The problem with a purely economic mindset

Right as I was getting out of newspapers I was talking with our circulation manager, who had just heard of a revolutionary new idea that was going to save the industry. As a baseline, let's say the paper cost 75¢ per issue (I worked at a moderate-sized daily). You buy it from one of the little metal newspaper houses, 75¢. Grocery store, 75¢. Buy a subscription, you get a little discount, but there's one flat rate you pay.

Then, one day, some economic geniuses from high atop the mount gazed into their scrying balls and noted, "Hey, rich people have more money." From this fact, they extrapolated a theory that rich people would be more likely to spend more money than non-rich folks. Thus was born our new Model for Journalism™: income-based pricing.

As you might have guessed by even a passing knowledge of the current state of the journalism industry, this did not solve the problem. Now, they rolled this out with a modicum of sense. They didn't just suddenly jack up the rates on everybody; when subscription renewals came up, they just modified the increase so it was higher for some people than others. Because they lacked detailed demographic information on individual customers (I shudder to think what they would have done had this initiative been launched in 2024), they based it loosely on Zip codes. (This had the added benefit of making sure that neighbors wouldn't be discussing the price of the newspaper and find out they were paying vastly different rates.)

It worked, kinda? For a little bit, anyway. Some people were willing to pay more, and the sales people were instructed that if customers put up too much of a fight, they could resub at the new standard rate. But there are two crucial flaws to this approach; I won't name them yet, because first I want to talk about how this idea has absolutely exploded across the entire American marketplace.

Anyone who's been to the grocery store knows that prices have gotten significantly higher since COVID. As have fast food prices, concert ticket prices, and streaming service subscription fees.

Some will point to the laws of supply and demand, which is a) facile, b) not relevant in industries like streaming, and c) not nearly enough to account for the rate of increases we've been seeing in consumables. The real reason, of course, is greed: Those selling think they can make more money by raising prices and enough consumers will continue to fork over the money to offset those who don't.

Here's where we get to the issue: This economic model ignores how people actually work.

In our newspaper example, raising rates did two things: First, it made people reconsider their model of what a newspaper is. For a long time, getting the newspaper was just what you did: it's how you stayed informed and, as a teacher of mine once put it, "It's what cultured people do."

But by significantly raising the price, you force people to think of the thing they're purchasing's overall utility to their lives. What was once an automatic, "Yes, of course we pay for the paper," now gets framed, internally, as "Does the paper provide $x amount of value to me?"

The second thing that raising prices does is increase awareness of the competition. In newspapers' case, this was pretty broadly known, but there was a significant percentage of people even in the early 2010s for whom getting the news via a single source delivered to their house every morning was more convenient than seeking out online or TV news sources.

But once that price goes up? Suddenly the hassle of trying to sift through information on the internet doesn't seem so daunting. You're more willing to experiment, because you're saving so much money. And now the newspaper has to stand on its own as a value proposition, which isn't a good strategy for a medium that is objectively and definitively slower, more expensive and less adaptable than its direct competition.

And we're seeing the same thing happen now in real-time, in a variety of industries. Subway jacked up its prices 39% 2014-2024; a week ago, they had to hold a corporate emergency meeting because sales are so low. McDonalds announced its first quarter-to-quarter sales drop since 2020. These and other companies assumed they could jack up the price and enough people would cover at the new high to offset those who bailed. And, worst-case scenario, if it's too high, they can always drop the prices back down.

But that's not how people work. When people feel like they're being screwed, they get bitter and hold a grudge. When people are forced to confront and try new alternatives, sometimes it turns out they liked the new option better than the old one, anyway. And any brand loyalty they may have once held is completely obliterated, so you're not only starting from scratch, you're actually digging yourself out of a hole.

Such is life when you're focused solely, maniacally on the short-term. You might find yourself with no long-term options back to success.

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