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Cake day: July 3rd, 2023

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  • Charging the poor more is, first and foremost, stupid. Giving them bad products and/or services that will cost them more in the long run? That I can see. But you never want to charge them more upfront. You’ll always want to charge the rich more, because the rich have more money and are more willing to spend it (when it benefits them), and you want them to give you that money.

    Joel Spolsky wrote a great post about this two decades ago (and it’s still relevant today). The idea is as follows:

    Lets say you have two potential customers - one rich who can afford to buy your product for $2 and one poor who can only afford to buy it for $1. If you charge $1 you’ll be able to sell it to both of them and get $2. If you charge $2 you’ll only sell to the rich - also getting $2.

    Joel says that if you find a way (e.g. - by creating different versions) to sell it to the rich customer for $2 and the poor customer for $1 - you’ll get $3. Which is more than $2.

    You, on the other hand, suggest that it’s going to get offered to the rich customer for $1 and the poor customer for $2. But then the poor customer won’t be able to afford it. They won’t be it or maybe even steal it - either way you won’t get $2 from them. You’ll only get the $1 from the rich customer.

    $1 is less than $3. It’s even less than $1. If you want to earn money - this is the worst outcome. Why do you think capitalists hate the poor more than they love money?