Price Anchoring: Using Customer Biases to Your Advantage
Price anchoring is a psychological pricing strategy that can help your business make more money. Here's how it works.
Brody Hallon July 3, 2022.
Price anchoring is a cognitive bias that occurs when people rely too heavily on the first piece of information they receive when making decisions. In the context of pricing, this could mean that a consumer is more likely to purchase a product if the initial price is lower than they expected, even if the product is not necessarily a good deal. This bias can be exploited by retailers who may start with a high price and gradually reduce it, leading consumers to believe that the product is becoming a better deal.
How Does Price Anchoring Work?
One of the ways in which people make judgments is by using heuristics or mental shortcuts. One heuristic that is commonly used is called anchoring. Anchoring occurs when people are presented with a number and then use that number as a starting point for making judgments about other quantities. For example, if a buyer is presented a price by a company that is shortly after reduced by a discount or sale, the customer is likely to react positively to this reduction in price, even if it isn’t a great deal.
How to Implement Price Anchoring
When anchoring a price, it is important to consider the consumer's reference point. The price anchor should be near the consumer's reference point, but not too close, or they might not consider it. Additionally, the type of product and how much information the consumer has about it affect how effective the price anchor will be.
How Price Anchoring Increases Sales
A study published in the Journal of Marketing Research looked at how price anchoring can impact sales. The study found that when a higher-priced product is placed next to a lower-priced product, it can increase sales of the lower-priced product.
This finding suggested that price anchoring can increase sales by making lower-priced products seem more affordable. It's important to note that this effect only works when there is a noticeable difference between the prices of the two products.
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