James Surowiecki on the Psychology of Product Pricing

James Surowiecki, a few weeks ago in The New Yorker:

In an experiment in the early nineteen-nineties, people were first asked whether they preferred a $110 microwave oven made by Emerson or a $180 oven made by Panasonic. Only forty-three per cent chose the Panasonic. But when a higher-priced Panasonic model, costing $200, was introduced into the mix, people’s choices changed in a curious way: suddenly, sixty per cent wanted the $180 oven. Just adding a more expensive model made the medium-priced version look more attractive and boosted Panasonic’s total sales. Change what surrounds a product, in other words, and you can change what people think of it.

Exercise for the reader: Consider how Apple takes full advantage of this phenomenon with products like the iPod Nano (and, before, the iPod Mini) and, now, the MacBook Air. Next, consider a hypothetical $249 iPhone Nano.

★ Wednesday, 23 January 2008