Remember the last time when you walked in to a store with a budget in mind but ended up over spending and then spent the next few weeks overcoming from buyer’s remorse? Happens more often than we realize, usually with out major purchases such as a Kindle, iPad, or Car. Nowadays, the products are priced in a manner that compels the average buyer to go at least a step or tier beyond the price they had initially considered.
Blog is by a human, for humans – might contain text and phrases that only humans can relate!
Most common example is unsuspecting buyers stepping in to buy the basic Amazon Kindle but ending up purchasing the Paperwhite. In old days, when the iPhone base model used to have a storage of 16 or 32 Gigabytes, most customers would walk into the store considering the price for the base model but end up spending a little more for the additional storage in hopes of future proofing their purchase. However, this may no longer be as effective as back in 2014 with the iPhone base models now offering 128 Gigabytes of storage.
Mary had a little lamb but did not know how to price the wool, so she gave it away for free! In other words, do not be like Mary but try to monetize your assets and resources.
Although this is much more evident in electronics, appliances, and cars, this pricing strategy originated from the food industry. Does this strike a chord? The cheapest burger or the cheapest drink advertised by a restaurant or diner. The strategy involves advertising the cheapest item on the Menu to draw customers into the restaurant. However, once you step in to the restaurant it does not take much effort to convince you to opt for a larger burger with the meal combo along with that extra slice of cheese. For now, hold on to this idea as we will circle back to this in a while.
There are two strategies at play here; first is the pricing ladder – our main topic for this blog – that makes an unsuspecting customer move up a carefully crafted ladder consisting of product variants with progressively higher prices. Second one involves extras and bundling – the cheese slice is an extra, while the meal price offering a side of fries and drink is a bundle.
But why? Increase sales, boost absolute margins, and thereby contribute to Shareholder value. When I was in Kindergarten and my class teacher asked us about our career aspirations, I didn’t flinch saying that I want to wear a suit and drive shareholder value rather than a race car.
Amazon Kindle Pricing
Now let us move on to Kindle. The cheapest one in 2025 is the base model with advertisements; however, not many except the extremely price sensitive readers have the patience to deal with advertisements. But there is an option to go ad free, you can pay an extra 15 EUR to eliminate the irritation or pain of viewing advertisements while you try to peacefully enjoy your read. Quite similar to the 2 EUR that you pay for the cheese slice – securing the extra guilty pleasure.
Next in the ladder is the Kindle Paper-white, which is priced at almost double the price of the base model, comes with refinements such as the night time blue light filter, better product finishes, and slightly larger display. And it does not end here, there is slightly pricier version called the Signature edition with extra storage and wireless charging. And finally there is a Kindle Oasis, not only fancier but also has beefed up specifications and extras to justify a ridiculous prices – almost equal to that of a much more functional iPad.
Pricing Ladder is a Nested Ladder
As you might have already figured out, it is not merely a ladder with differentiated products – offering the same core value proposition – positioned at incremental price points. It is a nested ladder where each model has a variant at a slightly different price point. The same applies to iPads, where each model has a different variant – either with storage or screen size. Ironically this is what Apple founder Steve Jobs was completely stood against when he went back and relaunched the Macintosh models; in a single models but in funky color variants.
Why recreate Ladders?
It brings us to Microeconomics 101 – principles of supply and demand. Consumers in the market exist at different price points, and supply will clear only at a price point that consumers can afford. And market clears at a price point where sellers and buyers agree. The fundamental being, as prices go down, more and more consumers are willing to buy – and vice versa.
If your product is priced at a higher price point then only a group of customers who can afford the price point will end up purchasing the product. For instance, the MacBook Pro with M4 pro is the highest specification – highest priced product, which not only is relevant to a small group but also is affordable to fewer consumers. Hence, products down the ladder increase the potential market size for the business. Hence, whether it is the iPad, MacBook Air, Kindle Basic, or Classic Cheese Burger, there is always a no-frills and no-thrills Ryan Air model tailored for a larger audience.
To know more about Supply and Demand, you can view Microeconomics Section of our course on Product Pricing and Cost Management.
One more thing, Extras
The pricing ladder has ancillaries. This literally includes ancillary accessories to make you or any unsuspecting customer splurge those extra bits of cash. Though some of these accessories may not be useless, you have to cautiously ensure that the purchase is not made out of impulse or FOMO. In my personal experience, I have used different models of iPhone without cover since last 8 years; but every time I bought an iPhone, I also bought a cover which I have not used beyond the first month. In contrast, I have always ensured having a good screen protector on.
Side note for the Outliers
There are things that only the Richie-rich can afford, such as a 1,000 EUR tie-pins from Cartier. They prefer to opt for such brands if they offer products that satisfy the purpose and also suit the status quo such as Birkin bags, and Loro Piana Polos. Hence, Vertu phones worked well until the iPhone dramatically changed the utility expected from a phone. And this gave companies such as Apple an opportunity to mint that extra silver from this small audience . Although this went unnoticed for a while, and the most that happened was Gucci Phone covers. Today, brands collaborate with the usual suspects of luxury fashion for products such as Hermes Watch Bands and designer trainers.
If you are now facing the classic Mck query, here is your step-by-step guide:
Avoiding the Rabbit Hole with Pricing Ladder
And this triggers a rational thinker with the thought of marginal value for marginal price rise. But others look at it with the perspective of living with the shortcomings by choosing not to spend the extra. Rather than getting in to the rabbit hole or FOMO, you should ask the following questions:
1. Can I afford to spend that extra 100 EUR?
2. Is there a better way to invest or utilize that extra 100 EUR?
3. Is the marginal value valuable enough to trade-off any other opportunity for the 100 EUR?
4. Can you live without the shortcomings or without those extra bells and whistles?
And if you use or consider using Buy Now Pay Later for your purchases, watch this YouTube Video!
Feature Image Photo by Marcus Reubenstein on Unsplash
Savvy Munshi 