Apple's Risk With New iTunes Prices

According to Harvard Business School professor John Gourville, there are times when presenting consumers with too many choices, either in product variety or the prices charged for them, causes confusion.

And a confused customer is more likely not to make the purchase. Remember this as you consider your own price changes to respond to the challenged economy.

Today, every song on Apple's iTunes costs 99 cents. It's a price point that both saved the music industry and rocketed the iPod to Solid Gold success. But in April, consumers will face three prices for music: 69 cents, 99 cents, and $1.29.

Here is what Gourville told the New York Times about Apple's risk:

"It adds a level of complexity to the purchase of music. Research has shown that when you add complexity to decision making, some people opt not to choose anything."

The Psychology of Pricing
As you consider your pricing options in response to the economy, visit Gourville's research in this area. Some takeaways:

How To Avoid a Price Increase Instead of changing the price, consider reducing the amount of the product.

When Product Variety Backfires Presented with too many options, buyers may run to a competitor.

When and Why Consumers Prefer the Extremes In predictable cases, adding more alternatives to an assortment leads consumers to choose either the most basic or the most "fully loaded" product or service, be it a camera, car, or vacation package.

In sum, consider consumer psychology as much as your profit margin when making your next pricing change.

How is the economy changing the way you think about what you charge for goods and services?