Key excerpt on Decoy Pricing from: “TechCrunch: The Subplots Of The iPad”

TechCrunch writes in The Subplots Of The iPad Blockbuster:

As I laid out a few weeks ago, it seems pretty likely that it was Apple that leaked much of the information to The Wall Street Journal about the tablet device prior to its launch — including the bogus $1,000 price from “analysts.” Later, a former Apple employee corroborated this.

Why would they do this? It’s simple. As I said at the time, if they plant the idea in peoples’ minds that a product will be $1,000, then release it for significantly cheaper, it’s a huge win for Apple. So when Jobs announced the entry-level iPad would be $499 yesterday, it was an absolute home run.

I have said for a good while that Apple is purposefully leaking "information" (mixed with misinformation) in just the right doses and intervals to keep the launch mania pot stewing, ending in a rolling boil crescendo right at launch.

(See: The Apple Tablet And Planned Insanity and as early as 8/08: Apple’s "Magician" Archetype Branding Revisited: Good News – Bad News .)

Now when it comes to seeding these price point speculations, they added yet another twist I’ve previously reported on: Decoy Offers or Decoy Pricing.

What it boils down to is that since all price perceptions are relative to a given context (ALL meaning arises in context by the way), if you can create a context where the price point at which you eventually offer something appears low, you will sell a lot more.

To quote my prior post:

Dan Ariely’s excellent "Predictably Irrational" talks about such contextual "decoy offers" that can boost sales for the item the seller really wants people to buy. As an example he uses a past offer by british business magazine The Economist:

It had listed $59 for on-line access only, $125 for print-only, and $125 for print & Web combo subscriptions, and had thereby significantly boosted the number of the expensive combo subscriptions sold (vs. test offers that omitted the seemingly non-sensical $125 print-only option)!

Obviously Apple just took things a step further: Since the Decoy Offer is not expected to be taken by anyone, it really doesn’t matter if you ever really formally write it up anywhere. Just introduce a high price point via a leak and nurture it (by not disputing the rumors) for a while, then triumphantly announce that the thing is actually going to cost HALF that.

If there had been no context of the prior (seeded) expectations, then the announcement of the entry-level iPad costing $499 would have been only referenced against other things in the consumer’s/prospect’s (that includes you!) mind:

Prices for other electronics items, other computers, other Apple products, asf. And the comparison may not have been favorable, or, a wash (no signal one way or the other).

Instead it was compared to a price point that for many months had already been talked about by all and sundry as reasonable, maybe high, yes, but definitely in the realm of the possible.

The expectation that the iPad was going to be a rather expensive and substantive device became more and more firmly established in people’s minds everyday this way. Now if you announce it at HALF, everybody’s knee-jerk reaction becomes: "This is a bargain!"

One more thing that Apple pulled off here is to establish the low $499 entry-level price as an ANCHOR price to pull this stunt off. Even though most people will spend substantially more for the iPad they really want, with 3G wireless and not just Wifi, and with more memory storage.

I doubt apple expects to ship too many of the $499 iPads. In essence, they created yet another decoy offer!

Writes TheNextWeb in I Call It The iLetdown – Why The iPad Missed The Mark And Blew Its Big Day:

Getting right into it, the lowest price for the iPad point is a mirage. A non-expandable device that has a total of 16 gigabytes of storage? Assuming a usable 15 gigabytes of space, I can fit less than a third of my music onto the device. Excellent. And zero percent of my photos. And videos. And apps, of course. So to say that Apple has created a mass market tablet for $500 is a little disingenuous.

So really what we have here is a Double Decoy, so to speak…

Is Advertising Failing On The Internet?

Techcrunch.com today featured a guest post by Eric Clemons, Professor of Operations and Information Management at The Wharton School of the University of Pennsylvania entitled "Why Advertising Is Failing On The Internet".

In the lengthy post he argues his "basic premise […] that the internet is not replacing advertising but shattering it", which due to its sweeping nature definitely warrants further examination. The post as of right now has generated well over 200 comments, on a Sunday, so it obviously hit a nerve.

Among other things, Professor Clemons makes the following points about advertising both online or via traditional broadcast media:

 

Consumers do not trust advertising. Dan Ariely has demonstrated that messages attributed to a commercial source have much lower credibility and much lower impact on the perception of product quality than the same message attributed to a rating service. Forrester Research has completed studies that show that advertising and company sponsored blogs are the least-trusted source of information on products and services, while recommendations from friends and online reviews from customers are the highest.

Consumers do not want to view advertising. Think of watching network TV news and remember that the commercials on all the major networks are as closely synchronized as possible.  Why?  If network executives believed we all wanted to see the ads they would be staggered, so that users could channel surf to view the ads; ads are synchronized so that users cannot channel surf to avoid the ads.

And mostly consumers do not need advertising. My own research suggests that consumers behave as if they get much of their information about product offerings from the internet, through independent professional rating sites like dpreview.com or community content rating services like Ratebeer.com or TripAdvisor.

While I would agree with all three points made, and would count them among important caveats for anyone choosing to advertise for anything in this day and age, I disagree with Professor Clemons’ basic premise. Here’s why:

I would argue that none of the major "Old Media" players online (or for that matter none of the "New Media" either) are anywhere close to having efficiently monetized their page views. Everyone is still clumsily fumbling around when it comes to intelligent targeting of ads, both as to offer theme, as well as to offer pricing.

(Or rather mostly lack thereof, as when trying to employ Madison Avenue "image advertising" without any clear offer being made. Which, if it ever worked on TV, etc., certainly isn’t working online. In fact, online it may increasingly create a negative image of a company/brand/product as "someone" who just doesn’t get it).

This is astonishing, when all it really takes is some common sense about selling people stuff that makes sense in the CONTEXT of what they were already doing.

First, let’s get clear on the fact that an article or opinion piece in e.g. the New York Times provides a lot more pointers as to readers’ state of mind/interest than most Google queries ever could (as do Web videos posted on such sites), so the failure to target properly is in part simply a form of laziness.

Continue reading “Is Advertising Failing On The Internet?”

UPDATE: Google Changes Game For YouTube Monetization – Opportunities And Pitfalls

As I reported yesterday, Google may have just changed the game re: monetization of its massively used (but so far barely profitable) YouTube video sharing service. Get the details on how it looks here.

But what makes Google’s new "sponsored videos" feature on YouTube even more relevant is today’s news that YouTube searches now represent the second largest search engine in the world according to ComScore, ahead of both Yahoo and Microsoft’s MSN/Live! So there should be ample room for YouTube to generate profits for advertisers and in turn for itself (Silicon Alley Insider estimates that it could add $1B to Google’s bottom line).

However, as I began to lay out yesterday, there are a number of caveats that need to be kept in mind by the internet marketer looking to take advantage of this opportunity:

1) Marketing within Social Media (vs. search ads PPC) is generally tricky due to a deeply rooted differentiation by most people between social and business contexts: People don’t like them mixed, and can react very negatively if they are (read Dan Ariely’s excellent "Predictably Irrational", chapter 4 "The Cost of Social Norms").

2) So if you are going to market in any social context, you need to get the tone and the context just right, else you are not only wasting your ads, you are likely hurting your brand. The backlash may also be much stronger than in other situations, because you will be dealing with a perceived violation of social trust.

Whatever initial offer you make needs to still fit into the "friends" context somehow, or else be so targeted that the prospect truly sees your offer as a form of "friendly service", e.g. if you are offering something that would help with a social task they are about to undertake, like offering flowers at a special price if someone is surmised to be going on a date, etc. (judging from e.g. a Facebook "action" of theirs).

3) While YouTube is overtly the least directly social (compared to say Facebook, etc.) and instead more entertainment oriented, the social aspect of sending/receiving video clip links to/from your friends is still clearly there. So to stay in tune with the viewer/prospect, you still need to get the CONTEXT just right:

If the search keyword (or individual video for that matter) is an entertainment vehicle first-and-foremost, then offer them more (hopefully related) ENTERTAINMENT products, NOT shoes or cars or deodorant. This goes for pre- or post-roll ads as well by the way, which prospects tend to gladly view IF they have something to do with the actual video content requested.

With more educational keywords/videos, there may be more latitude to offer things, though they still need to be related and represent a LOGICAL follow-up, else your sponsored video will get largely ignored/filtered out by the prospect just like most other ads (even though, as I said yesterday, Google appears to be embedding the ads very discretely, so that they don’t scream "ad" vis-a-vis the other video content).

So the formula would be, create videos that are highly relevant to your keywords, while also being disruptive enough to get attention.