Price anchoring is used to create a first impression in the customer’s mind, and if that “anchor” is a very high or low price compared to your main product, this is what the customer will use for comparison when judging the value of your main product.
For example, take a local business consultancy or marketing agency who has a typical project cost of £10K. If they create a high-end, high-value version of their proposition which is at least 2 to 3 times more expensive, i.e. £25K, and as long as it is introduced first to the customer, the customer will think that the £10K option is great value in comparison. Otherwise, if you just go into the customer and say “here’s my proposal, its costs £10K”, the customer will have gone up from zero to £10K rather than coming down from £25K to £10K.
Now, both the £25K and the £10K proposals do need to be proper products: the £25K proposal needs to have as many extra features and high-end services that you can think of, and the £10K proposal must represent the best value you can offer at that price. So, it will take you a bit of work and effort to write the £25K proposal, and you might not sell it, but it will have the effect of increasing your customer’s perceived value of the next-best option.
The same psychology can work in reverse too. Imagine you are going to the cinema and buying a drink of coke. The smallest cup (0.5l) is £4.50, a medium cup (0.75l) is £4.99 and a large cup (1.0l) is £5.99. By pricing the smallest option at a relatively high price, it makes the medium size version look great value in comparison, so most people would choose that one. However, if you didn’t have the small cup size for comparison, and someone offered you a 0.75l cup of coke for £4.99, you would probably think that sounds expensive.
So you can see how by suggesting a price that anchors the customer’s mind, you give them something to compare your main product to, and do so in such a way that they think it offers great value.
You don’t have to use your own prices either. You could refer to other, much more expensive options that are available in the market and put that thought into the mind of the customer before you introduce your offering. So, for the small local consultancy, they might say “fees from a big city consultancy firm would be well in excess of £100K for this type of project, but my proposal is only £10K”. Again, you are providing the customer with a point of comparison that they can use to judge the value of your offering.
Try using this strategy next time you are working out your prices and see if it helps.
Mark Peacock: The Pricing Coach
Mark’s mission is to help small businesses unlock value through better pricing strategies and price coaching. He is passionate about pricing and how it can be used to achieve improved results quickly and effectively.
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