Does Spotify-nomics put customer satisfaction at risk?

Spotify’s music-streaming service is available in many countries. Monthly prices vary from PHP129 in the Philippines ($2.70) to DKK99 in Denmark ($14.45). But how does Spotify decide what to charge in each country? Let’s first take a look whether it charges less in poorer countries and more in richer:

With an R Squared of less than 0.5, there’s a pretty poor correlation between a country’s per capita GDP and Spotify’s pricing. The answer must lie elsewhere.

Business theory favours market pricing — what the market will bear — over cost-plus pricing, where the price is linked to the underlying cost of the product or service. Consumer behaviour also suggests we prefer price points just under a whole number: £1.99 rather than £2.00, for example.

Spotify uses both. They typically charge just under 10, 100 or 1,000, depending on the currency. So in Denmark, for example, the price is DKK99 per month and in the UK, it’s £9.99. In the USA, it’s $9.99 while for countries neighbouring the US charged in USD, the price is $5.99 (such as Guatemala, Honduras and Nicaragua). It’s similar in the Eurozone: in Germany, it’s €9.99 and in Slovakia, it’s €5.99.

The aggregate is best viewed by indexing, by dividing every local price by 10, 100 or 1,000 so that all prices are in the range 0.0 to 1.0. This is the result:

So Spotify’s pricing is based on what price points it believes the market will bear. Market Pricing may be good for business, but to the customer it sounds like “we’ll charge as much as we can get away with” and it’s quite annoying to be charged more — even if it’s rounded down by a cent or penny — just because the nominal value of a local currency is higher than a neighbour’s. Consumers don’t like to feel ripped off.

It’s perhaps time to get that US dollar credit card.