Whether you’re grocery shopping, a car, a washing machine, or an iPad, you’re faced with a price ladder. This marketing tactic is real and designed to get you as much money as possible. In this post, I want to show you how Apple has mastered this technology and use. It to make billions of dollars, not just for the iPad, but its entire product line.
The law of diminishing returns
Think about it, most of the time when you buy a tech product like an iPad or a premium laptop, you:
- Not all features of the purchased product will be used;
- Ended up spending more than expected for a version with little added value.
In the image above, we see that you can get 88% of the best iPad user experience (the base iPad) for just $330 at the lowest price point Apple offers. That’s fine, and that’s what most people want when they buy an iPad. The 12.9-inch iPad Pro sells for $1,100, so getting 88% of the product for 30% is a great deal.
However, most people won’t choose that option because they think the middle option is priced more fairly than the cheapest option. This goes back to the genius marketing formula mentioned in the previous study.
Let’s take a look at the other iPad options Apple offers:
- If you add $170 to your budget, you can get an iPad mini with 92% of the best performance;
- For another $100 ($270 more from the original budget), you can get an iPad air with 95% of the best performance;
- Add another $200 ($470 from the original budget) and you can get an 11-inch iPad Pro with 98% of the best performance;
- Add another $220 ($690 from the original budget) and you get the best-performing 12.9-inch iPad Pro.
This highlights a core tenet of the pricing ladder: The more money you spend, the lower the unit currency value. At the beginning of the chart, a $170 increase in budget would result in a 4% increase in product value. At the end of the chart, you need to spend more than twice as much ($313) to get Albania Phone Number half the value increase (2%).
Objectively speaking, this is a bad deal, and you might be thinking, “What kind of idiot would fall into this trap?”
Well… almost everyone does.
2. Brand recognition, status and self
The chart above is from 2012, but it’s still a good example of pricing ladder efficiency. Even 10 years ago, when Apple offered few iPad options, its best sellers were premium iPads, followed by ultra-premiums. And finally regular ones. In fact, they managed to get 33% of their customers to choose the “super premium” option, which is even better than the 10% mentioned earlier in this article.
Apple knows this marketing tactic works so well, so they use it across their entire product line. Every product they offer has at least 3 different options.
For each product, 80% to 90% of people can accept the regular version, but only a small percentage of people will actually buy it.