Do you find yourself gravitating towards the middle option when given three pricing options? Or maybe you’ve experienced feeling like a bargain shopper by opting for the cheapest option even though it may not meet your needs. This is the power of price anchoring, and in this blog, we’ll break down everything you need to know about it. Jump around using our Table of Contents.
• Definition • Types of Price Anchoring • Examples of Price Anchoring • How to apply price anchoring to your business
Price anchoring is a cognitive bias that occurs when a consumer uses an initial piece of information, such as the price of a product, as a reference point in making a subsequent decision. This initial piece of information is referred to as the anchor, and it influences the consumer’s perception of the value of the product being considered. Price anchoring is often used by businesses as a pricing strategy to influence consumer behavior.
Types of Price Anchoring
There are two types of price anchoring:
- Comparative price anchoring: This is when a product is priced in relation to other products in the same category. For example, a luxury car manufacturer may introduce a new model priced higher than their existing models to make them appear more affordable.
- Decoy pricing: This is when a business offers three pricing options, where the middle option is the one they want to sell the most. The higher-priced option acts as the anchor to make the middle option seem like a better deal. The lower-priced option serves as a decoy and makes the middle option seem like the best value.
Examples of Price Anchoring
One of the most well-known examples of price anchoring is the decoy pricing strategy used by popcorn vendors in cinemas. The vendors offer three sizes of popcorn: a small for $4, a medium for $7, and a large for $8. The medium option is the one they want to sell the most, so they price it higher than the large option to make it seem like a better deal.
Another example of price anchoring is the practice of pricing products at $0.99 instead of rounding it up to the nearest dollar. This makes the product seem cheaper and more affordable, even though the difference in price is only one cent.
How to Apply to Your Business
- Understand your customers: You need to know your customers and what they consider valuable. This will help you determine which pricing strategy to use.
- Use comparative price anchoring: You can use comparative price anchoring by pricing your products in relation to other products in the same category. This can help make your products appear more affordable and increase sales.
Use decoy pricing: You can use decoy pricing by offering three pricing options and making the middle option the one you want to sell the most. The higher-priced option acts as an anchor to make the middle option seem like a better deal