If figuring out how to maximize your revenues by charging the right price is hard when people actually need your product, imagine how much harder it is when they don’t need your product or don’t necessarily even need to pay to enjoy your product.  The lessons learned from how to maximize revenue in this regard, which is a much more formidable challenge, can profoundly impact your ability to maximize earnings in the less difficult situation where people have no alternate choice but to pay for your product.  In a stroll down a busy street, we will once in a great while receive a good that can stir our soul yet require no payment.  We receive this good from the ubiquitous street musician who earns his income as a mendicant who lets you set the price (which is often nil), rather than setting his own price for “services tendered.”

And then there are those rare occasions where we encounter a street musician whose music soars so high that we are forced to refer to him simply as a “musician,” for using the adjective “street” would be nothing short of a criticism.  About 2 years ago, this is what I encountered at one of Washington D.C.’s busiest Metro (subway) stations during the morning rush hour.  It wasn’t until much later in the day that I discovered the musician in whose masterly hands the violin “sobbed and laughed and sang” was the great virtuoso Josh Bell.  In the middle of the morning rush hour, 1,097 commuters passed by and all heard soul-stirring music at a price of their own choosing that just a few days earlier fetched more than $100 a seat at Boston’s Symphony Hall.  Josh Bell played to a rush hour herd, and demanded no price for priceless music.

His income depended not on the value he provided to those 1,097 passersby, but the overwhelming value he provided – for, if he failed to stir, we listless commuters would feel no compunction to pause and forfeit even a meager fraction of our purse.  And stir he did, with a masterly performance of Bach’s Chaconne from Partita No.2 in D Minor.  Of the almost 2,000 pedestrians that filed by, only 27 gave money for a total of $32.  In other words, for a performance that was described by the Washington Post as “pearls before breakfast,” less than 3% of us offered any payment (for “a man whose talents can command $1,000 a minute”).  Did the service deserve such scant payment, or was there more to the revenue than just the greatness of the service itself.  This is a question that goes right to the root of just how complex the endeavor of pricing can be. Continue reading →