Price anchoring is a great sales technique which is the practice of establishing a price point that your customers can
refer to when they make a buying decision. The psychology behind anchoring is a common cognitive bias which refers to the
tendency to rely on the very first piece of information offered. For instance, when you see a discount on a website such
$50 $25”, the $50 is the price anchor for the $25 sales price. So, when you compare $50 to the $25 sales price then
you think you are getting a bargain. Are you really?
The price of a product is relative and not cheap or expensive in reality. People love to compare when they are planning on buying something and having a price anchor enables them to do that. Let’s say you would like to buy a smartphone. You have two different offers for the same phone, one has a screen size of 6” and the other one has 5.5”. The first costs $1200 while the latter is only $700. You might think that the $700 smartphone is a great deal as you pay $500 less and the screen size is only a half-inch smaller which is more than enough for you. Well, that is exactly what the retailer is going for, they are using the more expensive phone to be your anchor point so you would go for the cheaper one. It’s pure human tendency to perceive a purchase like this, our common cognitive bias always tries to veer us towards the best reward for our money and effort.
People are naturally indecisive, just think back to the last time when you couldn’t choose from a menu in a restaurant where you haven’t been before. Some can decide faster than others, however, there are some people who get anxious when they can’t decide quickly and they would rather walk away than dealing with the associated stress. A frame of reference is essential in dealing with such situations. A suggestion paired with an anchor price allows people to make an easy yes or no decision on paying the anchor price. More often they would say yes and pay the anchor price as that is the easiest way to relieve the pain that comes with the product and also with decision making. Never underestimate the power of suggestion!
In general, we like taking risks but most of us would rather avoid them and not wander to extremes. For instance, most people would start their day with a medium coffee because that seems like a better option then getting a small or large one, although in most places, regardless of the size of the coffee it only contains one shot of espresso so we’re getting the same amount of caffeine for different prices, although that’s another story. The reason for choosing the medium-sized coffee is because it’s more than the least filling option and less than the biggest, it’s in the middle. This behavior translates perfectly to price anchoring, too. The lowest and the highest price on your pricing page will eventually drive your customers to go with the middle tier. On the other hand, there will be customers who would be satisfied with the lowest price while others will purchase the most expensive item or service, however, customers will have a peace of mind when they see that you covered a whole spectrum and, in most cases, they will go with the middle price which is exactly what you should go for.
The best way to take advantage of the anchor pricing strategy is to establish tiered pricing, providing different versions of a given product at different prices. By doing so, you will automatically build your anchor prices which enable you to enjoy the benefits of the multi-price mindset. Another great way is to show your competitor’s prices on your webpage which would give your customers a frame of reference from which they can assess your product or service but there is a risk behind it which is that they might go with one of your competitors. But if you are offering the best value, there is a small chance for that.
When selling a specific product, you might want to put another one next to it with a hefty price tag. That way, your customers use the expensive item as their first piece of information and would feel more comfortable purchasing the “cheaper” one. Also, you may want to make sure that the more expensive item is similar to the one offered at a cheaper price. Placing premium products next to standard options could help create a clearer sense of value for your potential customers who will see the less expensive option as a bargain.
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