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    Arbitrary Coherence and Coral Prices, More Than Supply & Demand

    You know what really grinds my gears? Over priced, eraser tip sized coral fragments. Often people justify these prices by the coral’s popularity–if the corals are overpriced no one would by them, right? There is some validity to that notion, but there is much going on here than what people perceive to be supply and […]

    grind my gears

    You know what really grinds my gears? Over priced, eraser tip sized coral fragments. Often people justify these prices by the coral’s popularity–if the corals are overpriced no one would by them, right?

    There is some validity to that notion, but there is much going on here than what people perceive to be supply and demand. Price and value are two distinctly different animals. Unfortunately we understand price well; it hits our bank accounts. We often miss the value piece.

    That’s because the invisible hand cures all… except for human stupidity. A large part of this coral stupidity has to do with arbitrary coherence.

    I know a bit harsh, accept my apologies in advance, but this stupidity I speak of is not unique to any individual. As humans, we are wired this way; when it comes to value propositions, as in how many dollars am I willing to spend for this item, we’re pretty bad. [Especially in such a small, high friction market that is the ornamental marine livestock industry].

    In brief, arbitrary coherence is when we make price anchors on items that are actually arbitrary. Paradoxically, they are also coherent because they effect our current and future valuation of items. If we set a high anchor, even if it’s completely unrelated, we are more likely to spend more money on another purchase.

    Arbitrary coherence is often taught in psychology, behavioral finance, and marketing classes because of the power it can have over individual spending. [A popular MIT example is outlined here by Predictably Irrational author Dan Ariely, where the last digits of student’s social security numbers influenced the price they were willing to pay for wine.]

    So how does this apply to corals? If the OMG LE Chalice coral is priced at $3,000–we have a very high anchor. By comparison, all corals less than $3K now look incredibly affordable. [Similarly, a few weeks later when that same overpriced OMG LE coral is on sale, it also looks like a steal.]

    But here’s the catch–the initial price was completely arbitrary. In now way does a sub 1″ captive propagated coral fragment for over $1,000 USD reflect cost drivers such as relative rarity, market demand, survivability or overhead costs. It was just… a number. These extremely high prices are nothing more than marketing.

    So before pulling the trigger on that expensive fish, coral or invert, remember to calibrate your pricing anchors. Don’t swing at the high balls and look at value adding factors such aquaculture, length of time in captivity, and customer service.

    12 Comments

    1. October 25, 2010 at 1:00 PM | Permalink

      Amen.

      (and love the Family Guy reference… I think you should get Peter to pen a few articles in the future… 😀 )

    2. October 25, 2010 at 4:53 PM | Permalink

      Supply and demand… always.. keep in mind that this hobby has a lot of money in it, and some people want the newest and the best regardless of the price tag. A lot of people will try to take advantage of this, I see it everyday… However, Mommy and Daddy told all of us when we mowed our first lawn how to spend our hard earned cash…

      So the guy who is NOT buying thousands of dollars in corals should probably not speak about coral pricing. It’s like hearing a bunch of Honda tuners complain about a Lamborghini. Every hobby has it’s tiers…. usually driven by income and your own money management.

      Keep in mind, coral is not like something we can manufacture.. there are no “materials” or real “labor” costs to factor into coral, so the pricing does not apply the same as most things. It is no different than someone paying 20K for Elvis’s fruit of the looms… it’s not the underwear themselves worth 20k, it’s the fact that some Elvis nut will have this while the others kick rocks at the fact they didn’t jump on it.. At least the coral grows and can be shared.

      -Kraylen

    3. October 25, 2010 at 5:04 PM | Permalink

      i would have to argue that there is no “arbitrary coherence” in this case. Consumers may be stupid about a lot of things, but they understand price and value. If someone spends $3000 on a coral, it is safe to assume that the value of that coral to that person is of equal or greater value of the price. i can’t picture a scenario other than a monopoly, where a producer can arbitrarily tag on a price and stay in business, even in a monopoly, equilibrium price points function according to demand. Not sure what the plan is in directing people to stop buying at retail but i can see that only one side of the picture is being addressed. The coral market always sees large profit in the beginning, until the coral floods the market and sees a large drop in price. At which point vendors and collectors see no profit on that particular item and are forced to seek out new items. By reducing prices of new coral, we are basically lowering the appeal in bringing in new species of coral. If there is no profit in it, there is no business. if you believe that distributers and collectors are getting rich by greedily altering prices, i would suggest opening a business and undercutting everyones price, that’ll show em.

    4. October 25, 2010 at 6:17 PM | Permalink

      Amen! But, this applies not only to the stupidity in corals but also int he technologies to support those corals. And these “trends” are happening so quickly from Cone Skimmers to LEDs…

      Though it is market pricing and you can charge an arm and a leg, it doesn’t make it right… “Just because you can, doesn’t mean you should”

      So, someone please tell Aquailluminations that their SOL light is way overpriced and that they should be seeking to make their money on volume not on margin.

      If you can get that price point down from ludicrous speed to ridiculous speed, I might buy one. As it stands right now, I am planning a DIY hack job on my tank.

    5. October 25, 2010 at 6:18 PM | Permalink

      I am using Aquailluminations here as an example only because I feel a little bit like a crack addict with no cash whenever I see the banner ad for it.

    6. danger
      October 25, 2010 at 10:24 PM | Permalink

      You know what grinds my gears? The fact that Americans paying these prices is driving ALL our local decent corals off-shore…. You’d think with the world’s largest coral reef at our door step we’d have the pick of the litter. Unfortunately, due to our import laws and the ridiculous demand in the US, WE DONT!

    7. October 26, 2010 at 3:50 AM | Permalink

      I remember a marketing survey done in the late 90’s? that tied the MSRP of a Lexus to its desirability/demand. It found that despite the car being the same, if the price was below a certain threshold, people found it less desirable. We do associate a certain cost or price point with luxury items, and if that cost is lowered, we no longer think it is as exclusive or worth it.

    8. October 26, 2010 at 8:07 AM | Permalink

      If you go to a reef shop in Australia, you will be disappointed because all the nice stuff is shipped here.. why? America will pay more.

    9. JCurry
      October 26, 2010 at 1:36 PM | Permalink

      The issue is simply about demand. If you’re the type of person that has to be the first one have the latest & greatest you better be willing to pay for it. Or you can wait a few months and pay significantly less for the same coral (acans for example they’re back down to $3-5 a head.)
      If you like the coral just wait and buy it a the bottom of the market, its still the same coral.

    10. n0rk
      October 26, 2010 at 2:58 PM | Permalink

      Amen brother! The hype that’s invading our shores is utterly ridiculous and entirely unwelcome. Stupid propagation names applied to collected corals == ridiculous.

    11. Nicksadaka
      October 26, 2010 at 7:21 PM | Permalink

      Just wanted to second Kraylen’s love of the Family Guy reference…I’m on board for a “Peter-post” too, or even a “Stewie or Brain post” (yes, “Brain” is purposefully misspelled for Family Guy fans!). Instead of calling it “Peterotica”, we can call it “Peteraquaria”!!!

      Lastly, I’d encourage everyone to consider seeing the beauty and value of the “forgotten corals and frags” rather than jumping on whatever the current bandwagon is. Bandwagon’s are fine to jump on if they are what you really and truly love, but don’t discount the cheap Caulastrea frags just because they are cheap…coral like this can be just as, if not more beautiful and interesting than the $1000 chalices and Scolys. Not saying spending high or low is good or bad, but be true to what you really like. We’re not talking about technology here where you are paying more for greater function…we’re talking about what YOU like in your reef critters.

    12. Nicksadaka
      October 26, 2010 at 7:22 PM | Permalink

      Sorry nanoReefblog…I credited Kraylen with your Family Guy love…my mistake fellow Family Guy fan!!!

    One Trackback

    1. October 26, 2010 at 8:02 AM

      […] Arbitrary Coherence and Coral Prices, More Than Supply & Demand __________________ nikkibabee – 03:05 PM : die nikkibabee – 12:19 PM i hate when someone says "we'll see" […]

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