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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

#51

Post by Periodic »

trjordan wrote: post #39
Periodic wrote: post #23

Earlier quoted context omitted.

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 anchorin…

You're right. My point only applies when we're talking about making offers in a vacuum. This thread was discussing making offers or demands such as for salary, where there aren't different numbers floating around. In fact, if you were the first person to interview for a job and demanded a high price, the next guy might look like a bargain in comparison. It is when the other side believes there is room for negotiation that you can make a high/low offer and take advantage of anchoring. If they don't believe they can negotiate then you'll just drive them away.

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

#52

Post by NathanKP »

In 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.

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

#53

Post by GrandMasterBirt »

Wait, 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.

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

#54

Post by GrandMasterBirt »

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?

Yes and no @ciniglio.

Its all about the delivery. I can say that I want $300k salary on an interview for $80k salary. However it is how I say it, to indicate that my self-worth is $300k but I can settle for 80. They might actually bump it up to 85 because they feel that I am a worthwhile person. But I won't say

"How much were you looking to get paid?"

"$300,000"

It would have to be as a joke, in some context where they know I am placing high self worth and the number is just a manifestation of it.

The anchoring is all about worth. Your brain questions "what is the value of the following item/service" to which your memory tells you "no records found". Now the brain has no context, it must make one up. The anchoring is all about creating the context. If the context already exists, anchoring won't work, or will work marginally well (needs to be proven, need some salesmen comments plz).

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

#55

Post by ugh »

mcantor wrote: post #44
orangecat wrote: post #9

Earlier quoted context omitted.

On 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.

It 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…

Is 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.

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

#56

Post by mikepurvis »

webwright wrote: post #40
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…

That's kind of what I did for my first fulltime job, starting in a few weeks. I'm being paid about half what I would be at BigCo (and what I was, even, during my various internships), but the quality of the work and people make up for it. Oh, and the stock options, too.

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

#57

Post by whatusername »

mcantor wrote: post #43
zaidf wrote: post #26

Earlier quoted context omitted.

I 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…

It feels so hilariously appropriate that you were hiring a sales person, and they did a spectacular job of, as they say, "selling themselves."

http://xkcd.com/125/ covers it nicely.

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

#58

Post by timwiseman »

ciniglio wrote: post #46
zaidf wrote: post #26

Earlier quoted context omitted.

I 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…

I agree with you that it seems like there should be an upper limit. But if this article is correct about there not being a rebounding effect, then asking for an extravagant amount seems like your best move. Although I'm guessing that things are a bit different if they haven't indicated whether they plan to hire you or not, i.e. if this is something discussed in a screening interview, asking for an exorbitant salary w…

You make good points. But I think the difference is that juries have an absolute duty to try to be just. I think a lawyer is extremely unlikely to loose a case by trying to ask for too much money. On the other hand, a job candidate can loose the entire offer.

If someone asks for a few grand more than what I was thinking, I think we can work something out and start negotiating. If someone asks for more than twice what I was thinking I may just keep looking.

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

#59

Post by timwiseman »

jeff18 wrote: post #49
webwright wrote: post #40

Earlier quoted context omitted.

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…

I don't know if you'd want to make it extremely clear that the employer is your first choice and you would like to negotiate your salary to a lower point. It seems like you'd want the exact opposite of that.

I think it depends on how aggressive your aggressive offer is. It seems if you make a very aggressive number, you definitely want to signal strongly that you are willing to come down so they don't just move on to someone who starts with a lower number. And according to the article making that first offer very aggressive indeed seems to be taking advantage of the anchoring effect.

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

#60

Post by mikebo »

mikepurvis wrote: post #56
webwright wrote: post #40

Earlier quoted context omitted.

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…

That's kind of what I did for my first fulltime job, starting in a few weeks. I'm being paid about half what I would be at BigCo (and what I was, even, during my various internships), but the quality of the work and people make up for it. Oh, and the stock options, too.

Yikes -- I don't know the specifics of your situation, but it's awfully risky to give up 50% of your potential salary if you're not a founder. If you're getting a very significant equity stake maybe, but would have to be a pretty incredible opportunity for the risk/reward ratio to make sense.
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