Tuesday, 8 February 2011

In for a penny, in for a pound

In the 1990's IBM introduced two nearly identical products, LaserPrinter and LaserPrinter Series E. The difference between them was that the former printed at 5 ppm and latter at 10 ppm. Naturally one cost more then the other. On closer inspection by a consumer testing lab found that the cheaper version had one extra component that intentionally slowed down the printer.

"This thing's too fast! Slow it down."
The same strategy was followed by Intel with their 386SX chip, designing the chip with an integrated mathematical coprocessor that was then disabled creating two separate products with two separate prices.


These are just two examples of many. In fact when you think about it this happens in every industry by all kinds of companies. The worst offenders being the software industry. There are for example 11 different versions of Windows Vista with 11 different price tags.

Corporations know that people like to have choice. Having choice allows consumers to compare and contrast but in a very particular way. In fact corporations know exactly how to set it up so you buy what they want you to buy.

"At THAT price it MUST be good"
Imagine you go to buy a bottle of wine. The shop in question has two bottles, Spanish Rioja and French Merlot. In this situation most people will choose the cheaper one, fruity Merlot. Now imagine you've just found a third bottle on another shelf which is more expensive then the two. Suddenly the Rioja is not so expensive and majority will make it their choice.


This effect is called price anchoring and is the oldest trick in the book.  Products in the middle price range will often represent the biggest margin for the retailers and least value for consumer.

There is a lot more to this subject so I will come back to it next time. If you want to find out more I highly recommend Priceless: The Myth of Fair Value (and How to Take Advantage of It) and Information Rules: A Strategic Guide to the Network Economy.

16 comments:

  1. This totally reminds me of my economicy class at school. My teacher always used to say "Don't buy cheap things. Don't buy middle-class things. Actually don't buy anything unless you know it's not utter crap".

    Haha. Good times.

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  2. Wow, I never thought of something like that. It's like one of those little obvious things that doesn't come to light unless someone else tells you

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  3. I always found this interesting; companies willingly and knowingly putting flaws in their products so that you have to buy the next line when it comes out and makes your current one inferior

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  4. The same thing happens to CPUs, GPUs, and so on...

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  5. good life tip to live by. price isnt everything

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  6. It seems that this type of scam is really prevalent in the tech industry today. Shit pisses me off

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  7. "On closer inspection by a consumer testing lab found that the cheaper version had one extra component that intentionally slowed down the printer." I HATE that!

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  8. really makes you think again before buying something

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  9. Just goes to show you that you should always do your homework before purchasing anything.

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  10. That's almost like saying a Ferrari is a great deal since a Bugatti Veyron is $1.5 mil and the Ferrari is only $250,000. I better go out and get one now while they're cheap. Nice blog. Following.

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  11. Gotta love Capitalism and Corporate driven economies! =D

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  12. You are going to save me so much money

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