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Price Anchoring, Or Why a $499 iPad Seems Inexpensive

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Re: Price Anchoring, Or Why a $499 iPad Seems Inexpensive

#31

Post by breck »

ciniglio wrote: post #22

It'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?

I've heard this advice too and wonder the same thing.

Perhaps not naming a number early is important because it takes time to figure out what the other side would potentially pay. Asking for $10,000 when someone could only pay $100 might be a terrible strategy. But if you figure out they could pay $1,000, then asking for $10,000 might not be too bad.

The trick is to wait until you know more before you set the anchor.

Re: Price Anchoring, Or Why a $499 iPad Seems Inexpensive

#34

Post by dabent »

ciniglio wrote: post #22

It'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?

I worked through a recruiter for my current job, so I was asked to name a salary up front to make sure it met the client's frame. I named a price some 20% higher than they wanted to pay max, but in the end, the client (now my employer) came up 10% above their max to get me to join.

Re: Price Anchoring, Or Why a $499 iPad Seems Inexpensive

#35

Post by duck »

gcheong wrote: post #32

I 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.

This might shed some light on why the entry level MacBook never went lower in price like a lot of people had speculated as well.

Re: Price Anchoring, Or Why a $499 iPad Seems Inexpensive

#36

Post by dabent »

gizmo wrote: post #4

I 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 conn…

If 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.

Re: Price Anchoring, Or Why a $499 iPad Seems Inexpensive

#37

Post by ajj »

It 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.

Re: Price Anchoring, Or Why a $499 iPad Seems Inexpensive

#38

Post by scott_s »

paraschopra wrote: post #12

I 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.

Dan Ariely has examples in his book Predictably Irrational.

Re: Price Anchoring, Or Why a $499 iPad Seems Inexpensive

#39

Post by trjordan »

Periodic wrote: post #23
xox wrote: post #19

Earlier quoted context omitted.

it 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 p…

I 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.

The 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.

Re: Price Anchoring, Or Why a $499 iPad Seems Inexpensive

#40

Post by webwright »

ciniglio wrote: post #22

It'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?

While I hope to never be negotiating for a salary again, here's what I'd say when asked about a salary in a hypothetical job interview (to have my cake and eat it too):

"What kind of salary do I want? That's a hard question, especially in light of the fact that working with you guys is the most interesting opportunity I'm evaluating. I'd expect offers around [insert aggressive number], but again- let me stress that I'm really excited about the idea of working with you. So if you guys can't afford that, I'd still really be interested in hearing your best offer."

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