't the case.
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And if I hadn't sort of tried to follow this advice that the reality is I probably don't
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fully understand, I may have been making 20% more all this time.
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And so that seemed like something that was worth kind of dealing with.
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And it has made me start to think about are there any other kinds of advice that I sort
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of take and use without really probably fully understanding.
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When it comes to business advice for pricing or marketing or positioning or things like
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that, this kind of topic, I think it's important to consider a few caveats to everything.
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Number one, you don't need any qualifications to write a business book.
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Anybody can write these books or these blog posts or these medium essays and they don't
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necessarily know what they're talking about.
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So disclaimer number one is take everything with a grain of salt because anybody could
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have written it.
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- Including our advice.
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- Including our advice, yes, this applies to us as well.
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Disclaimer number two is that a lot of the popular business theories out there are exactly
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that, theories.
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They aren't necessarily proven by data all the time and so it's hard sometimes to know
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what is being explained by how people think it works versus what actually does work.
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And the biggest caveat number three is that different things work for different apps in
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different markets and different products.
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So all these theories and books and everything, they might be great, they might be perfectly
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valid for selling, the classic example of selling widgets from a factory.
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If you're selling a premium product that you're making physically, then that's a different
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story from if you're selling an app on the app store or an in-app purchase for something
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within an app in the app store.
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These product types work so differently and the markets they sell to and the factors involved
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are all so different.
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And even within one of these factors, even if you say, "Alright, within the market of
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in-app purchases in iPhone apps," which is somewhat narrow I guess compared to the whole
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world of how you could possibly make money in business.
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But even within that, there are huge differences.
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What type of app are you making this purchase in?
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What does the purchase do?
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Why would the person buy it?
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Those things vary wildly.
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You have a tip jar in a pedometer app that doesn't really do much of anything except
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remove an ad, so it's more of a goodwill kind of thing or for people who really hate ads
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and are willing to pay to remove them.
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That's very different from buying yourself a new bomb in the game that you just invested
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six hours in and your brain is telling you, "Oh my god, just keep going at whatever cost.
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I have to get through this next level.
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Buy the bomb."
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These are completely different mindsets and psychologies that go into these purchases
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and so they have to be met with totally different approaches.
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Any advice you hear or read out there might be about one thing and it might be perfectly
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valid for one thing, but that might be completely different from what you are doing in your
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app or in your product or in your store.
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Everything has to be taken with a grain of salt and when possible and when practical,
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the best approach is usually to just try stuff like you usually do, unlike you did here because
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nothing will show you more than just trying it, whether something will work for you or
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That isn't always practical though.
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Changing the way you make money, changing your pricing, changing the way purchases are
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set up or are displayed or are marketed.
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In some cases you can tweak things a little bit here and there and see results fairly
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quickly without much effort, but in some cases changing these things or trying something
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else takes massive effort, takes massive setup.
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Sometimes you risk angering your customers if you change things more than zero to two
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times in a short time.
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Sometimes it's hard to experiment with these things, but when possible and when it's relatively
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easy to experiment, I highly suggest that you do so because nothing is better than just
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trying it in order to get data on what works and what doesn't.
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I think that experimentation part is the thing that in this case I'm kind of kicking myself
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that I didn't do because it's so often something that I do do, that I've tried so many different
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I do lots of different apps.
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I tend to have a fairly experimental approach.
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In this case, I just kind of found something that kind of worked and it worked well enough
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and because it worked well enough, I just kind of went with it.
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I feel like that is probably also something to be on the lookout for, of something where
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it's like if it works a little bit, because say you followed some advice and it seems
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to be working a little bit, it's still being circumspect about it and deciding, "Did it
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work a little bit because of the advice you got and if you hadn't followed that advice,
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it would have kind of all fallen apart and not worked at all?"
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Or is that just like the base level and there's still a lot of room for improvement or opportunity
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there that you could take advantage of by experimenting a little bit, by trying different
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And I mean, keeping in mind that I think it's easy to be a little bit too scared of trying
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things out, but then of course I come back and I think about Overcast and I think about
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its history and the number of different business models and the number of different approaches
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that you've tried in that and there's certainly been bumps in that, but the reality
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is like overall it seems like people adapt and move with it so that as long as you have
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a sort of a clear story at any one time, people will move with you as you explore and adapt
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to things and don't be too worried about trying too many different options.
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So I wanted to talk a little bit about my experience with this is somewhat similar.
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When I took Overcast to the auto-renewing subscription model about a little over a year
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ago now, I made a decision to simplify things.
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So before that, Overcast had, for a couple years before that, it had a voluntary subscription
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that you could opt into for various small benefits.
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And then later I added ads and the subscription would give you the option to remove the ads
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And so last year, I changed the subscription from non-renewing, just like the single purchase
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of you'll buy a three-month interval or a six-month interval or a 12-month interval
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to an auto-renewing subscription.
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Auto-renewing subscriptions used to be a lot worse.
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I actually read a blog post a few years ago when I was using Instapaper for them, or using
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them with Instapaper rather, that I basically said auto-renewing subscriptions are not recommended
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because they were really a pain to implement and maintain back then.
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They have gotten better, I wouldn't say massively better, but they are better now.
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And now they come with the additional benefit of if somebody stays subscribed for more than
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a year, your subsequent years after year one for that person net you 85% of the revenue
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instead of 70%.
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So you basically get a raise and it is a way to keep more of your money in the App Store
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than any other method.
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So that's really nice.
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So now I would say if you're using subscriptions, auto-renewing has improved enough and has
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enough of that upside with the 85% on year two and up that I do recommend auto-renewing
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subscriptions now for things where that makes sense.
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So anyway, for years, and the same thing applied to Instapaper, I had three options.
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I had three, six, and 12 month subscription buying.
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And I did this for much of the same reason that you were talking about with things like
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anchoring, also, and I apologize to anybody who is an econ or business major or certified
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person, I apologize if we are mangling or oversimplifying any of these terms.
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Most of this I learned from econ 101 or blog posts.
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So I apologize in advance.
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But one of the things I was trying to do with these options was to capture the consumer
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surplus, which is an econ 101 term, I hope you're using it right.
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- Yeah, where basically different people are willing and able to pay different amounts.
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And so what you ideally want to do is have multiple tiers of products or services so
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that the people who can't or won't spend a lot of money, they have a nice inexpensive
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So there's some kind of middle thing for middle people, and then there's an expensive option
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that people who really want to and are able to give you a lot of money, give them a way
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If you just charge the same amount of money for one option for everybody, there's only
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one price, one option, you're gonna lose people on the bottom end who can't or won't pay that
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And the people on the top end who would have paid more, you're missing out on potential
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money you could have made by having some way to charge them more.
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That's the theory.
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In practice, there's all sorts of complexity that goes into trying to implement some kind
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of thing where you're trying to have products at every price point and everything.
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See the iPad lineup for an example of this.
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There's all sorts of complexity and downsides to it.
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But the general idea is sound.
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It is nice to have multiple options to charge different people.
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The problem is there's also a pretty widely thought and probably backed up by data theory
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that you will make more money in things like computer based checkouts or phone based checkouts.
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You'll make more money the easier it is for people to pay you.
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And the fewer steps are involved in doing that and the fewer decisions are involved
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in doing that.
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Because if someone's thinking, "Hey, you know what?
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I might want to pay for this thing."
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The more interruptions you present to that process, the more barriers you put up, the
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more likely it is that they're just gonna say, "Yeah, you know what?
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I'll come back to this later."
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Or, "You know what?
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I don't care that much.
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I don't want to go through all this.
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You don't want to present them with too many choices or barriers or options or reasons
00:17:12
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to doubt their purchase before they commit and say, "All right.
00:17:17
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It's a tricky balance between trying to have different plans for different price points
00:17:21
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to capture more of that consumer surplus or trying to keep things simple.
00:17:26
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So what I decided to do for years and years, I had those three different intervals, three,
00:17:30
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six, and 12 months.
00:17:31
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There was actually no discount.
00:17:33
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The 12 month price was just four times more expensive than the three month price and six
00:17:37
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months was in the middle.
00:17:40
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There was no gain to doing that.
00:17:42
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But I did find that the 12 month, which I expected to sell the least, was actually the
00:17:48
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top grossing item.
00:17:51
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Whenever I would have those three, six, and 12 month options in both Instapaper and in
00:17:55
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previous versions of Overcast, 12 month was always top grossing.
00:17:59
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Three month was second and nobody bought the six.
00:18:03
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And it was that way since the beginning of Instapaper until I eventually, after I sold
00:18:09
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it, I think they transitioned to an auto renewing subscription model shortly after that or maybe
00:18:12
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it was, maybe Vinay did it.
00:18:14
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I don't even remember it so long ago.
00:18:16
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But when there were those three options, three sold the most volume, six didn't sell much
00:18:21
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of anything, and 12 was by far the top grossing.
00:18:25
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And what I learned from that was that my users were pretty loyal and that people who would
00:18:29
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pay for this kind of thing at all would pay for the high one pretty often and certainly
00:18:33
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often enough that it could have been the only option.
00:18:36
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It was also an awkward price because my price was $12 a year.
00:18:40
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It was $1 a month.
00:18:42
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So it was $11.99 in the app store.
00:18:45
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And the app store, I think economically, I think a lot of people might balk at a two
00:18:50
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digit dollar figure in US dollars.
00:18:53
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There's a lot of price psychology that goes into pricing things that's gone back forever
00:18:58
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where people end prices in 99 instead of rounding up to the next dollar.
00:19:02
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So you'll have like $9.99 instead of $10 because the theory is that that sounds better and
00:19:08
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people will buy it whereas $10 sounds like a lot because it's double digits.
00:19:12
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That kind of theory, and again, this is all backed by decades and decades of theory that
00:19:18
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might necessarily not be based on a lot of data.
00:19:21
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So I apologize if any of this is totally wrong in practice.
00:19:23
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But anyway, so when it came time to switch to auto renewing for overcast, what I decided
00:19:29
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to do was only have the one year option.
00:19:34
◼
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And this was both to keep it simple, to try to guide more people in through it to say
00:19:38
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like alright, if I keep it simple, then there's fewer barriers, fewer decisions to make, and
00:19:43
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more people will subscribe.
00:19:45
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Also I wanted people to kind of commit.
00:19:48
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If you have a cheap option and an expensive option, then a lot of people obviously are
00:19:53
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going to pick the cheap one.
00:19:55
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And I'm like, you know, am I better off having fewer people but having more of them picking
00:20:01
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the most expensive one year option than if I have the spread of options where that I'm
00:20:08
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►
losing some of the possible high end.
00:20:11
◼
►
And I thought too with auto renewing, the auto renewing suggestion is going to bother
00:20:15
◼
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people once a year with an email from Apple saying hey, this is about to renew.
00:20:20
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►
And every time it renews, those people get that email, they have a chance to say you
00:20:26
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►
know what, never mind, I don't want this.
00:20:29
◼
►
And I know I'm going to lose people every time it renews.
00:20:34
◼
►
Hopefully I'm staying ahead with net subscribers.
00:20:36
◼
►
But every time it renews, I'm going to lose people.
00:20:38
◼
►
So my theory is why don't I make it renew as infrequently as possible so that way there
00:20:44
◼
►
are fewer times per year when people will either get upset that they forgot to cancel
00:20:50
◼
►
it or that they will be reminded to cancel it and they'll get that email that basically
00:20:55
◼
►
reminded them hey, you might want to cancel this every time they get this email.
00:20:58
◼
►
So having a once a year option was my theory for maximizing that.
00:21:04
◼
►
And I also, rather than having once a year at $11.99, I decided to take advantage of
00:21:11
◼
►
that price rounding theory or behavior and just drop it to $9.99 for one year.
00:21:19
◼
►
And that's the only option I offer.
00:21:21
◼
►
And I've even gone through in different countries where the exchange rate was such that it would
00:21:27
◼
►
push it a little bit above some round number like $11.99, Great British Pound or something
00:21:34
◼
►
I've gone through and you can edit prices per territory with auto renewing subscriptions
00:21:40
◼
►
I'm not going to go through all the overall in-app purchases but you can do that with
00:21:42
◼
►
subscriptions now.
00:21:43
◼
►
So I went through and basically anything that was near a boundary, I lowered it back down
00:21:47
◼
►
below that boundary.
00:21:48
◼
►
So it's $9.99 pounds, $9.99 US dollars, $9.99 Canadian dollars, Australian, all the amounts
00:21:56
◼
►
that are kind of close, I would drop them down.
00:21:57
◼
►
So it's all one unified price because I have the luxury with this in-app purchase which
00:22:02
◼
►
a lot of people do for their in-app purchases where there is no physical product that I'm
00:22:07
◼
►
transferring here.
00:22:08
◼
►
There's no real cost to what I'm offering.
00:22:10
◼
►
So I can offer the in-app purchase at pretty much arbitrary prices.
00:22:14
◼
►
It's pretty much like I would like people to pay me some money.
00:22:18
◼
►
It doesn't really matter within a certain range how much money they're paying me.
00:22:25
◼
►
I would rather have people paying me something per year than nothing per year.
00:22:31
◼
►
So that also applies to different regions where money is worth different amounts.
00:22:36
◼
►
So you go to places where $10 US sounds really expensive.
00:22:42
◼
►
So places like China, Russia, India, you can go to these places and you can lower your
00:22:47
◼
►
prices dramatically.
00:22:48
◼
►
So I would go to some of these regions where the prices seemed higher by comparison and
00:22:55
◼
►
cut the price in half or something like that, really cut it down.
00:22:59
◼
►
So the theory being, again, I'd rather have some money than no money from people who live
00:23:03
◼
►
here and who see the price in a certain way because of the exchange rate.
00:23:07
◼
►
So all those strategies so far seem to have worked very, very well.
00:23:12
◼
►
And by simplifying the offering from three options to one, I also have seen, because
00:23:17
◼
►
even though I cut the price slightly from $12 to $10 a year, I've made it up both in
00:23:23
◼
►
additional purchases because it's been an easier flow and also the 85% on year two.
00:23:29
◼
►
So so far, I'm very happy with my arrangement as well.
00:23:32
◼
►
Yeah, and I feel like there's such an element in this of we can optimize for the wrong thing
00:23:42
◼
►
What you're doing there is you're making it simpler for everybody and understanding that
00:23:48
◼
►
having some amount of revenue from any...
00:23:54
◼
►
Any non-zero paying customer is a massive win, and your goal is to maximize those.
00:24:02
◼
►
In that case, you just want to optimize to bring in as many of those people as you can.
00:24:09
◼
►
And there may be other variables or things that we just have to be okay with ignoring
00:24:13
◼
►
or with not optimizing for.
00:24:16
◼
►
But overall, it's often, in your case, it works out great where it comes out overall
00:24:21
◼
►
And even if it didn't come out overall strictly better, there is still an advantage to the
00:24:26
◼
►
super simple, easy to explain, easy to understand business model that isn't one of these things
00:24:33
◼
►
where you're creating these barriers and any amount of confusion.
00:24:38
◼
►
Because the reality too is, I'm thinking, is we don't have the luxury of sophisticated
00:24:44
◼
►
or complicated marketing materials or opportunities to communicate extensively with our customers.
00:24:51
◼
►
Like, that's just not something that we have the ability to do, where maybe this kind of
00:24:58
◼
►
a situation would be a bit easier to have multiple tiers or to have more complicated
00:25:05
◼
►
Because typically the reality is, when pricing gets complicated, if you go to buy something
00:25:12
◼
►
and the pricing isn't straightforward, it's usually because they're finding some way to
00:25:18
◼
►
just squeeze a little bit more out of you.
00:25:20
◼
►
It's not because they're trying to make your life easier as a customer.
00:25:24
◼
►
They're trying to make their bottom line better as a business.
00:25:29
◼
►
And so, in some ways, I also kind of just like the feeling of, from a customer goodwill
00:25:35
◼
►
perspective, making it straightforward for them.
00:25:38
◼
►
Presenting someone with a simple, straightforward option, it's like, "Would you like to support
00:25:43
◼
►
this app?" or "Would you like to add these features?" or whatever it is.
00:25:46
◼
►
It's like, "Yes or no."
00:25:47
◼
►
And it's a simple choice, and if they decide no, great.
00:25:51
◼
►
It's like, that's fine.
00:25:53
◼
►
You hopefully will make it up from just the breadth of your user base.
00:25:56
◼
►
But if yes, then great.
00:25:58
◼
►
Like here, just push this button, we're done.
00:26:00
◼
►
And there's not anything more to it, because I think the reality is it's hard enough to
00:26:05
◼
►
get people to the point of even considering it.
00:26:08
◼
►
The last thing I'm going to do is probably make that a hard choice for them.
00:26:13
◼
►
Yeah, and that's very, very smart, because again, the one business theory that seems
00:26:19
◼
►
to be most supported and least arguable is when you make it easy, when you remove barriers,
00:26:25
◼
►
when you remove options, people tend to buy more frequently.
00:26:29
◼
►
And so, anything you can do to simplify it also simplifies other things.
00:26:33
◼
►
Simplifies your app, your backend that's tracking all this, your reporting, any kind of analytics
00:26:39
◼
►
you're doing on what leads to sales and everything.
00:26:43
◼
►
And also press.
00:26:45
◼
►
When the press talks about your app, if you're lucky enough to get press, it's a lot easier
00:26:50
◼
►
if the story that they can tell people is as simple as, "Yeah, the app is free,"
00:26:55
◼
►
or whatever, but then you pay $10 a year if you want these things, or $5 one time if you
00:26:59
◼
►
want these things.
00:27:00
◼
►
That's a much simpler story than, "Oh, the app has these six different plans that
00:27:06
◼
►
you can shoot between."
00:27:07
◼
►
And it's like, how many people are gonna look at those six different plans and just
00:27:12
◼
►
say, "You know what, nevermind, I gotta do more research, I'll deal with this later."
00:27:15
◼
►
And sometimes they'll even be less happy, like if you pick the wrong level of something,
00:27:20
◼
►
then it introduces the chance that they'll be less happy with their purchase afterwards,
00:27:23
◼
►
'cause they wonder, "Oh, maybe I should've picked the other thing, maybe they'll
00:27:27
◼
►
regret what they did."
00:27:28
◼
►
And when you have just fewer options, you do lose that consumer surplus capture on some
00:27:35
◼
►
degree, but you also have so many other benefits that it is definitely worth considering, and
00:27:40
◼
►
if possible, trying for your app.
00:27:42
◼
►
- Yeah, and I think too, in general, and the more I was thinking about this topic in preparation
00:27:48
◼
►
for the show, I kept thinking of examples of general business advice.
00:27:55
◼
►
And the somewhat amusing thing is for any situation that I thought of something, I almost
00:28:00
◼
►
always could think of a completely contradictory bit of advice that corresponds to it.
00:28:06
◼
►
Like in this case, there's the, you can capture maximum consumer surplus by having
00:28:12
◼
►
a tiered system with anchoring, so on and so on, fancy words.
00:28:17
◼
►
Or on the flip side, there's the paradox of choice and saying if you present people
00:28:22
◼
►
with too many choices, then the most likely choice they will make is no choice.
00:28:27
◼
►
Or you could say the customer's always right as this general adage, or you could say on
00:28:32
◼
►
the flip side that opinionated design is better.
00:28:37
◼
►
There's always this tension, I think, between these, for anything, there's always a complete
00:28:43
◼
►
opposite bit of advice that you could just as easily latch onto and take with you.
00:28:48
◼
►
And so in closing, what I was thinking about saying is it's just like, I think the most
00:28:53
◼
►
important thing for us as we're developing our applications is A, if one of those choices
00:28:57
◼
►
is, if you have these competing bits of advice, choose the one that is simplest, that is easiest,
00:29:03
◼
►
that is going to, that you understand the most, is probably always going to end up better
00:29:10
◼
►
for you than just trying to do something that is more sophisticated, more complicated.
00:29:18
◼
►
Maybe there is some theoretical benefit that you may be not taking advantage of by doing
00:29:24
◼
►
If it's not simpler is better, doing something that is going to make you happy is better,
00:29:30
◼
►
and if you just do those things, then maybe that's just the best advice at all.
00:29:34
◼
►
Just keep it simple, do something you enjoy, and you'll end up better off than trying to
00:29:39
◼
►
do something complicated that you don't like.
00:29:41
◼
►
I think you've written the shortest business book ever.
00:29:44
◼
►
There you go.
00:29:45
◼
►
Thanks for listening, everybody, and we'll talk to you next week.
00:29:48
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[BLANK_AUDIO]