The Real Secret to Pricing

Here’s an arti­cle on the new Intel Ultra­book spec­i­fi­ca­tion and devel­op­ment fundthat I wish I wrote myself.

It’s funny. There are a cou­ple of good lines.

I’d like to add one point that the author missed.

When faced with com­plex­ity, most peo­ple retreat to what they know. When it comes to tech­nol­ogy, they don’t know much. So, they make a deci­sion based on pric­ing. That’s (a highly sim­pli­fied expla­na­tion of) why PC mak­ers aren’t suc­cess­ful with a pre­mium prod­uct. Peo­ple can’t under­stand why it’s premium.

A great exam­ple of this is found (bold text is my own empha­sis) in the arti­cle just below the “Lenovo spreadsheet”.

“I get that the “12.5″ Pre­mium HD (1366×768) LED Back­lit Dis­play, Mobile Broad­band Ready, 2x2 Antenna” screen is bet­ter than the “12.5″ HD (1366×768) LED Back­lit Dis­play, Mobile Broad­band Ready, 2x2 Antenna.” Fifty dol­lars gets me the word “Premium”—but what else? I click “Help me to decide” and get noth­ing even remotely help­ful. And once I add Blue­tooth, an inte­grated web­cam, a 128GB SSD, and 802.11a/b/g/n Wi-Fi, the sys­tem cost comes to $1999. The 13″ Mac­Book Air costs $1299! With a bet­ter screen, bet­ter Blue­tooth, and bet­ter WiFi!”

Peo­ple will make one of two deci­sions here. Either they’ll just pay more for “Pre­mium” assum­ing that if they pay more it must be bet­ter, or they’ll get frus­trated. Keep in mind, both myself and the author are tech­ni­cal peo­ple — we know what’s going on. I hon­estly don’t under­stand how non-technical peo­ple don’t scream in rage when faced with stuff like this.

There’s a more sub­tle thing here affect­ing buyer behav­ior too — cog­ni­tive dis­so­nance. Cog­ni­tive dis­so­nance is a dis­com­fort caused by hold­ing con­flict­ing ideas simultaneously.

We all “know” Apple prod­ucts are more expen­sive. But, this online con­fig­u­ra­tor is show­ing me that a sim­i­larly con­fig­ured Lenovo is way more expen­sive. The response, whether the buyer can artic­u­late it or not becomes: “Wow, some­thing must be wrong.”

How is that feel­ing of “some­thing being wrong” going to make a cus­tomer con­fi­dent in hit­ting the “buy” button?