Anchors, Bundling and Un-bundling

Back in 2011, when the New York Times decided to start charging for access to its online content, everyone wondered: how could that possibly work? If most other news sites were free, who would pay for this one site alone? Another issue comes from behavioral economics, the branch of economics that is based on the obvious fact that humans aren’t rational most of the time. Let Dan Ariely explain the problem of “anchors”:
“The main problem of this approach is that over the years of free access, the New York Times has trained its readers for years that the right price (or the Anchor) is $0 – and since this is the starting point it is very hard to change it.”
So then was the New York Times doomed to fail? Not necessarily, said Ariely:
“The trick with anchoring is that although we are not willing to pay more for the same thing, we are willing to pay more for different things.  What this means is that one approach that the New York Times could take is to present us with a new experience so that we don’t associate it with the previous anchor, and are open to new pricing.”

A different approach is to create a “new experience” that “makes comparison shopping difficult”, says Shane Parrish. Take the case of the different plans provided by your telecom provider. Notice how they are sold as “bundles”?
“With one plan you get X minutes of talk time and Y data. Another offers Z data with W minutes.”
That makes it hard to compare two plans. It means more effort for you to decide which combo is best for you. Asking others doesn’t help since their usage patterns might be different from yours.

Airlines have gone the other way. Earlier, a flight ticket meant you got a seat, the right to carry a fixed amount of baggage, and a meal. Today, many airlines, specially the low-cost ones have “un-bundled” the package: your ticket only guarantees you a seat. Baggage, meals, even water costs extra! They don’t do this (only) to fleece you:
“The real purpose of separating costs (unbundling) is to make it harder for consumers to directly compare prices between airlines. It is now almost impossible to directly compare total prices for one airline to another without a lot of thought.”

So what do we do when it’s so horribly complicate to compare options? We fall back on rules of thumb or gut feelings. Inevitably, they are imperfect. But those imperfect choices can be predicted with a fair degree of accuracy. And companies use this fact to their advantage.

The solution then? If you can afford to pay for it and the cost doesn’t make any real difference to your life style, then go for whatever your imperfect rule of thumb or gut feeling tells you. And then (this is the key) stop thinking about it.

Comments

Post a Comment

Popular posts from this blog

Student of the Year

Image
As a toddler, my daughter loved Alia Bhatt’s songs, esp. the ones from Student of the Year . (That movie did have many good songs and well-choreographed dances). Fast forward to present day, when she is 12 yo. She rarely watches Hindi movies now, but one of the few ones she likes of late, Raja aur Rani ki Prem Kahani has, yes, Alia Bhatt.   If I had any hopes that there was anything to be read in the name of her toddler-time favorite ( Student of the Year ), they have been dashed. Our conversations come exam time are perfectly captured by this photo and its caption: In fact, the pic below captures how she and I look at her answer sheets – me intently, she with an expression of “It’s over, so why are you even looking at it?”   Of late, we pull her leg and tell her that she isn’t showing any signs of academic prowess, she’d better find a rich guy to marry. Some time later, she showed us this meme on the Internet: “Me No Study, Me No Care Me Go Marry Millionaire If He Die
Read more

The Retort of the "Luxury Person"

Image
Coming up with biting and witty retorts. It’s something we dream of, but rarely manage to pull off. Worse, the more we stew over the offending remark, the more likely we are to come up with that dream retort, as Calvin ruefully points out: During our last holiday at the Taj Resort, seeing my wife carrying towels to our poolside chairs, one of the kids there mistook her for a member of the staff and asked for a towel. When my wife narrated this to us, I did not imagine that my 8 yo daughter would come up with her own retort. But a day later, my daughter recapped the incident, an incident that didn’t even involve her in the first place , and said, “You know what I’d have told that kid who asked for the towel?”. And without waiting for an answer, she told us anyway: “I don’t work here. I too am a luxury person who is living at this resort. Go get your own towel.” We were highly amused by the phrase she had coined: “luxury person”. It certainly captures the kind of holid
Read more

Animal Senses #7: Touch and Remote Touch

Instinctively, we think touch is based on contact. Not entirely true, explains Ed Yong in Immense World – there’s a more important aspect than contact: “These incredible feats are possible through movement. If you rest a fingertip upon a surface, you can get only a limited idea of its features. But as soon you’re allowed to move, everything changes. Hardness becomes apparent with a press. Textures resolve at a stroke.” As you run your fingers over a surface, they hit the tiny peaks and troughs and set off vibrations in the mechanoreceptors at their tips.   At the tip of its snout, the star-nosed mole has many pairs of hairless appendages. It uses them to touch things around itself. Alive or dead? Food or ignore? It does these movements at an insane speed. In the time it takes to blink our eyes, the star-nosed mole can probe, identify and swallow its food. “Light may be the fastest thing in the universe, but light sensors have their limits, and the star-nosed mole’s sense of
Read more