Pricing Niche Products

(mods, if this belongs in “Trade”, please let me know)

I found this fascinating, and I’m really curious to hear what lines thinks of it.

https://kevinlynagh.com/notes/pricing-niche-products/

Much has been written about the Vickrey auction from a game theoretic perspective — namely that it incentivizes bidders to ignore other bidders and simply state their own true value — but the auction has other benefits for an ongoing luxury keyboard brand:

The price is set by “the community”, which deflects whining from toxic nerds.

All buyers will likely all pay less than they were willing to pay, which makes ‘em feel like they got a good deal.

The auction yields a full demand curve, including the maximum price each customer is willing to pay and their freaking email address!

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I hadn’t heard of Vickrey auctions before, sounds like an elegant old-school mechanic that hasn’t translated to the eBay’s of the world for one reason or another. I wonder why. Edit: some googling provided this paper which I’ll check out later https://www.jstor.org/stable/2937643

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My instinct is that this only works well for designed goods that are considered luxury to some degree.

For example, I’ve made a number of board games, and the idea of value is weirdly quirky in that market, and a niche game would actually be much more expensive to produce than the precieved market value. I’m not saying you couldn’t produce something with this style of sale in mind, but in some design categories, you’d have to really hard sell the value.

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@jasonw22: Fascinating! Thanks for posting :slightly_smiling_face:

I have produced small runs of electronic kits in the past — perhaps for the next one I will try this!

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This was really interesting. Brief gut notes:

  • the auction methodology is well-suited to mechanical keyboard geeks, which is a really niche market… but also one that has a good gut feel of the value of the product to them (to use a horn player analogy: it’s their axe, their daily driver. it’s like when you realise the money you spend on a couch is really worth it). A neat analogue is pro/serious musicians, who bitch far less about the cost of stuff than amateurs.
  • one thing the article misses a bit, for me, is the emotional response of others, and how, as a creator, you respond to that. some of that is a kind of toughness. but: saying “this costs $X” to a crowd that just deep down want it to cost ($X-n) can be… emotionally tiring. regardless, say, of the fact that you sell out of stock, or enough people will buy it. as far as the market is concerned, if enough people will pay the price you’re asking, the people moaning don’t matter. the moaning, however, does not go away.
  • the broad takeaways from his colleague are true, though: a) the people who will pay 5-10x market for exactly what they want really are in the price range for commissions; b) getting more comfortable about charging more can be empowering c) you don’t need entry-priced products if you don’t want them.
  • I do think the Vickeray auction method is hard to explain to a lot of consumers, but not impossible. it’s also perhaps not something you’d run for every product - it’s good to establish pricing, but might not be necessary every time.

A broader takeaway is: what happens if you make it more expensive? If enough people buy a thing, at the higher price, how much does the other feedback matter to you? And then: if you are uncomfortable with the higher price, that is perhaps something you can solve.

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I’m going to give this a try with some vinyl I’m releasing later this year. The idea of having a sense of the demand curve (even if it didn’t come with email addresses!) seems like an important and incredibly useful thing.

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One issue with auctions ran by makers is trust. People’s willingness to pay may be based in part on perceived scarcity/availability of an item. These perceptions are generally controlled by makers.

If I am told that only 10 of a particular widget will be available ever, or for a substantial period, I might be inclined to pay more. I’m not going to have the opportunity to buy it later, and its probably going to hold its value. With this kind of sales mechanic, there’s more than the usual incentive for makers to juke demand with ‘limited’ runs that turn out to be not so limited.

Obviously, this is going to be less of an issue with an insular market with (presumably) high levels of trust and transparency like the one described in the article.

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Yeah, when I posted this, I was primarily thinking of communities such as lines where people tend to know one another pretty well, and have a lot of incentive to maintain positive relationships.

Not really thinking about the general kickstarter crowd, for example. In a looser community such as that, I can certainly anticipate the type of trust issues you are bringing up.

This is fascinating. My day job requires me to to price niche goods, so this article caught my attention. I can, as a few others already stated, see this working really well in a niche market with highly informed buyers expecting short product life cycles. It can capture the brand/product equity component with little heavy lifting from the creators. This is pretty dang cool. I think this is suited well for this community but only to the extent of limited runs of “things”.

I gather that openness is relatively important to the creators here, and this type of auction filters the buyers pool down to those who have resources. (I get it we’re all already a a biased pool of potential buyers since music production already favors those with money, but I’m thinking about pricing things across different orders of magnitude. Like spending thousands instead of hundreds on a device) That part seems to go against the current, but I don’t think that’s always a bad thing. People can certainly splurge if they want!