I visited Staples the other day and experienced a practical lesson in price inelasticity. Elasticity is the measure of how sensitive a given economic widget is to pricing. An elastic product can withstand changes in pricing. An inelastic one will see dramatic declines in sales as the price goes up. In this case, the economic widget is an operating system: a retail copy of Vista. I would argue that Microsoft is learning the hard way that Vista is a highly inelastic product. In addition, they’re doing a surprisingly bad job of going that last mile at retail to close the deal.

Staples, like many retailers, has tables and end-caps set up specifically to showcase Vista. Laid out on the table are the various versions available: Premium Upgrade, $159.99; Premium full, $239.99; Business Full, $299; all the way up to Ultimate full at an astounding $399.99. 8 boxes in all, and with multiple copies of each, to boot, making the visual array even more confusing. I have read about these prices for months, but seeing them there at retail and holding the small, empty display box in my hand puts it in context: “You’ve got to be kidding,” I thought. “You want $400 for this???”

I was wondering if I was the only one, so as a bit of an experiment, I stood off to the side and watched the Vista display. Person after person came up and performed the same procedure: pick up the box, look at the price, widen eyes in surprise, put the box down, and walk away empty-handed. I counted 10 in a 5-minute period. Not scientific, I admit, but I do have better things to do with my time than get kicked out of Staples for some unauthorized retail research.

This experience hit home some of the lessons learned in my MBA program in a real and literally tangible way:

Lesson #1: Keep it simple, stupid. Refine the product line and don’t offer a seemingly infinite and confusing array of product variations.

Lesson #2: Pay attention to touch-points. The display boxes should not be empty. When you pick up a $400 product in your hand, it should feel substantial, not vacuous.

Lesson #3: Pay attention to price. If my experience is any indication, $400 is simply too much to ask for a new OS, especially when you consider that most purchases of Vista will require at a minimum a new graphics card and some extra memory. You’re asking someone to plunk down $1,000 of hard-earned cash for…what? A slightly better user experience? Slightly better security? I’ll stick with XP, thankyouverymuch.

In the end, this amounted to nothing more than an interesting mental exercise. I know that Vista will one day become the predominant OS in the world. I know that Microsoft will eventually pry some amount of money from my pocket for Vista; it’s like a black hole in my life as a developer into which I will eventually fall. I also know that Microsoft hardly listen to someone like me. After all, I’m just a customer. However, I wonder if, just maybe, if my experience, replicated at tens of thousands of retail stores around the country, will equate to a slower than expected adoption rate. Time will tell.

This entry was posted on Friday, February 9th, 2007 at 9:49 am and is filed under Tips & Tricks, Tutorials . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.