“hey — you want to upgrade your iphone?”
“no thanks, I paid a shit load of money for it, I’m using it until it dies.”
Somewhere at Apple headquarters there is a group of people gathered around and agreeing that they can’t make this phone any better to get people to upgrade it every year. The iphone, after all, is made to last — they don’t build shit products at Apple. It’s top of the line, people get in line for days to get their hands on them.
Then the economist in the room tells them two words: Sunk Costs.
“Sunk Costs.”
“What?!”
“yeah, they won’t upgrade because of their sunk costs. They paid a pretty penny for the phone and it still works. They wan’t to squeeze all the value out.”
“Ok… so we’re shit out of luck.”
“No – give them value for their phone and offer them a deal they can’t resist with the new one.”
“Ok…”
“Allow them to trade in their older model and give them credit on a new one.”
“Oh.”
“yeah, if it’s really not worth crap then offer to take it for free and that we’ll turn it into something good for the planet.”
“oh.”
“yeah, they’ll get the new model eventually but this will convert them faster.”
Back at the house–
“you know what babe, my coworker traded his iphone at apple and got a discount on a new one.”
“oh shit, ok, let’s do that.”