Last week at the Electronic Entertainment Expo (or “E3” if you’re in a hurry) the two big stories for console makers were 3D1 and new motion controllers. As I watched Sony’s press conference where they pitched the Playstation Move2 something struck me about the way that they presented the pricing for the product.
Peter Dille, a Senior Vice President at Sony, started the announcement by throwing up a $49.99 price up on the screen behind him. The crowd, which had been worried that the Move and its competitor Kinect on the Xbox 360 would come out in the $150 range, seemed really pleased by this. There was even cheering! That mood tanked, though, when Dille plunged ahead and noted that, uh, actually that was just for ONE part of the thingie. To get the quasi-optional “navigation controller” you’d have to drop another $29.99. You could FEEL the wave of “WTF?” that swept through the theater. Then Dille went on to point out that you’d need to buy a Playstation Eye camera accessories to get the full effect, but that they were bundling it, some sports game, and the Move controller (but not the navigation controller) for $99.99. Here, you can see it in the first 30 seconds of this video:
Those adept at the maths quickly figured out that if you wanted to buy all four things –the Move, the navigation controller, the game, and the Eye camera– you’d be out about $130 give or take a penny or two even with the bundles.
I myself quickly started thinking through Sony’s announcement from a psychology angle, and my first thought was that they had screwed up. I wrote last week about how our preference for all-you-can-eat/play pricing is rooted in the fact that we experience diminishing sensitivity to increases in losses as they go up –we experience a bigger jump in aversion between a loss of $5 and a loss of $10 than we experience between losses of $1,005 and $1,010. The thing is, prospect theory3 holds that we have similarly diminishing sensitivity to gains. Look at the graph!
What this means is that we more enjoy getting lots of little things that add up more than we like getting one big lump of thing, even if their objective values are the same. Finding a series of four $5 bills is going to make us more giddy than finding one $20. Or, to put it another way, according to our mental accounting:
That’s just how our emotional brains work.
And it hasn’t gone unnoticed by advertisers and marketers, who have followed its lead to create what I call the famous “But wait! There’s more!” style of pitching your wares. Just look at any late night infomercial for an example. “Order now and you not only get the juicer for $99.99, but you get the a chopper attachment, a recipe book, five pounds of mangoes, and this adorable kitten –all for free!” True masters of this pitch will stretch out the “free” bonus gifts, parceling them out like a trail of candy so that you perceive them as a series of separate additions to the offer instead of one big bundle. This is a more effective sales technique than just saying “You get all this stuff for $99.99″ because it side steps that diminishing sensitivity to gains.
This is, in fact, the boat I thought Sony was missing with the way they did their Move price announcement. It seemed to me that it would have made more sense to come out at a price of $129.99 for the Move, but then systematically and not too quickly note that for that price in addition to the Move controller they’re also going to throw in a navigation controller –valued at $29.99! And a Playstation Eye accessory that currently goes for $39.99! Does that sound like a good deal? But wait! What if we threw in a free game valued at $59.99? OMFG! Dude! All for $129.99? That’s CRAZY! That’s like getting the Move controller FOR FREE!
I got to thinking, though, and eventually came to the conclusion that Sony probably beat me to: despite the power of what I describe above, the way they did it was probably smarter but because of a different psychological phenomenon: anchoring.
You may remember anchoring as our tendency to give undue weight to the first figure4 we hear when determining the value of something, even if the number is completely unrelated. As I mentioned in my article about the efficacy of those Steam bundle sales, behavioral economist Dan Ariely and his colleagues did a nifty experiment5 where they effected auction prices just by having bidders write the last two digits of their social security number on the top of their bid sheets. Those with high numbers (like 85) bid way more on items than those with low numbers (like 18). Anchoring!
Sony’s presenter capitalized on anchoring, quite deliberately I bet, when he threw up the $49.99 price for just the Move controller. There will be plenty of chances for Sony to advertise the value of bundles using diminishing sensitivity and the “But wait! There’s more!” tropes. Its job at E3 was to come out ahead of Microsoft in terms of how expensive people see its motion controller as when THAT was an important question on everyone’s mind. By throwing out the $49.99 number instead of the $129.99 number, Sony accomplished that. Sure, anybody can do the math, and judging by the audible groans from the audience plenty of people did. But that’s not the point. The point is that you6 are going to anchor on the lower number and think of the Move as relatively cheap.
And just imagine how much more effective that $49.99 anchor would have been if Microsoft really had announced the $149.99 price everyone expected for its motion controller, Kinect. I bet some folks at Sony were pretty annoyed that things didn’t break that way.