A new Indiegogo campaign for a small tracking device that can be attached to your belongings looks very interesting. I saw it on another website and went straight over to the Indiegogo campaign page to check it out.
I was thinking I could probably use two or three such devices, maybe as many as five if they were affordable, but that all changed when I saw the pricing.
I don't recall every seeing such aggressive discounting, especially at the high end. Five devices would cost $95 total or $19 each. Ten devices would cost just $4 more, bringing the unit cost down more than 50% to just $9.90.
It seems even more attractive when you look at the cost of each additional unit (rather than the average unit cost). The cost of the first unit is $49. The cost of the second unit is $20. The cost of the third, fourth and fifth units is just over $15.
The cost of units six through ten? Just 80 cents each! If someone valued this device enough to pay $19 each ( at the five unit price) is there any chance they would pass up five additional units at less than $1 each?
In the book Predictably Irrational economist Dan Ariely famously used a subscription offer from the Economist as an example of decoy pricing. It is a great example that is cited in countless places.
In some ways this is an even more extreme example. With the Economist the two options were offered at the same price. This highlighted the absurdity of the decoy offer, but the difference in value between the two offers was smaller.
In this Indiegogo example the difference in value between the decoy offer and the genuine offer is larger, and it is just as hard (if not harder) to imagine anyone taking the decoy offer.
Why would the pricing be structured this way? Only the people behind the campaign no for sure but we can probably assume the following:
- based on the unit price of $9.90 with the 10 for $99 offer they probably need to make about that much to be profitable
- because of the prototyping/tooling/manufacturing costs they are better off selling a lot of units $9.90 than fewer units at $29
Does the pricing help? I came to their campaign page with the idea of buying somewhere between two and five units. If they had been priced at $19 each I would have gone with two maximum. If they had been priced lower, say $9.90 each, I would probably have purchased five.
But there is no way I would have purchased ten units at $9.90 each. But, because of the way they skilfully priced their campaign, I ended up buying ten units for $99 and feeling great about it.