Business Intelligence

Pricing Strategies: Waste-Averse Consumers Pay Up

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Executive Summary

What type of pricing strategy does Apple seem to know well with its iPods, iPads, and iPhones? Many would call it premium pricing, but there's more to the story. In this paper, the author shows that products having "add-ons" should command a higher price when consumers are waste-averse. When one buys the $499 iPad, the $14.99 book download isn't so painful, so the psychology and economics would say. The author describes the base product (iPad) and its add-on (apps) as contingent products - the app is purchased only when the iPad base product is also purchased. Such product pairs show up with cell phones, laptops, hotels and their Internet service offerings, cars and their servicings, and other co-dependent pairs ad infinitum.

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