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Price Anchoring, Or Why a $499 iPad Seems Inexpensive
- Dellort 17y agoThat does not seem inexpensive when you take into account what you actually get.
- rmorrison 17y agoNow, if you’ll excuse me, I need to go shopping. I’m out of cereal, and—what? Cap’n Crunch is $2 off? Better make it two boxes. I seriously bought two boxes of Captain Crunch last week because they were on sale. Now I am stuck much more sugar than I can handle. Ugh.
- sailormoon 17y agoJust throw them away, dude. You shouldn't be eating that stuff. Watch this: http://www.uctv.tv/search-details.aspx?showID=16717 http://www.uctv.tv/search-details.aspx?showID=16717
- jws 17y agoGood news! During the 90 minute video you will burn 100 calories, which is right at one serving of Captain Crunch, if you eat it without milk. The video is also on youtube at http://www.youtube.com/watch?v=dBnniua6-oM http://www.youtube.com/watch?v=dBnniua6-oM if you have a better youtube player than their little flash thinger.
- sailormoon 17y agoYeah well, I like linking to original sources.
- gizmo 17y agoI agree with the premise, that the iPad seems inexpensive because of anchoring, but I completely disagree with the analysis, that the keynote presentation where the $999 is "crushed" by $499 had anything to do with it. Fundamentally, people expect the iPad to be expensive because the iPhone was very expensive. Because Macbook Pros are very expensive, and because Macbook Airs are very expensive. Because Apple DVI connectors are expensive, because iPhone headset replacements are expensive. Because basically, everything with an Apple logo costs an arm and a leg. So when you hear that you can get an iPad for less than twice the cost of an iPod touch then of course, that seems like a really good deal. (And only $100 more than a high-capacity iPod touch.) The foldable iPad case $40 + keyboard dock $70 + spare charging cable $30 = $140. That's 30% of the iPad right there. So relative to all other Apple products and relative to its accessories an iPad for $500 looks like a steal.
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- dabent 17y agoIf I recall, Jobs indicated the $999 price was analysts. I don't have a reference, but that's also the price I'd expected the base model iPad to be. So I think Jobs just took what he saw as everyone's expectation of the anchor, let that sink in for a bit, then "crushed" it with $499.
- ExtremePopcorn 17y agoDan Ariely gives a related TED talk: "Are we in control of our own decisions?" http://www.ted.com/talks/dan_ariely_asks_are_we_in_control_of_our_own_decisions.html http://www.ted.com/talks/dan_ariely_asks_are_we_in_control_o... Look around 11:30 for a few examples of how comparing options affects us more than looking at each individually. On a side note, it also seems inexpensive because it's $499 and not $500! Psychological pricing is one of my larger pet peeves...
- orangecat 17y agoOn a side note, it also seems inexpensive because it's $499 and not $500! Psychological pricing is one of my larger pet peeves... Ditto. That's why I round up when somebody asks me how much something costs. The mathematical error resulting from using $500 instead of $499 is much less than the psychological error induced by the smaller first digit.
- mcantor 17y agoIt really drives me crazy when I'm discussing products with a salesperson and they consistently "correct" me every time I mention the rounded-up price. It goes like this: Sales: So it looks like the $299 point-and-shoot might match the features you're looking for, moreso than this $399 video camera. Me: OK. I'm really leaning towards the $300 one. Sales: $299. Me: Yeah, sure. Because I don't know if I'm really going to get my money's worth, paying an extra hundred for the $400 one. Sales: $399. Me: (uppercuts salesperson into the stratosphere)
- ugh 17y agoIs that really something you experienced? That didn’t ever happen to me. If a salesperson treated me like that I would pretty much immediately lose all respect for them.
- gaius 17y agoThat's what they've been told to do, it's not their fault. It's like if you go into a Pepsi venue and ask for a coke, they will always say "Pepsi". Now I just want some sort of cola-flavoured beverage, I'm not that fussed, and they know that, but I don't think "this person is such a pedant" or think I'm being disrespected.
- lotharbot 17y agoThis works the other direction, too -- adding features without changing the initially-quoted price. That's often the tag on infomercials: after they set you up for the cheez-o-matic for such-and-such price, they "also throw in a free" mini-cheez-o-matic. Or you get a year of free support, or the 3 megabit connect for the 1.5 megabit price, or some other "added features" that make you feel like you're getting a deal even if you're really not.
- mortenjorck 17y agoThis is going to be a killer with the iPad. I managed to avoid pre-ordering one, but as the app library grows and the iPad's potential use cases multiply, that $499 will start to look like an increasingly better deal.
- thorax 17y agoThough the apps are at $9.99+ on iPad. With the "anchoring" of the iPhone apps at $0.99 and $2.99 (and free), Apple and other companies are having to fight a slightly different battle of re-anchoring everyone higher.
- Splines 17y agoIs the answer here then for Apple to release two versions of iWork for the iPad then? For example, have one version of iWork that only lets you read documents for $13.99, and then for $14.99 have version that lets you read + write documents?
- c1sc0 17y agoI don't expect those prices to stay up at $9.99 for long though. That's just an artifact of there being relatively few iPad-only apps right now. That'll change soon & competition will drive prices down.
- jamesbressi 17y agoI believe the famous paper he is speaking of in relation to asking for more and getting more is: http://www3.interscience.wiley.com/journal/21451/abstract http://www3.interscience.wiley.com/journal/21451/abstract
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- paraschopra 17y agoI am curious whether there are any examples of price anchoring for web apps. I know it is a very specific request, but if anyone knows such anchoring happening in web app space, please share the link.
- kolya3 17y agoHow about this: http://highrisehq.com/signup http://highrisehq.com/signup If most of their customers fall into the $24/month "basic plan" category, then the highlighted plan of $49/month makes the $24/month plan look like a steal.
- scott_s 17y agoDan Ariely has examples in his book Predictably Irrational.
- xox 17y agoIf you’re selling something, ask for much more than you think you’re going to get. Very often that can be simply offputting and can turn away would-be buyers. There's a difference between being susceptible to an effect and being completely controllable by it.
- trjordan 17y agoAccording to the article, that's not what happens at all. In the case of personal injury lawsuits, there is no rebound, and people who ask for more simply get more. It may be true that if you set a high price, and delay telling the customer about a deal, they will leave before you reveal the lower price. However, that's not what is typically done, and it seems like showing a deal is always more effective that just starting at a lower price.
- xox 17y agoit seems like showing a deal is always more effective that just starting at a lower price. If you were to believe the article's unambiguous take on this, then your interpretation would be correct. However, I believe this is a naive view or one that is only true in limited situations and often not true in the reality of the marketplace where an unreasonably high price can simply turn someone away without leaving the possibility for any further negotiation.
- Periodic 17y agoI think the key that the buyer must believe there is room for negotiation. If I walked in to a Best Buy and saw the only TV there was being sold for $10k, I'd walk out. But if I saw that one TV was $10k, but with slightly fewer features and slightly smaller size was less, then I have entered a negotiation where we agree on what I'll pay for a given feature set, but I may have anchored on the $10k figure already.
- trjordan 17y agoThe point is not actually negotiation, but a perceived deal to be had. You don't have to think you can argue for a lower price, you just have to see that the TV is being sold for $10k, then see the "SALE!" sign next to it that tells you the TV is on sale for $3k. By then, you've already anchored to 10k, and the "negotiation" took 3 seconds. Full negotiations will definitely drive some people away, but to use anchoring effectively, you can definitely advertised a "standard" price and the real price. With that, I don't see how you'd lose somebody based on that original, and you'd gain a few based on the perceived deal.
- Zot95 17y agoAgree with all the points on price anchoring... but $499 does not seem cheap to me at all for what you get with the entry level iPad. Maybe I need to watch Jobs presentation?
- jsm386 17y agoThere was an interesting article back in December in New York Mag about how restaurant menus are often designed with this intent (I believe it made it here but can't find link). 2.The Anchor: The main role of that $115 platter - the only three-digit thing on the menu - is to make everything else near it look like a relative bargain, Poundstone says. http://nymag.com/restaurants/features/62498/ http://nymag.com/restaurants/features/62498/
- ciniglio 17y agoIt's interesting that he mentions that naming a number first in salary negotiations is to your advantage, when the usual advice is that the first person to name a number loses. If there is really no rebound effect, why don't we hear stories of people asking for outrageous amounts of money, instead of letting the hiring manager name a salary first?
- zaidf 17y agoI read on here few months ago that naming your own price first is better. Now I believe it! Recently we hired a sales person on PT basis. At the interview, she gave her expected salary to be about 2.5 times what I had thought about paying her. Now, I know about this notion of anchoring and yet I felt kind of embarrassed to make my initial offer. I fought off the urge to buy into her frame and ultimately made a decent offer but it was still significantly higher than what I had originally planned...and I credit much of it to her naming her price first! I do think there is an upper limit which if you cross, you risk getting the other party to TOTALLY ignore it as a joke. I came pretty close to doing that with our PT person.
- mcantor 17y agoIt feels so hilariously appropriate that you were hiring a sales person, and they did a spectacular job of, as they say, "selling themselves."
- whatusername 17y agohttp://xkcd.com/125/ http://xkcd.com/125/ covers it nicely.
- zaidf 17y agoYes, she is good :) Her accomplishments included talking herself out of four speeding tickets and from going to jail in Columbia. We'll know soon how well she's doing that magic in selling our product!
- ciniglio 17y ago
- gcheong 17y agoI wonder now if Apple had been leaking the $999 figure to set the stage for the $499 reveal or if they had just taken advantage of pure speculation.
- duck 17y agoThis might shed some light on why the entry level MacBook never went lower in price like a lot of people had speculated as well.
- josh33 17y agoAnother example of price anchoring: Points on Hacker news. I feel like this comment deserves 32 points. Can you meet my offer?
- hugh3 17y ago1 point by josh33 5 hours ago Apparently not. In fact, I'm sure I'll get modded down for this, but it seems to work the other way around; if you say "I'm sure I'll get modded down for this" then you'll get modded up. Of course since I've transparently pointed it out in this case I'm sure I actually will get modded down for this.
- ajj 17y agoIt also depends on whether the deal is optional or required, in some sense. In the example, the jury believe some award is fair, then price anchoring has an effect, as demonstrated. However, I think this might not be equally valid for "optional" deals - if I find a cool gadget that I am not sure about buying, if the seller quotes 10x the price I expect, I might just walk (as opposed to say, 1.5x). With deals that have to happen in some sense, and only the price is not set (say a job offer, or an injury award), price anchoring seems more effective. Of course I have nothing to back this up, just my feeling.
- davidedicillo 17y agooldest trick in the world. raise the price and discount it :)
- NathanKP 17y agoIn my opinion a $499 iPad doesn't cost enough. $499 does not reflect the true cost of the device in terms of materials, labor, and shipping. Your cheap iPad is subsidized by ripping off underpaid miners and workers in third world countries. Even if Apple makes sure their device is not assembled using slave labor they can't be sure that all the parts and materials were produced using fair labor practices, and the reality is that they probably weren't. Price anchoring may make it seem inexpensive, but in truth it is inexpensive when you consider what it is and how much work went into creating it for you.
- mikecane 17y ago>>>Even if Apple makes sure their device is not assembled using slave labor they can't be sure that all the parts and materials were produced using fair labor practices, and the reality is that they probably weren't. What company can say that, tho? What devices are we all using that contain, for example, Coltan? http://www.nytimes.com/2001/08/12/magazine/the-dirt-in-the-new-machine.html?pagewanted=1&pagewanted=print http://www.nytimes.com/2001/08/12/magazine/the-dirt-in-the-n... Even here in America, think about meat packers and such. Every time you eat, you could be perpetuating a system you might want to change if you saw what it was.
- GrandMasterBirt 17y agoWait, are you saying that for less than $500 I can get another device I have absolutely no use for? Oh man better than $999. I'm in! He is right. I remember when I learned to bargan, at first I was like "They are asking for $10, how dare I ask for $1?" Now I know that by asking for $1 I am more likely to get $3 which is probably the real value of the product. Before saying noone is immune, you must first talk to people who haggle EVERYTHING. Talk to them, hang out with them, look at how they look at the world because it is different. These techniques work quite differently on them. It is not being told about these techniques, it is living them, just like while doing a test for a research, the researcher can't just tell you that they are actually grading you on your sense of balance, and expect you to never stumble, because that is not what your brain normally processes. Anchoring works today because we are trained for it. Literally. In Russia I remember we never bought a peanut without reducing the price by 50%+. Here everything is labeled and final. Online everything is labeled and final, its not like you can open a chat with amazon's reps and get a book from $10 to $2 due to good haggling.
- kadavy 17y agoDave & Buster's uses this technique - as well as something called "foot-in-the-door" when persuading you to buy more gaming credits: http://blog.kadavy-inc.com/post/465860827/psychology-hacks-of-dave-busters http://blog.kadavy-inc.com/post/465860827/psychology-hacks-o... For Apple, the "foot-in-the-door" is probably the iPod or iPhone.
- callmeed 17y agoDoes anyone have a good example of using this tactic in a web startup? (if it applies at all) Our product has a setup fee + monthly fee ... is there a way to employ price anchoring on my landing or pricing pages?
- auston 17y agoI feel like a lot of people missed a pretty important point... Why does the $499 seem inexpensive to the people who DID NOT WATCH THE SJ presentation? There is no text on the apple website that says "pundits said it was going to cost $999, but we made it for $499"?