Pricing of broadband access services is not so different from pricing as viewed for any other popular consumer product, luxury goods excepted. Price anchoring applies for list costs of consumer broadband services no less than for other products.
"Price anchoring" is the reason most consumers able to buy gigabit internet access do not do so. Price anchoring is the tendency for consumers to evaluate all offers in relationship to others. As the saying goes, the best way to sell a $2,000 watch is to put it right next to a $10,000 watch.
Anchoring is why "manufacturer's suggested retail pricing" exists. It allows a retailer to sell a product at a price the consumer already evaluates as being "at a discount." Price anchoring is why a "regular price" and a "sale price" are shown together.
In the internet access business, price anchoring explains why gigabit access speeds are priced in triple digits, while low speeds are priced in low double digits, while the tiers most consumers buy are priced in between those extremes.
Service providers who sell a range of internet access products differentiated by speed and price might “typically” find that a minority of customers actually buy the “fastest” tier of service. That is largely because of price anchoring.
People often evaluate a "best quality offer, at highest price" one way against the "lowest quality offer, at lowest price, before concluding that the "best" value is the mid-priced quality, at the mid-tier price.
That was true in the past when the top speed was 100 Mbps as well. Most consumers did not buy the "highest quality" offer, whatever it was.
One study by Parks Associates shows that as speeds climb, the percentage of buyers who think their service is “faster than required” grows. Nearly half of early gigabit speed buyers reported that the service was “faster than they needed.” That means a value gap exists. Consumers perceive that what they are buying provides excess functionality, and they know they are paying for that excess, compared to other offers.
The “average” U.K. fixed network internet access bill might range from $33 to $41 a month, with a typical bill costing about $35 a month.
Keep in mind that 80 percent of U.K. customers buy landline services in a bundle containing at least two services, which might skew comparisons of stand-alone broadband access service prices. In other words, very few U.K. customers buy a stand-alone broadband service.
Also, customer preferences play a role, as faster services cost more, and demand for faster services is growing. “Ultrafast services (speeds above 100 Mbps) cost around £18 ($25) per month more than the equivalent superfast services with advertised speeds below 100 Mbps,” notes Ofcom. That suggests a typical “above-100 Mbps” monthly cost in the area of $60 per month.
Prices also might vary by usage allowance, plans offering “unlimited usage” costing more than plans with some usage cap.
The point is that consumers make rational choices about broadband just as they do for other products. Perceived value might be highest for services in the middle of the speed range, compared to the value of the fastest tier or service or the lowest.
All that could change rapidly if the cost gap between a 200-Mbps service and a gigabit service continues to narrow, in terms of absolute cost. In such cases the perceived value of the “good enough” solution and the “best” solution--in terms of cost--is relatively narrow. So the difference between the cost of buying a “good enough” solution and the “best” solution, when relatively narrow, will encourage some amount of trading up to the higher-priced product.
Value nearly always matters.
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