African Countries in the UN
There's a relatively famous study done in 1974 that, when read, sounds a bit silly. A person is asked to spin a dial (like on the Price is Right) which will give them a number. Then, they're asked to determine if the number of African countries in the UN is greater or less than the number. Lastly, they're asked to estimate the number of African countries in the UN.
Now let's be honest – I have no idea how many African countries are in the UN. I'm guessing that you don't either. But what's interesting about this silly little experiment is that it's been tested over and over again – and provides consistent results every time.
Burgers in Las Vegas
Let's look at it another way. Let's say I pick a random financial figure – like $8,950. Then I ask you if a burger in one of the newer Las Vegas casinos is either more or less expensive than that number. You'd likely know the answer, right? I mean, seriously, who would buy a burger that was more than almost nine thousand dollars.
But here's the thing – what if I now asked you to price the burger in the new Vegas casino?
Before you tell me, I could ask you to do a similar exercise again – only within a different context. Only this time, my base number would be $19. I'd ask you to tell me if a 20 ounces of Jamaican coffee beans (whole beans) would cost you more or less than $19. And then I would ask you what you would pay for them.
Do you know what Tversky and Kahneman discovered?
That no matter what the random number was (which was completely unrelated to anything else), it would have an effect (a consistent one) on the person who had to answer the final question of value.
See, here's what they found – if the number was high, the average responses would be higher and if the number was low, the average responses would be lower. Even though the random number was completely random and unrelated.
And in the years since 1974, when the initial UN experiment was done, experiments have validated the bias (called anchoring) over and over again.
Value Determination Challenges
What we know is that we're all pretty bad at objective value determination. We're only good at comparative values. And that's because we're doing something completely different when we compare things.
Let's say I wanted to choose between two televisions – both Samsung. Both LED. Both 3D. Both Smart TVs. The only difference is that one is 55 inches and the other is 60 inches. And the cost is $1,100 more for the 60 inch television.
I bet, if I was asking for your advice, that you could help me figure out which one I wanted better than you could tell me the price of each. Right?
That's why The Price is Right is so popular. Because while it's easy to determine if the extra five inches is worth $1100, it's pretty hard to guess the right price of the cheaper television if we're given digits like 1,1,3, and 5.
Once we have an anchor price (the default number that primes us), we can easily make distinctions between the values of other offers. And we fall for the anchoring often.
That's why there's such a thing as MSRP. When you look at a car's price, and it says MSRP of $35,000 but is priced at $27,000 it looks like a deal. If the MSRP is $25,000, and the car is being sold at $27,000 – it's not nearly as exciting right?
But that MSRP is just a number. It doesn't do anything except create the anchor that impacts how we feel about the offer.
Pricing WordPress Extensions and Addons
No, I'm not going to suggest a perfect plan for the pricing of your plugins. But I do want to highlight some challenges that some of my friends have been having when it comes to pricing their plugins (and/or extensions).
I'm also not going to suggest you game pricing by putting a fake MSRP of $2000 next to your list price.
What I want to do is highlight a challenge that comes from selling dependent products.
What's a dependent product?
If you sell a WooCommerce extension, an extension for Easy Digital Downloads, a plugin that works with Genesis themes, or a plugin for Gravity Forms (a different plugin), you're created a product that requires another product.
When your product has a prerequisite of another theme or plugin, you're creating a dependent product. And if you're doing that, it's likely you'll have the pricing challenge of setting the price of a dependent product.
And the reason you'll face the challenge is because the initial product provides a natural anchor.
Let me flush that out a bit.
Let's say you spend $39 on Gravity Forms. Now you want to do something else and discover that there's a third party extension that can be purchased to deliver that value.
Guess what?
That $39 initial price functions as an anchor – especially if the purchases are close to each other. That makes it hard to sell something like Gravity Perks for $54.
Again, imagine you buy the Genesis framework for your WordPress site for $60. And if you wanted to purchase a child theme with it, the bundle would cost you an additional $40. Now you head to CobaltApps to look at Dynamik (a child theme that does a lot of cool stuff). If you've been anchored at $59 for the base of Genesis, seeing it priced at $79 might cause you to pause.
Dependent products have challenges when they price higher than their pre-requisite products because of an anchoring bias.
So what can you do?
I want to suggest three things you can do to deal with this anchoring.
- Price lower. This isn't a great answer, but it's a reality that you have to think about. If you're really close in price, lowering your price a bit to deal with this dynamic may help you see more sales.
- Anchor off manual alternatives. It may take a bit more text, but you can highlight what happens when you have to do it yourself, rather than using the add-on, and calculating the cost of that alternative. This creates a new anchor.
- Anchor off a competitor. Let's say there's a product out there doing something like you're doing. And let's say it's more expensive. You can use that as an anchor.
Whatever you do, test everything. There are no silver bullets.