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Cheap Beer and the Psychology of PlayStation Now Pricing
by Jamie Madigan on 08/22/14 10:06:00 am   Expert Blogs   Featured Blogs

The following blog post, unless otherwise noted, was written by a member of Gamasutraís community.
The thoughts and opinions expressed are those of the writer and not Gamasutra or its parent company.

 

[Jamie Madigan writes about the overlap between psychology and video games. Check out more at Psychologyofgames.com or follow him on Twitter.]

Sony recently launched its new Playstation Now service that lets you rent access to streaming games. Technically I know they're saying it's still in beta, but they're taking your money and giving you a product. That's "launched." Prices vary by game, but they always follow the same structure. Take, for example, Darksiders II:

Those prices are:

  • 4 hours for $4.99
  • 7 days for $6.99
  • 30 days for $14.99
  • 90 days for $29.99

You may look at those options and be baffled as to why Sony would even include the "4 hours for $4.99 option." Four hours? There are very few games that can be fully experienced in just four hours, and Darksiders II is definitely not one of them. For just two more dollars you can get the game for 7 days --that's 164 additional hours. So why even have a 4 hour option that nobody is going to pick?

Well, I'll tell you why. But first we're going to have to talk about beer. Yaaaaay! Beer!

Back in 1983, Joel Huber and Christopher Puto, both from Duke University at the time, asked a bunch of students to pick a six-pack of beer from a set of choices. One group had these options:

  • A bargain beer that cost $1.80 and had been rated a 50 out of 100 on quality
  • A premium beer that cost $2.60 and had been rated a 70 out of 100

Given these two options, only 33% chose the bargain beer.

Another group of identical students, though, was asked to pick from three options: the first two of which were the same as above, plus what Huber and Puto called a "distractor" option. So their choices were:

  • A cheap, nasty beer that cost $1.60 and had been rated a 40 out of 100 on quality
  • A bargain beer that cost $1.80 and had been rated a 50 out of 100
  • A premium beer that cost $2.60 and had been rated a 70 out of 100
     

Here's how those choices look in plot form:

What happened when that third distractor was added? Nobody wanted the nasty beer, but simply having it there made choice of the bargain beer rise from 33% to 47%. 

In other words, the presence of the worthless decoy stole market share from the premium beer and gave it to the bargain beer.

Psychologists studying consumer choice call this an "attraction effect." It happens when one choice dominates another by being mostly similar to it, but better on at least one important aspect. The reason, as usual, is because of how our brains are wired. We simply aren’t very good at evaluating things in absolute terms, like the value of having access to a game for a certain amount of time relative to how much it will cost. Instead, we are biased towards making comparisons between things that are most similar and ignoring or devaluing other choices for the sake of simplicity. The third choice --the premium beer for in the example avove-- gets undervalued for the sake of making the decision simpler. 

As you're probably guessing at this point, the PlayStation Now pricing structure also uses a decoy to trigger the attraction effect. Look again at Darksiders II, which is currently priced thusly:

Again, PlayStation Now prices vary by game, but they all follow the same pattern. The Darksiders II options look like this on a plot, which has # hours on the Y axis:

Similar to the beer sipping subjects in Huber and Puto's study, we would expect shoppers to see that the 4 hours for $5 option is dominated by the 168 hours for $7. Thus people are more likely to limit their choice to those two options because it's less mentally taxing and requires less wrestling with abstract concepts like value. And thus we should see an attraction effect where the presence of the 4 hour option causes more people to choose the 7 day option than if there were no decoy.

Why would Sony want people to go for the 7 day option? Maybe they have data showing that it's the sweet spot where people are more willing to pay, or they're likely to spend more over time if they do it in $7-ish chunks. Maybe they think customers are unlikely to rent multiple games at once, and they don't want them tied up for 30 or 90 days at a time with one game.

But whatever their reasons, now you know about the psychology involved and you can make a more informed choice. 

REFERENCES

Huber, J. and Puto, C. (1983). Market Boundaries and Product Choice: Illustrating Attraction and Substitition Effects. <i>Jounral of Consumer Research, 10</i>(1), 31-44.

[Jamie Madigan writes about the overlap between psychology and video games. Check out more at Psychologyofgames.com or follow him on Twitter.]


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Comments


Neil Aemmer
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I love reading everything you add to this site Jamie, so thanks for posting this.

However, I can't get over the fact that Sony (and Microsoft too) with their digital store fronts think people are willing to pay these prices when they can get a physical copy for around $15 (less for a used copy) to keep forever and possibly resell for a few bucks or trade to a friend. All the feedback I've read from users (er, Gamers) is that these prices are crazy too high. The decoy prices are so high that I find the whole thing insulting, which turns me off from it entirely. In that experiment about beer, was there an option to just opt out? I don't know if those prices were normal for those qualities of beer in 1983 but it'd be interesting to see if any other studies were done when the prices were about double of alternative goods.

So, if these prices continue after the Beta period, it means that the pricing strategy is working well enough on someone. I predict they'll have to lower the prices but I may be underestimating the number of people that either aren't aware of much better values or that value the convenience of playing right now far more than I do. When you have a large backlog of games as many people do, the convenience of digitally renting an old game is pretty low, at least for me.

As a video game player, I fear a future where 6 year old games command such a high price for rentals. I guess I'll just play less games more thoroughly to make sure I feel I get my money's worth. If games continue to move to an all digital, pay as a service, and they keep prices really high, it'll be a an interesting transition.

E Zachary Knight
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Exactly. Especially when you can spend around $2 to get a game for 24 hours from RedBox. Granted, the selection that RedBox has is far more limited, but you can't beat the deal they offer in comparison.

Robert Green
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I've seen a lot of sites cover the pricing on PS Now as compared to buying the games at retail. I can't help but think everyone is missing the point here - PS Now is currently a service to play PS3 games on a PS4, which doesn't have backwards compatibility. People who still have a PS3 are clearly not the audience here. The only people who for whom this service actually makes any sense are people who own a PS4 but not a PS3 (of which I think there are many), and for them the price of retail PS3 games is fairly irrelevant.

Also a note to Jamie - your first graph is wrong, in a way that over-exaggerates the point you're trying to make. Combined with the counter-intuitive suggestion that Sony are trying to encourage people to select one of the cheaper options, I can't help but wonder if you're misapplying the concept here. Surely the smarter business application here is to have a higher margin on the pricier tiers and use the other options to make the top tiers more attractive?

Kyle Redd
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@Robert

That's a reasonable point on the intended audience. Even then though, the customer would still be expected to compare the prices of Now with the prices of games in general. Meaning that $30 for a 3-month rental is a hell of a lot to ask for a 2-year-old game regardless of whether or not it's the only option available, especially when several brand-new PS4 games are already selling for $30-$40 dollars at retail, just 8 months since the console was released.

And that's before you consider the lack of resale value, along with the increased input lag and the inferior video and audio quality compared to the retail version.

Robert Green
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That's a fair point, and why I question this whole technology really. The best it can really do is offer an inferior experience that costs more (due to the bandwidth requirements) to deliver, yet has to deliver them the same amount of revenue as a physical version, or they're shooting themselves in the foot.

From where I'm sitting, the smartest use of this tech would be a short, free demo of any game on the same platform. That way the pricing comparisons don't apply, the players get a free trail and the developers didn't have to put in any work to make a demo version, because it's just the full version being streamed. Ideally the developers could decide how long the trial lasts and when it's over, the player is given the option to buy the game immediately, and to store the latest save of their progress so they can continue from where they left off. I.E. it's purpose is marketing, not as a replacement for ownership.

Kyle Redd
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No argument there. Now will be an excellent demo service. That is really the prime appeal of cloud gaming: dirt-simple game demos with no additional effort needed by the developer. Just set a time limit and go. Consumers could be trying a game they're interested in within seconds of seeing it for the first time. No other service on any platform can match that. Even watching a gameplay video on YouTube is arguably less convenient.

The only hindrance there may be that you actually have to be physically sitting at the console to try it, since most gamers get their information about new and upcoming games from computers and mobile devices, but very rarely from the console itself. So they will typically still need to turn on the PS4 and wait for it to finish booting before they can actually start playing.

I think Sony would be wise to duplicate the Now platform on their website as well, so that people could try the games even while sitting at their PCs. Maybe even make the game demos compatible with a 360 or One controller.

(There's obviously some downsides to that strategy.)

Jesse Mikolayczyk
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But they make more money for no more service if people buy in small increments.

Lets say the game takes 34 hours to beat and you have 2 hours of free time per day. It will take you 15 days to beat. So paying $4.99 for 4 hours when you can only play for half the time will seems ridiculous. You don't know if you'll enjoy the game or know it won't take a month to beat so $14.99 seems rediculous. You pay $6.99 and feel you're getting a deal.

After a week, you're hooked and/or doing well so you buy another week (same logic applies as before). Another week goes by and you sunk 28 hours into the game, you know you're right at the end but your time expires. You most likely don't know just how close you are to the end so you buy another week and finally beat the game.

You've now paid $20.97 instead of $14.99. Sony wins.

Michael Meier
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Stories about the psychological manipulation of digital rentals makes me long for the good 'ol days of renting a game at a store. Standard rentals were something like 5-7 days and no more than 8 dollars if I recall. That 8 dollars btw was back in the late 1980's and early 1990's so after inflation its something near 13 dollars now, but that's also 1 matinee movie these days too. I feel old now.

Kyle Redd
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Psychology experiments aside, the overall pricing structure of Playstation Now (and the inclusion of the 4-hour "distractor options" in particular) will probably end up doing more damage to the Sony brand than any revenue they receive from it could make up for.

Sony wants to charge me $30 to rent an inferior version of a game for 3 months, when I could purchase the permanent, definitive version for 1/3 the price. When I see that type of behavior as a consumer, not only will I obviously not give Sony any money, I'm also going to be more than a little irritated that they seem to think I'm a complete idiot and are perfectly happy to treat me as such.

Matthew Bentley
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Cheep must be a particular brand you are personally familiar with- unless of course you meant 'cheap'-

Joraaver Chahal
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This is a pretty insightful article. The reference to the beer study was quite helpful in understanding the pricing and pyschology. Thanks!

Masaru Wada
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I read this:

"because it's less mentally taxing and requires less wrestling with abstract concepts like value"

as:

"because they're stupid and it requires less thinking"

Mitchell Fujino
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Actually it has absolutely nothing to do with intelligence. It's psychology, and has to do with how our brains our wired.

If you do an experiment with even the most intelligent people in the world, it will still take them longer in the abstract case than the specific one. (e.g. "how much is this beer worth?" vs "is this beer worth $2?")

Mitchell Fujino
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*doublepost*

Roberto Dillon
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I think the analogy between the beer and the PS case is kind of flawed: in the beer case, without the worst/decoy item, more people would get the premium beer and spend more money. By adding it, more people pick the average one instead and the shop gets less income in the end! Silly move, right? ;)

What the pointless 4 hours option actually does, is to set a standard and then make the next option look like a much better bargain. Without it acting as a comparison term, many people would already see the 7 days as way too expensive and don't buy anything at all.
The right analogy with the beer would be to see how many people actually bought the different 6 packs in the two cases and compare revenue to determine the effectiveness of the decoy.

Chris Hellerberg
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The analogy is fine. Analogies are used to showcase a particular point, which this one does. If you're looking for "flaws" like that in analogies, every and any single one has some because you are by definition comparing two (or more) different things.

Marvin Papin
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Wopppoopopop. Stop a minute. Nobody thought about the eventuality of a mistake ?

Do the graph with 4d, 5$.

And it sounds like a pretty normal evolution in that case.

I bet on an error...

Marvin Papin
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