When I was a child I was getting into mountain bikes, and my friend was selling his… we got into the negotiation, and I had no idea how much it was worth…
My friend said he would normally only sell it for Ł95, but would accept Ł65… I accepted instantly.
I later found out from another “friend” that he was planning to sell it in a local newspaper for just Ł45, and clearly I was not happy.
This was my first experience with price anchoring, and today I want to cover exactly what it is, how it affects EVERYONE (even those who know about it) and how you can use it to your advantage.
What is Price Anchoring?
Essentially it is making someone think of a number, and then pricing your product or service below that number, thus causing the prospect to feel he or she has saved money and got a bargain.
If you have ever seen a “RRP $150, now just $99″ then you have seen price anchoring in action.
Why the iPad Seems Cheap
Here is the exact wording from Steve Jobs’ iPad presentation, see if you can spot the anchoring:
“What should we price it at?” If you listen to the pundits, we’re going to price it at under $1000, which is code for $999.” He put a giant “$999” up on the screen and left it there for a loooooong time before finally going on. “I am thrilled to announce to you that the iPad pricing starts not at $999,” said Jobs, “but at just $499.” On-screen, the $999 price was crushed by a falling “$499.”
So even the biggest brands in the world do it.
This works due to the power of suggestion, when Steve Jobs mentioned the $1,000, we made an estimation in our heads based on that number… when it was revealed to be lower, our natural reaction is to think that it is a good deal.
My Word Anchoring Theory
The following is based solely on my own opinion, but recently I was speaking to a friend who has a report that he is selling… it turns out the report (despite being great information) is not selling very well, my suggestion was to stop calling it a report… perhaps instead call it “digital training”.
The reason for this is that we are used to “reports” being free… so I suspect we are anchored to estimate it to be free, and when the price is revealed, it seems expensive (even though it is a low price point).
Price anchoring is all around you, not just in the Internet Marketing world.
Unfortunately, even being aware of it is not enough… studies have been done where test subjects have had this explained to them, then told to watch out for it and be wary of it during the experiments, yet despite all of this, they technique STILL worked.