Gigabit Price Anchoring

There are good reasons to believe that, in the gigabit era, most consumers still will buy speeds at the middle of the range, and in the middle of the price range, whatever those ranges happen to be.

When they have a choice of internet access speeds and retail prices, most U.S. consumers appear to buy packages in the middle of the range, as they arguably do with many products. Encouraging such behaviors is the intended outcome of price “anchoring” strategies.

Anchoring refers to the tendency to heavily rely on the first piece of information offered when making decisions. Once an “anchor” is set, other judgments are made in comparison to the anchor.

In other words, the best way to sell a $2,000 watch is to put it right next to a $10,000 watch, as consumers typically see “value” in the comparison.

That is why many types of products are structured into three price tiers, marketing professionals often calling those packages “bronze, silver and gold.”

So the primary sales benefit of selling fixed network gigabit packages is to sell packages in the hundreds of megabits range. A secondary aim to achieve the perception of leadership in the market.

Over the nearly-five-year period between 2011 and 2015, maximum advertised internet access speeds of the most-popular service tiers offered by U.S.cable operators have increased from “12 Mbps to 30 Mbps” in March 2011  to “100 to 300 Mbps” in September 2015, a factor of 10 increase in less than five years. That is nearly a Moore’s Law rate of change.

Of course, most consumers do not yet buy tiers of service featuring those “maximum advertised” speeds. Taking a look at products consumers choose to buy, median speeds have grown from 10 Mbps in March 2011 to 41 Mbps in September 2015. Keep in mind, that figure reflects the actual purchasing decisions made by consumers, not the faster speeds consumers can choose to buy.

As Google Fiber apparently has discovered, offering consumers 1-Gbps service roughly a “10 times faster, twice the price” of typical offers does not necessarily convince consumers to buy. That is the somewhat-odd element of the coming gigabit era.

So far, when offered a choice, most consumers opt for “good enough” services at lower speeds and prices, rather than the “fastest” service offered, at the highest price. Some will argue that is because internet service providers have not chosen to offer the highest speeds for the “normal” price. But that is a bit like arguing auto retailers do not sell Teslas at a Toyota Camry price.

Gigabit is part of the larger process of price anchoring.