OnDemand WTP Pricing Research

Price Increase By Any Other Name | Iterative Path

Customers don’t make their choices in isolation or on absolute value. They have options. Even when a customer is a diehard stand in line for 12 days Apple fan they have 3 to 6 iPhone options. For each option customers perceive different value and are willing to pay different prices. When the net value they get over prices they pay (consumer surplus) is highest for an option, they will choose that over others. Price alone is not a factor and lowest price does not win always. If increased value in next higher price point delivers more consumer surplus than the lowest priced option a rational customer will choose the higher priced version.

That is exactly what Apple did. It kept the price points the same, the value of lowest priced 16GB iPhone 6 the same but significantly increased the value of two higher price point versions. They essentially gave customers higher consumer surplus with 64GB and 128GB versions.

This results is many (if not all) who otherwise would have chosen the 16GB iPhone willingly pay $100 more to buy the 64GB version. Effectively a price increase!

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Price Increase By Any Other Name.

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