On January 27th, 2010, Steve Jobs unveiled the iPad and, over the course of a single, 91-minute presentation, split the world right down the middle.
In an early review for The New York Times, acclaimed tech reviewer David Pogue wrote: “In 10 years of reviewing tech products for The New York Times, I’ve never seen a product as polarizing as Apple’s iPad.”
According to Pogue, opinions ranged from “This truly is a magical revolution” to “This device is laughably absurd,” with very little in between. “Those are some pretty confident critiques of the iPad — considering that their authors have never even tried it,” Pogue said.
And then, with nearly every expert slamming the iPad as unnecessary, unmarketable, and making tampon jokes about it, Apple did what Apple does — and sold 7.5 million units in the next six months, adding $5 billion in revenue to their bottom line from a product with basically no competition and no pre-existing market.
Ten years later, Apple has sold over 400 million iPads — enough to, in theory, put one into every American’s hands — and made $200 billion as a result.
What happened? How could all the experts be so wrong? And if they didn’t buy it, how could it have become such a success story?
For starters, the people Steve Jobs talked to in his presentation were not the people who were most attentively listening. Just because you have a loyal audience does not mean you can’t address a new one. With the iPad, that’s exactly what Apple did.
In his analysis of the sentiment at the time, Pogue noticed this too: “In any case, there’s a pattern to these assessments. The haters tend to be techies; the fans tend to be regular people.”
As valid as some of the criticisms made by tech aficionados were — no multitasking capability, no camera, no support for Flash video — the people the device was for — those sitting on their couch browsing the web and Youtube — simply didn’t care about any of these things. For the most part, they didn’t even know what Flash was.
There is, however, another thing Apple did that was easy to miss amidst all the noise. It was only a small factor in making the iPad a big hit, but this simple psychological trick would ensure people all over the world were ready to jump at the device once it hit the stores, especially the normies it was geared towards. It’s a common maneuver when revealing prices that Apple — next to millions of other brands worldwide — uses to this day.
At minute 75 of his presentation, Steve asked a seemingly innocent question: “What should we price it at?” Instead of just giving a straight answer, however, he first addressed the rumors of what everyone thought they would charge for the iPad. “If you listen to the pundits, we’re going to price it under a thousand dollars — which is code for $999.” As soon as he said those words, the number lit up in bold letters on the screen:
Then, for a full 60 seconds, Steve kept talking. He talked about the technical goals for the iPad. He talked about the cost goals for the iPad. He talked about wanting to “put this in the hands of lots of people.” All the while, that big fat $999 kept staring at the audience in the room and behind the screens.
And then, in one swift motion lasting less than a second, this happened:
“I am thrilled to announce to you that the iPad pricing starts not at $999 but at just $499.” Boom. With one sentence and a cool animation, Steve completely repositioned the iPad in everyone’s minds. “At $499, a lot of people can afford an iPad.” Applause erupted in the venue, and the iPad was off to make history.
Suddenly, people weren’t paying $499 for a device that may or may not have convinced them based on its merits, no, they were “saving” $500 on a device that was “clearly” worth $999.
In psychology, the mind’s tendency to latch on to any available reference point when making judgments and decisions is called anchoring.
In essence, our brains don’t like building a case from scratch in order to assess something. Hence, they’ll take anything that hands itself to being a starting point to compare to and then move from there. This is a flawed way of thinking, but it’s nearly impossible to prevent.
Besides insufficiently adjusting away from our reference points, we also choose irrelevant baselines to begin with. Even if it’s clear to us that a value can’t function as a reasonable reference, our minds will still try to use it.
In a 1997 study, participants were asked whether Mahatma Gandhi died before or after age 9 or before or after age 140. Both options make no sense, but people still significantly adjusted their estimates away from the true answer (78) as compared to when a more reasonable anchor was given.
Basically, as long as you’re exposed to the anchor long enough and pay sufficient attention to it, it’ll affect you whether you want to or not. In case of the iPad, all it took was 60 seconds of highlighting a price tag with a 100% markup to change our baseline perception of what the device was worth.
Other studies have shown that even outright telling people they’re being anchored does not do much to mitigate the effect. For example, if I tell you that the average person has 17 friends, you instantly start comparing yourself to that standard. “Do I have more? Fewer? What does that say about me?” Even if the next thing I say is, “Just kidding, I made that up,” you’ll likely keep mulling over that reference.
Anchoring isn’t all bad, however. In many cases, it helps us make better and quicker decisions. As long as we choose good reference values, anchoring saves us a lot of time and stress as individuals.
As marketers, however, an understanding of the mind’s many biases comes with an ethical obligation: We must use people’s cognitive gaps to help them choose better, not just more or more expensively.
This stands and falls with how you use the information you anchor in people’s brains. Sticking with that 17 friends example, I could make you feel better about however many friends you have. I could tell you that, while having more friends than average is good, having fewer is a sign you are a careful curator of relationships and form trusted bonds with only a select few — which is worth a lot all on its own.
The greedy man’s version of this is playing on your feelings of inferiority. “If you don’t have at least 17 friends, your life probably sucks. Download our app, and you’ll be happy.” That’s an empty pitch based on an empty anchor, a lie based on another lie. Just because I can rely on the first lie sticking in your brain does not make it a valid tool to sell you something.
As part of my Master’s thesis, I ran an anchoring experiment. In the control version, I sold a guide about reading for $10. Out of 736 people who visited the page, 14 bought the product.
In a variation, I allowed people to pay whatever they wanted, including $0. I did, however, add a note that said, “On average, people choose to pay $15.” Out of 658 visitors, 27 downloaded the guide and paid nothing. 8 more chose to pay $15.63 on average.
The total revenue was $140 in the control condition, $125 in the pay-what-you-want condition with an anchor. The surprising insight was that, even if I didn’t force people to pay anything, my revenue only took a 10% hit — but more than twice as many people ended up having access to the information.
If you genuinely believe in your product and its power to make people’s lives better, like Steve surely did, you might want to “put this in the hands of lots of people.” Anchoring could be the tool that allows you to maximize impact while also maximizing (or, at the very least, not losing) revenue — but only if you do it right.
Steve Jobs was a controversial figure. Not everything he did was right. Not every price of an Apple product is justified. Was the iPad overpriced, even at $499? Did it actually improve the lives of lots of people? I don’t know the answers to these questions.
All I know is that, in that presentation, Steve gave us a prime example of anchoring. He might have been one in a million, but he was also only one of millions trying to sell us something. Today you might be on one side of the deal, tomorrow on the other.
Whichever one it ends up being, remember: Anchoring can make you buy almost anything, and it nearly always works. Try to not fall too much for it, and use it responsibly. Maybe one day, you’ll prove all the experts wrong — and your product might change the world.