Feb 26, 2014 2 Comments

Price Anchoring and Buyer Motivation

Spotlight Price Anchoring

Anchors are powerful. They keep ships and boats where you want them to stay and they do that job so well, that the basic design of anchors has remained relatively the same since the Bronze Age. Every time you would ask someone to draw an anchor, they all tend to look similar (sorta like the one I drew at the top of this post). This shape, the most recognizable shape, of anchor is the Admiralty Pattern. It has a ring at the top for attaching the anchor to the rode (chain); it has a set of cross arms called the stock, and it has a hook at the bottom that does the grabbing of the seabed. The stock tends to make the bottom of the anchor flip around until it catches and holds in the sand. Interestingly enough, those bottom hooks are called flukes, which in my mind is an odd word for something so good at what does. The fluke’s purpose is to grab the bottom of the ocean and tether the boat in place…until you want to pull it up or weigh anchor. And as you can imagine, it takes a lot of work to dig that anchor out of the seabed and ratchet that heavy lug back up to the ship.

Relative Cost

Price anchoring has its name for a reason. Prices, too, are a heavy, clingy burden to lift out of sandy depths. It is an interesting phenomenon that affects the perceived value of anything you want to sell, no matter what the item or how awesome it is. In a nutshell, the price of one item will always be compared to the prices of similar (or not so similar) items for sale in the same location. This phenomenon is everywhere and humans are hardwired to obey it. Anchoring happens at restaurants, clothing stores, grocery stores, just about anywhere you see a sale price, or a MSRP price, or any type of item for sale with multiple options. Take a clothing store for example: Every time they have an item on sale, the bright orange sale tag is always stuck right near the original tag, so you can still see how much it would normally cost. The higher anchor of lets say $50 for that shirt makes the $39.90 sale price seem way more affordable and a deal you really shouldn’t pass up. At restaurants, menus always have something that is particularly overpriced, but seeing the much more commonly (and expected to be) ordered food relative to that price makes the rest of the menu seem cheaper. That’s when you think its better to order a $20 hamburger instead of $40 steak.

Now I know what you are thinking, price anchoring won’t affect you now that you are aware of it, but our consumer brains can’t ignore the savings, so there is no way to avoid it. Really this sounds like a good thing, like we are protecting ourselves from spending too much. And why should we pay more for the stuff we buy? We don’t want those big companies to make huge profits. Well sure, but the power of anchoring prices is all relative, so you only think you are getting a good deal. Really, those sale prices you pay are exactly what the company wants you to pay and the MSRP is just an inflated number put there for the sole purpose of comparison.

Anchoring in a sense, blinds us the to true nature of cost. And this can be very damaging to individual people producing products without the financial backing of a whale of a company. The effect is just as unavoidable to your human mind on the cheap side of the scale. Seeing a lower price for something relatively similar would make a slightly more expensive item seem way too expensive. Why would I pay $3.50 for gas when the guy across the street sells it for $3.47? Even if you have a 40 gallon tank, you only save $1.20, which is less than you spent on extra Candy Crush lives yesterday. Small sellers rarely have a good chance to make money when prices are anchored too low, and people are feeling ripped off when asked to pay a reasonable amount.

Especially Digital

It’s hard to see past the anchoring, especially for digital content. Let’s look at the app store on your smart phone. As soon as your inside the store, there are plenty of items for $0.99 and even more that are FREE. Common sense says that every item in the app store cost far more than $0.99 to design, build, test, retest, build some more, publish, market, and advertise. So why would an app only sell for $0.99 instead of a price that could more likely make up for all the up front cost of creation? Because price anchoring has created a huge predisposition for what a consumer thinks an app should cost. As soon as those easy to swallow prices started to show up, everyone got it into their head that a $5.00 app is so outrageously expensive that it must be some kind of money scam. But really, that $5.00 app could easily provide you with $5.00 worth of information, or entertainment, or whatever. After seeing all those tiny price tags, we so quickly and easily forget that these apps could be a huge time-saver, or dramatically change our way or thinking or our lifestyle. Are those changes really only worth $0.99? No, and that brings me to the main reason for this post…

Anchors Away

Selling digital content has some pretty big (but really little) price anchors. The anchors need to be lifted, and you can help by being a respectful consumer or mindful publisher. Publishers shouldn’t sell their products short, and consumers can help by trying their hardest to not be appalled by having to spend more than a dollar at a time on useful digital content. It’s easy enough to say, but price anchoring is so deeply rooted in our mental seabed that being aware is not enough to fight it. In fact, the more thoughtful and mindful consumers are, the more likely to they are fall into the anchoring scheme. So, really the anchor will never go away, but it can be raised.

You won’t make any more than you ask for, so ask for more. That’s the only way to get content prices where they need to be, and content creators can focus on better content. At first, consumers will be annoyed, but if your content is great and really enriches those who use it, they will mind less and less. If we start making the default price of digital content more inline with what it is worth, the consumers will start to feel more comfortable with higher prices. Selling songs and images and games for reasonable costs will only make buying them at those prices more reasonable. We need to stop making our main selling point of content the price. Instead, give it that proper price tag the content deserves and promote based on functionality, beauty, and effectiveness. Great content is worth more. All ships rise with the tide.

Proper Pricing

Some of the greatest features of nibl aid publishers in this quest to shift the anchors of digital content. For each and every piece of content on nibl, publishers can set their prices to whatever they see fit. There is no default price for a song, movie, recipe or file. Without that default, there is freedom to price your content at a level it deserves.  Also, nibl allows prices to be easily adjusted even after they have been set initially. When the market for your new song or eBook grows, you can adapt the price accordingly without having to remove and create a whole new version of your item. All our custom pricing options really extend the power of nibl straight into the hands of the content creators, so they can pull prices out of the sand to nest the anchors somewhere higher up and in fairer place.

We can’t avoid the anchors, but we can make them work for us with a price that accurately reflects the greatness of the product. All we have to do is turn those flukes grabbing and holding the price in place into an every day propeller pushing forward for proper pricing.