What is product sabotage?

It's when businesses take their best product and deliberately make it worse, to introduce a new price point.

The technique was invented in the late 1980's by IBM. They wanted to offer two price points for laser printers. But didn't want to go to the expense of designing two products. So they just took their main model and added a micro-chip to slow it down. Their main model cost $2,395 and printed 10 pages a minute, and the cheaper model cost $1,495 and printed 5 pages a minute. (I know! Tech was expensive back then).

They noticed something unusual - their richer business customers bought the more expensive model, reasoning that time was money and they didn't want staff wasting time with a "slow" printer. The choice of a cheap alternative was funneling people to the more expensive version.

You can see this in supermarkets too. They purport to offer "choice" but it's actually too expensive to make many different versions of the same thing. So they do the sabotage thing with labels.

Take washing powder. This is dominated by brands such as Ariel, and the supermarket will have their "own label" too.

They immediately ran into a problem - the funneling effect pushed customers towards the brand rather than the "own label". But the supermarket earned a bigger margin from their own label even though it was priced cheaper (most of the profit of the branded products goes to brand owners like Unilever and P&G).

So they introduced a third option that looked like this:

The labels are so basic, they look like they were printed in a tiny shop in a back alley in the rough end of town. But the product is the same as the "own label" - remember they don't want the production expense of a different version.

The entire purpose of this line is to funnel people to the "own label", which has the highest margin.

If you give people three choices, a brand, a cheaper "own label", and a very cheap "basic" product, most will go for the one in the middle. Some wealthy people go for the brand ("because I'm worth it"). Most will avoid the basic version ("I'm not that desperate).

Next time you are in a supermarket, ask yourself how much the packaging influences you.

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