Sunday, June 13, 2010

Has HR Technology Pricing Gone Veblen?

I write a lot about pricing strategies because as the CEO of Nobscot Corporation it is one of my most difficult and most important jobs. The reason that it is so difficult is because of the psychological component or as Dan Ariely would say the irrational side to pricing and its affect on purchasing.

For me, being not only the CEO but also a co-founder and co-developer of Nobscot and Mentor Scout's products, I have a (misguided?) sense of pride in offering the HR community the best HR technology in our niches at the lowest possible prices. It's satisfying to help clients and the industry in such a way. Great products - Great Prices. Everyone wins.

Or so you would think.

I recently ran across an article published in Harper's Magazine that was an expose of the Jewelry business. It was eye-opening in a number of ways. What particularly caught my attention was the concept of Veblen goods. The term Veblen goods is used to describe (per wikipedia) products "for which people's preference for buying them increases as a direct function of their price, as greater price confers greater status, instead of decreasing according to the law of demand." In other words, the more they cost, the more people want to buy them.

The author, Clancy Martin, PhD, tells the story of a Thai rug he was selling that hung on the wall of his store for several years. He had bought the rug in Thailand for $5,000. and tried to sell it for $25,000. Over the next three years he slowly upped the price. It didn't sell until it hit $150,000 at which point he ended up negotiating a sale that closed at $110,000.

Which got me thinking about HR technology. Are some vendors selling Veblen HR products? When the HRIS model began to shift from the on-premise client-server model to online SaaS versions, vendors reduced their development and other costs dramatically. Did they equally reduce the prices of their products as well or have some of them gone Veblen?

I remember when one of the first major onboarding technologies was released by one of the applicant tracking system vendors (that has since been absorbed by another). The pricing was in the neighborhood of $75,000 per year for something that at the time consisted primarily of new hire checklists and emails sent to the appropriate parties. I'm pretty sure that was Veblen.

As you review your HR technology and HR services budgets and future purchases ask yourself, am I buying Veblen goods? And if so, keep your eyes open for other possibilities that may have the same or better quality, features, security and support for a lot less. Don't be the one who happily walked away with the $5000 rug for $110,000.

1 Comments:

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11:22 PM, September 06, 2017  

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