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If you follow behavioral economists like Dan Ariely, who I recently interviewed as part of the CMO 2.0 Influencer Conversations, you will know that there is such a thing as anchoring when it comes to pricing. Basically you can set an anchor for the value of a good and then have people judge all offerings within that space against that anchor. Anchoring is especially important for new product offerings – the ones for which people do not have an assigned value for – like the iPhone when it came out or the Amazon Kindle.

Let’s take a look at the differences between the product pricing strategies for those two products. The iPhone was introduced at $600, only to be reduced two months later to $400. Of course $400 looked like a great deal – when the anchor had been set at $600. And as Dan Ariely explains in a recent MIT Sloan Management Review interview $200 iPhones today look like an even better deal.

The Amazon Kindle on the other hand was announced with books at $9.95 – a subsidized price as Amazon is paying publishers more than that. But that set the anchor for the value of a book on Kindle in the mind of consumers. Now that they raised many books to $15 and up, it does not look like a good deal anymore – in fact it looks like it’s not worth switching to electronic versions of the book anymore. And the Amazon Kindle boards are full of protests by angry customers who are calling for boycotts.

Would Amazon have sold fewer Kindle’s if it had set the price of a book at $15 to start with, and tout some of the other benefits of reading on a Kindle – like searchability, note taking, etc.? It’s hard to prove of course, but I do believe that I would have bought the two Kindles that I bought so far with books at $15 and not feel as bad as I did when they increased their price. Subsidizing prices in a new product category is as bad a strategy as having free offerings to stimulate usage in a new category.

Another great experiment by MIT behavioral economist Dan Ariely as described in his book “Predictably Irrational” shows that it is not the product that counts but the information about the product.

In one experiment, they sold SoBe drinks to two groups of students who were about to exercise. The first group paid full price, while the second group got a 30% discount. After exercising they asked the students whether they felt more or less fatigued than usual – and all reported that they were indeed less tired. Except that the group which paid full price was less fatigued than the group which paid less. The 50c aspirin does work better than the 5c aspirin…

They then did an experiment where they sold students SoBe, which claims to provide “energy for the mind,” before administering a 15-word puzzle. Again, one group paid full price and another paid less. They also baselined the experiment with a group that did not take SoBe. The group that paid full price solved as many word puzzles as the group that did not get the drink, while the group which got the discount solved about 30% less word puzzles.

WOW…we are doomed.

But wait! It gets better. They then performed the same experiment except that this time they printed the following message on the cover of the quiz booklet “Drinks such as SoBe have been shown to improve mental functioning, resulting in improved performance on tasks such as solving puzzles.” They also stated that the SoBe web site referred to 50 scientific studies to support these claims – information which was totally fictional. The results? The ones that paid full price solved 33% more puzzles than the ones who did not get the drink, and the ones that got the discount solved 7% more word puzzles.

And who said that messaging was dead? The things you say about your product may indeed be more important that the product itself…

I have been looking for a group “to-do” list for a long time, and never really found what I was looking for. Most to-do lists are for individual usage – which is not what I am looking for. And unless you are Google, I do not even get why people bother developing those apps as there are a ton of applications on people’s desktop that already have that service integrated – for free.

But as far as a simple group task list for truly distributed teams….there isn’t much available. I finally found a solution that looked promising….integrating/synchronizing with Google calendar, etc. – all for $15. So I bought it thinking that would solve my problem. Except that when I tried to invite one of my closest associates, it required that he too buy that same application. That was almost a week ago, and of course that has not happened yet.

How can people do that? Group applications already have plenty of barriers to adoption to overcome – so why a company would artificially add one extra barrier in the mix is a mystery to me. I bet you that most “potential” users of this app would use it with teams of 2-3 people. So if that is the case, charge the buyer of the app $30-50 instead of trying to get $15 from all the users. That way you may end up with some real users instead of frustrated buyers.

Elementary…my dear Watson…

[Tags: barrier to adoption group application]

When Ritz Camera told me it would cost a flat $250 to fix my Canon 10D digital camera without even looking at it, it caused me to pause and look at what my options might be.

Since I bought the camera a few years back Canon came out with new models that seem to deal with the issues I was having with my early digital SLR – especially those related to focus and sharpness. Switching brands isn’t really an option, as I have generally been happy with my EOS cameras and assembled 4 different lenses for it so far.

Instead of fixing my existing camera (which one day started to develop a dark band on the bottom of my pictures – indicating some sort of miss-alignment of the mirror system as far as I can tell) – I decided to look at the alternative of buying the new 30D.

My surprise came when I started looking for the best price for the 30D. If you look around you can see prices as low as $639 for the body without shipping charges. When you look at 3rd party sellers on Amazon.com or if you check eBay, prices do not seem to go below $1,000 for a new Canon 30D body.

Is there no arbitrage in online retail? Or am I missing something? Could someone actually make $500 per camera by buying and reselling online?

It is not a business I want to get in, but unless I am missing something (which I often do), then the theory that online retail, with all of its online-transaction “data exhaust,” would “even out” the power balance between buyers and sellers does not hold true…

What is it that I am overlooking??

[Tags: arbitrage buyer power ads online commerce ]

WOMMA (word of mouth marketing association) responded quickly to the article that AdAge published last week (which I wrote about here).

WOMMA says that they have a code of ethics that addresses the stealth marketing issues that were brought up in the article and that thy developed this early to avoid going down the same path as email marketers.

Convinced? I think they need to should go a step further in self-monitoring themselves.

[Technorati Tags: buzz marketing word of mouth wom]

Using the recent flip flop on extending the employee discounts for everyone by GM as a sad example of discount OD, brand autopsy announced today their Discount Detox Center…The stated goal is:

“The goal of the Brand Autopsy Discount Detox Center is to rid businesses of toxins accumulated by rampant abuse of discounting pricing strategies. The first step of discount detox is immediate withdrawal from any and all discounting activities. Once a business has stopped using discounts, fiscal and behavioral withdrawal symptoms may follow.”

Very funny – but so true. It is too bad that companies forget history way too quickly. There are so many case studies on the devastating effects of discount OD!

[Technorati Tags: discounts GM]