How to Use "Price Anchoring" to Make Offer More Appealing ⚓
- Pei Yen Hew
- Nov 9, 2024
- 3 min read
Updated: Aug 19
PRICE ANCHORING is a psychological pricing strategy where a seller sets a high initial price (the anchor) for a product or service before offering it at a discounted price.
When setting prices, it's crucial to consider NOT what marketers believe is a low price, but what consumers perceive as a great deal. Whether a price is considered low largely depends on whether it's benchmarked against similar products in the market.
1. With direct market references: It's perceived as a good deal compared to the competition.
2. Without direct market references: Consumers seek to bridge the information gap to make purchasing decisions.
How can marketers guarantee that consumers are not just willing to buy, but excited to purchase, creating a win-win situation? It all comes down to evoking that feeling of excitement and value in the consumer based on the information they receive.
Information Source > Feeling cheap > Consumption decision
Case Study 1
In 2010, Steve Jobs was on stage revealing the new iPad. A big screen behind him showed the price: $999. Then, Jobs announced that Apple had cut production costs, so they sold the iPad for $499. The number on the screen changed, and the audience began screaming and applauding.
Following that announcement, Apple sold 40 million iPads. After buyers were “anchored” to the $999 price tag, $499 for an iPad sounded like a hell of a deal.
Analysis
The information source is the announcement made by Steve Jobs during the iPad launch event in 2010. The feeling cheap is evident from the contrast between the initial price of $999 and the reduced price of $499.
The consumption decision factor came into play when Apple sold 40 million iPads after the price reduction, indicating the significant impact of anchoring the initial higher price on consumer perception and decision-making.
Case Study 2
In a live streaming room, a host presented a popular shapewear and revealed its original market price, setting the stage for a compelling offer. The host disclosed that the garment typically sells for RM299 in the market.
However, for the duration of the live stream, the host announced a special discounted price of RM199 for viewers. The comparison of the original market price of RM299 to the discounted price of RM199 created a strong sense of value for the viewers.
Additionally, the host leveraged the concept of value-added effect by offering complimentary products along with the shapewear. The customers were made to feel that they were gaining additional value through these complimentary products.
How can marketers use Price Anchor bias?
While offering items at a reduced price may result in a loss, businesses can benefit from increased sales through upsells and cross-sells. Known as loss leader pricing, it is well-suited for products with wide appeal, such as beverages and snacks, which are highly demanded and can attract more customers to the store.
Advantages: Enticing customers to buy multiple items in one transaction increases sales per customer and can offset the profit loss from the promotional markdown.
Disadvantages: Similar to frequent discounting, customers may become unwilling to pay the original price. It can lead to decreased revenue if discounted items fail to increase order quantity or average customer spending.
Price Anchoring is also best for companies with a tiered pricing model that offers various versions and associated features of the core product, at different prices.
Advantages: It can direct users to your preferred price tier and help them decide to buy your offering. Multiple pricing options allow customers to compare easily.
Other Psychological Tactics That Attract Customers:
Charm Pricing: Selling a product for $9.99 instead of $10 makes it seem more affordable.
Decoy Pricing: Present 3 product options where the middle one seems like the best value, influencing customers to choose the more expensive one.
Center Stage: Highlighting a premium product with additional features and a higher price to make other options seem more reasonably priced.
Unless you’ve created a NEW product category, customers already have ANCHORS. Compare their spending habits, find out what they are, and use them to make your offer more attractive!
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