Price Anchoring, Or Why a $499 iPad Seems Inexpensive
mint.com
mint.com
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.
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.
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.
1. He picks the absolute bottom price.
2. Calls up the area dealerships within 50 miles
3. Tells them the model, price and his phone number to call back when they are ready to give him at his price
He totally shuts off any attempts by the sales people to erase my Dad's first number with their own by insisting he does not care about any extra features and other bs. His number is also terribly low(ALMOST but not totally in the you're joking category) so typically he can get the car within $500 of his quoted number. What does work for him is he communicates certainty of his decision to buy a car which is a tad easier because he is a surgeon.
However, one thing people miss is that the anchoring can be to any number whatsoever, so you don't even need to talk about what you want per hour. I remember a paper that asked participants to note down the last two digits of their social security, and subjects anchored themselves to that (statistically significantly- one of the authors was Dan Ariely).
So, at the job interview, I am guessing just saying "You know, at my previous company, they had 98,000 employees" could anchor the interviewer to that number. Of course, this anchoring would be weaker than "$1M", but you could cut out the embarrassment bit.
Do you have a link? I am very skeptical that merely tossing out large-sounding numbers during an interview would have any influence on your likely salary range. In situations like that, your potential employer usually has a preconceived idea of what a "reasonable" salary for the position is; intuitively, you'd need to make a fairly strong suggestion to get them to anchor on a different figure (rather than, say, the salary they are already paying to other employees in a similar job function).
Btw, note that initial anchors grossly affect the decision; subsequent anchors are less effective. So, if the interviewer already has a figure in mind (or worse, has written it down), then you really have a lower chance of swaying the number. "making a fairly strong suggestion" may not move the anchor much.
However, if neither knows a reasonable number, then any anchoring is significant (including numbers not pre-pended with a dollar sign- Kahnenann's 1974 paper).
edit - (Just realized you were referring to Dan Ariely)
However, this anchoring is definitely weaker, so your point is taken.
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.
"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."
There's also a lot of powerful psychology about saying that you really want to work with them rather than playing hard to get. By saying, "you're my favorite!" (truth or not), you're establishing with them (in their minds) that you're an exceptional judge of character. :-)
But that is exactly what Google does actually do. Not on an individual basis mind, but as a general HR policy.
So you could say a better advice is to say your number first, but make it 150% of your actual number.
On a related topic, a lot of tech guys I know undersell themselves. I have two employees and I asked both of them to go first, for the first one, I gave him more than he asked for :)
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).
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.
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.
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 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.
Watch this: http://www.uctv.tv/search-details.aspx?showID=16717
The video is also on youtube at http://www.youtube.com/watch?v=dBnniua6-oM if you have a better youtube player than their little flash thinger.
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...
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.
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)
While I'm on the subject, here's a fun fact: a chocolate-peanut-butter flavoured milkshake from Cold Stone, in their largest size, contains over two thousand calories.
Sounds like a great way for a highly active person to put on weight.
For Apple, the "foot-in-the-door" is probably the iPod or iPhone.
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"?
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.
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.
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.
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.
If I'm selling a house, the listing shows all the prices and houses in an area - my range of asking prices is a bit limited.
If I'm the only seller of a cool new gadget then I'm just trying to map the customers "I want one of those" feelings into $
Our product has a setup fee + monthly fee ... is there a way to employ price anchoring on my landing or pricing pages?
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.
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.
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.
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.
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-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.