Imagine a pricing tactic where you could influence customers to purchase one of your products at the exact price that you choose. While this may seem implausible, marketers that use price anchoring realize that this idea is not only possible, but actually very common. Price anchoring is a tactic that takes advantage of confirmation bias and other psychological factors in a way that makes your pricing desirable to customers.
How Price Anchoring Works
Price anchoring occurs when companies use a product with a high price as an anchor in order to make a similar, lower priced product more desirable in comparison. Price anchoring helps customers frame the value of a product, even though they do not know the product’s true value. For instance, in the brick and mortar world, a 16 oz. jar of salsa that costs $4.99 might seem expensive on its own, but juxtaposed with a 20 oz. jar that costs $6.99, the 16 oz. jar might seem like a bargain. Customers will feel that they are getting a better deal, thanks to the store’s strategy of placing the expensively priced jar to set the framework for the value of the cheaper jar. The same strategy oftentimes becomes even more effective in the e-commerce world, as many products, services, and SaaS programs are offered in a variety of differently-valued tiers.
Prices are relative, so a customer’s idea of what is cheap or expensive comes solely from comparisons between the prices between other versions of your product or the prices they see from other companies. The first price that your customers see will influence their perception of future prices or prices of similar products. If your customers see a product that regularly costs $10, then $20 will seem expensive to them, even if that is what the product is worth. However, if customers are familiar with a higher pricing point for a product, any lower price will seem cheap or make them feel like they are getting a deal. Prince anchoring can significantly impact your business and your profitability. Here are a few ways in which you can implement and optimize a price anchoring strategy for your business.
Offer Tiered Pricing
Your pricing page is a great place to implement price anchoring. When you are advertising your services on your pricing page, make sure to offer multiple tiers or categories of services so that your customers can use price comparison to make a decision that will be favorable for your company. One way you can use this strategy is by offering a basic package for a specific price and then offering a premium package with several more features that costs just a little bit more than your basic package. Customers will compare the two and realize that they could receive many more features for just a little bit more than they were already willing to pay, and they will be more likely to purchase the premium package.
Without a comparison, customers will have no frame of reference on whether or not the package you offer is a good deal, and they might think that your premium package is not worth the price you set. Price anchoring will give customers a pricing point to use that will influence their decision.
Another way that you can use price anchoring on your pricing page is by comparing a premium to a standard or basic package in an opposite manner than the example before. If you offer a premium package with features that the average business owner does not need, but you offer a comparable package with just a few less features than the premium one, then customers may flock to the standard package thinking they are saving a lot of money by avoiding unnecessary features.
Sandwich Your Prices
Sandwiching your prices by putting your most desired package in the middle of your tier is an effective way to use price anchoring on your pricing page. Customers are more likely to avoid the high or low end of a tier, so creating multiple tiers will encourage them to seek out the options in the middle. If you have a product page, put similar products close to each other so that customers can use your more expensive and least expensive version of the product as reference points. No matter which way you choose to use this strategy, multiple tiers is key to product and service sales because it allows price comparison to guide your customers’ decisions.
Use Your Competitor’s Prices as Anchors
Do not be afraid to put your competitor’s prices on your pricing page if they make your prices look more desirable. Customers will look at your competitor’s high prices as an anchor, and your prices will seem low in comparison. Make sure to detail how your service or product is better than your competitors or showcase your product’s features in comparison with theirs.