- because 50% goes to the artist, people pay more for music they enjoy to ensure that the musician can continue to afford making the music.
- people want to feel good about their interaction with the commercial world (i.e. The Body Shop, Ben & Jerry's Ice Cream), and with the music business being one of the most exploitative, wish to reward a business who isn't evil.
- offering to let the price go lower shows that you trust the buyer, and they may respond to that trust by paying more. If the price range were $8 to $18 (i.e. no low-cost option), I suspect that fewer people would move the price up, or that fewer purchases would ensure, though I recognisize that point is debatable and I'm tempted to try an experiment sometime to see.
- as it happens, the average price people pay is $8.20, even though they could pay less. The people who pay less than we recommend are more than balanced out by those who pay more.
I wanted to see if the average price paid per album fluctuated much week-to-week, so I charted both downloads and physical CD purchases (CD purchases started in september 2004, so I only have a few month's data for them).
Here is what the chart looks like:
Two facts stand out from this chart:
1) the average price doesn't fluctuate much, no more than 10%, around the $8.20 average
2) people elect to pay almost $1 more (on average) when they're buying music for a CD. Note that the order process at Magnatune separates the price of the CD ($4.97 USA or $7.97 elsewhere) from the music price (recommended at $8). I'm not sure why people pay more for music when they're buying a CD from us.
The other question I often get asked is "how many people pay $5 ?"
I made two graphs, the first showing the number of album purchases at each price point:
The chart shows that 14% of albums sold are at $5, while suprisingly, 14% are at $10, while the majority (56%) sell at the recommended price of $8.
The chart below shows the same data, but instead of number of purchases, it shows total revenue at each price point.
This is important, because 1 purchase at $10 is equivalent in revenue to 2 purchases at $5. As a virtual business, I'm most interested in maximizing revenue rather than units sold (in fact, as a busines I want to minimize units [as each unit has a labor cost] as much as possible while still maximizing revenue), so this chart is perhaps more important.
What's interesting about this chart is that it shows:
1) Almost twice as much total revenue comes from people paying $10 (17%) as people paying $5 (9%).
2) 31% of Magnatune's total revenue comes from people paying more than $8, vs. just 16% of revenue for purchases less than $8. I think this makes a case for accepting the minor reduced revenue from allowing people to go below $8 as those who pay more make up for that loss.
3) Purchases center around the round numbers of $5, $8 and $10. Evidently, these numbers "feel good" to people.
Here is what the raw data look like (click to download a CSV file)