When Apple announced the price of Apple Watch, they made a move that surprised a lot of folks: they announced a version priced at $10,000.
Tech gear customers/writers/bloggers trained to expect $1 apps and heavily subsidized phones were a bit stunned. Had Apple gone off its rocker? Who would ever pay $10K for a smartwatch?
Pricing is sometimes thought of as an art, but it is really neuroscience. The goal is to light up the parts of the buyer’s brain that overcome the obstacle of reaching for the wallet, a la “$1.00? Too much. $0.99? Bargain!” Our brains make a lot decisions not objectively, but by comparisons, and not all of them rationally. Retailers have known this for a long time and exploit it, especially with non-essential or luxury items. Now, with real-time neuro-imaging tools such as fMRI, researchers are able to see exactly how our “buy/don’t buy” decisions are triggered. Marketers are starting to use the research to optimize their reach into our pockets…so buyer beware.
Naysayers and anti-Apple ranters lit up comment sections with “rich-idiot-buyers” this and “people-with-money-to-burn” that. Have they never heard of premium decoy pricing? Have these folks never read Buyology by Martin Lindstorm? If they had, then they would have understood Apple’s reasoning and would’ve spent their time debating whether Apple should have gone with a $15K price point instead of a $10K one.
The point of a $10K Apple Watch is not to sell a lot or maybe even any, but to set the mental price point that $300-$1000 is the low to middle end of the range. This strategy is very different than pricing tech gear where every product offered is expected to sell (which is why you don’t see $50,000 MacBook Pros with a gold-plated cover and a glowing sapphire Apple logo).
Walk into any branch of the jewelry company with the little blue boxes. Their displays will have $500,000 diamond engagement rings sitting next to $15,000 ones and $50,000 watches next to $1,000 ones. The jewelry company with the little blue boxes doesn’t expect to sell many of the $500K rings or the $50K watches, but it knows a buyer will think that the $15,000 ring seems affordable and the $1,000 watches down-right inexpensive when compared to the (exorbitantly) higher-priced ones. We are certain that the jewelry company with the little blue boxes would suggest to Apple that when version v2.0 comes out, it offers a version with a diamond-encrusted case and add an additional zero to the price.
BTW, the $10,000 Apple Watch is not a push by Apple to get into the luxury item market, as others have suggested. We see this is as a diversion by Apple. It is a distraction to confuse the competition while Apple consolidates its hold on “The Internet of Things.”