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Heavier than a boat anchor

When Tesla kickstarted the hype machine for the release of their Model 3, it was fueled by a simple and attractive promise. Namely, that they’d finally mass-produce a car, and it would be $30k.

All of that Tesla tech, over-the-air software updates, insane mode, and the social status to boot for the low low price of $30k.

No longer would Tesla have to rely on silly and impractical winged doors to move units. This is a small side point, but the comedy of this picture is too good to pass up. Owners of the Model X and it’s winged doors crash into their garage doors quite often – I guess $100k doesn’t get you thoughtful engineering:

But back to the subject at hand. The Model 3 was promised for a price of $30k, or at least there would be one version of the Model 3 for $30k. That would actually be quite impressive, especially in comparison to the starting prices of the:

  • Tesla Roadster: $109k
  • Model S: $78k
  • Model X: $82k

Throw in the extended battery, performance mode, and ludicrous mode for each of these cars and the price goes up another $40k.

The only problem with the Model 3 is that the price point was never met. The starting price isn’t $30k, it’s $39.5k. And the model everyone wants and expects is another $20k on top of that. Quite disappointing – from a $30k promise to a $60k delivery.

This news should’ve been heavier than a boat anchor.

As in, the effect of the downward anchor of the $30k promise should’ve made the $60k Model 3 sound really expensive. But sales are still strong. What’s going on?

Anchoring is cognitive bias where we are affected disproportionately by an initial piece of information. So if I sell you a fancy gourmet sandwich and tell you it’ll be $12, you’ll be quite happy if I you up and charge $10. However, if I promised that same sandwich for $8, then rang you up for $10 because – oops! – the prices went up last week and we forgot to upgrade our system, you’d be pissed.

In both cases, you paid $10 for a sandwich. In one you thought the price would be higher, and in the other you thought the price would be lower. See how irrational this is?

Anchoring is a powerful mechanism to use in your sales and marketing. Tomorrow I’ll cover two powerful ways you can use it in your business. The shorthand is that you should always set an upward anchor on your price, so your price seems low in comparison.

Elon Musk set a downward anchor on the Model 3, promising a $30k car and delivering a $60k car. How’d they survive the debacle?

It appears two reasons:

1) The buyers of Tesla Model 3 cars were more anchored by the prices of previous models ($80k-$140k) than they were by the promised price of the Model 3. That is, the Model 3 was still much more affordable in comparison, especially if you want the fully loaded model. In this way, there was an upward anchor set on the price. This seems to be the biggest reason.

2) There are three main groups of Model 3 buyers: “environmentalists” switching from a Toyota Prius; traditional auto enthusiasts who like high performance cars; tech enthusiasts and those just wanting a “cool car.” All three buyers are less price sensitive, and also driven by social status, which makes the decision inherently more emotional for them.

The Model 3 is an interesting study in the upward and downward effects of anchoring. Chances are, though, you don’t have the cool factor to break the rules of anchoring and survive.

I’ll be back tomorrow to tell you how to use it in your favor.