Price Anchoring, Or Why a $499 iPad Seems Inexpensive

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.<p>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.<p>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.)<p>The foldable iPad case $40 + keyboard dock $70 + spare charging cable $30 = $140. That's 30% of the iPad right there. So <i>relative</i> to all other Apple products and <i>relative</i> to its accessories an iPad for $500 looks like a steal.

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?

This works the other direction, too -- adding features without changing the initially-quoted price.<p>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.<p>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.

There 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).<p><i>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.</i><p><a href="http://nymag.com/restaurants/features/62498/" rel="nofollow">http://nymag.com/restaurants/features/62498/</a>

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.

<i>Now, 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><p>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.

I believe the famous paper he is speaking of in relation to asking for more and getting more is: <a href="http://www3.interscience.wiley.com/journal/21451/abstract" rel="nofollow">http://www3.interscience.wiley.com/journal/21451/abstract</a>

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.

Dan Ariely gives a related TED talk: "Are we in control of our own decisions?"<p><a href="http://www.ted.com/talks/dan_ariely_asks_are_we_in_control_of_our_own_decisions.html" rel="nofollow">http://www.ted.com/talks/dan_ariely_asks_are_we_in_control_o...</a><p>Look around 11:30 for a few examples of how comparing options affects us more than looking at each individually.<p>On a side note, it also seems inexpensive because it's $499 and not $500! Psychological pricing is one of my larger pet peeves...

Dave &#38; Buster's uses this technique - as well as something called "foot-in-the-door" when persuading you to buy more gaming credits: <a href="http://blog.kadavy-inc.com/post/465860827/psychology-hacks-of-dave-busters" rel="nofollow">http://blog.kadavy-inc.com/post/465860827/psychology-hacks-o...</a><p>For Apple, the "foot-in-the-door" is probably the iPod or iPhone.

I feel like a lot of people missed a pretty important point...<p>Why does the $499 seem inexpensive to the people who <i>DID NOT WATCH</i> 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"?

<i>If you’re selling something, ask for much more than you think you’re going to get.</i><p>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.

Does anyone have a good example of using this tactic in a web startup? (if it applies at all)<p>Our product has a setup fee + monthly fee ... is there a way to employ price anchoring on my landing or pricing pages?

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.

oldest trick in the world. raise the price and discount it :)

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!<p>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.<p>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.<p>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.<p>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.

That does not seem inexpensive when you take into account what you actually get.

Another example of price anchoring: Points on Hacker news. I feel like this comment deserves 32 points. Can you meet my offer?

Agree 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?

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.<p>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.