Macaroni & cheese, Ramen noodles, and online news
Many newspapers believe they need to transition from print to online. But let’s face it: Users’ response to online news has fallen short of expectations — otherwise, why bother discussing whether the New York Times’ newly proposed paid content model would work or not.
As of today, many people are still paying for print newspapers but much fewer are willing to pay anything for online news. (And this seems to be true in most media markets — I did one study in Hong Kong).
Have you ever wondered why?
Also consider the following:
For most U.S. newspapers, most of their online readers also read the print edition during the same week, and this seemed to be universal too (I’ve conducted research on this in the U.S., Hong Kong, and Taiwan). Most newspaper publishers interpret this as: The online and print products go hand-in-hand.
Sounds like a happy ending?
But why would users not drop the print edition (which requires a fee) when they already are reading the same newspaper online for free?
In fact, research (including this study by the Online Publishers Association and several others) showed that people tend to perceive online newspapers as less likable and less satisfying when compared side by side with the print edition.
My take is that online news, like Ramen noodles, is an inferior good. And our research, based on Pew Center’s survey data, found just that. Print newspapers, on the other hand, is a normal good. (Full-text PDF available here)
(For those who need some background information: Economic theories distinguish inferior goods from normal goods. A classic example of inferior goods is Ramen noodles, while steak is considered a normal good. This is because, when you have more income, you tend to consume more steak, but less Ramen noodles.)
So what does this mean for newspapers?
1. It is important to understand the economic value of your products. Ramen Noodles should not be marketed as steak.
2. We should try to find out why online news is perceived by users as an inferior good.
Two plausible reasons:
- a. The computer screen is just not a great reading device. (If that’s the case, you’d wonder how newer devices such as the Kindle, the smart phone, or the iPad would server users better, or worse.)
- b. Simply because it is free! (Behavioral economists have recently found that pricing actually affects the perceived quality of a product — people tend to perceive something with a higher price as of higher quality.)
3. Reality-based research, rather than guesswork or wishful thinking should guide the newspaper industry when they make content, pricing, and marketing strategies.
I understand many researchers have set to investigate which goods are inferior and which are not. My main question is a fundamental one. Broken to some parts.
-DO inferior goods exist?
-How should one interpret them, Are they inferior to other goods or are they just inferior.
– Can a good without substitutes be inferior.
– Is it not possible for a good we call “normal” to be inferior on other consumers given their income endowment.
My hypothesis is that every good has a potential of being an inferior good based on consumers’ initial income and their preferences.
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