The Consequences of Amazon’s Pricing Power

Roamy.
Mar 6 · 5 min read
Meme courtesy of agnostic.com

How Price Anchoring Works

Whenever we are presented with a buying opportunity, whether at the grocery store, a restaurant, or shopping for jeans online- our brains have to estimate whether the price of the product (or service) is good or bad. If you’re going out for coffee, for example, and you see that a latte costs $50- your brain will tell you: “Walk out and go somewhere else, coffee does not cost $50.”

Manipulating Price Anchoring

Essentially, price anchoring is the concept that we compare all prices to the first value that is given to us. This is why you see the “Suggested Retail Price” on clothing item tags when the actual price of the garment is significantly less. The retailer is trying to set a price anchor in your mind. They are basically saying, “Look! This should be $100- that’s what the designer suggested we sell it for. But we’ll give it to you for only $85- trust us, you’re getting a great deal.”

Amazon and Price Anchoring

How does Amazon play into all of this? Well, if Amazon is the first place most people check for pricing when they are doing their product search- Amazon sets the price anchor. They could set fair values (if something is worth $19.99 it is listed at $19.99) or they could manipulate the value (the $19.99 value object is listed at $49.99). Even if you don’t buy the item from Amazon, you have the price they gave you in your mind. Now, when you go shop elsewhere- maybe Google search or head to a physical retail store- you’ll be comparing every item’s price to that first one you saw on Amazon.com.

How to Avoid Price Anchor Traps

There is a simple solution to this problem. All that is necessary to avoid price anchor pitfalls is to determine, on your own and before doing any research, how much you would be willing to pay for the product or service. The best tactic is to make this a realistic range and write it down on a piece of paper.

Goods & Services

An approachable guide to world trade and the global economy

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Roamy.

Written by

Roamy.

Unapologetically, endlessly, curious. @RoamyWrites on Twitter

Goods & Services

An approachable guide to world trade and the global economy