The Psychology of Anchor Pricing

Anchor pricing is a common practice in retail, and although you may not be familiar with this terminology, you’ve undoubtedly seen it in practice. The psychology around discount pricing, is that the customer will only view something as a deal if there is a comparison.

Whether you sell products or services, there are ways to leverage this type of psychological strategy to increase higher purchases.

Using an Anchor for pricing 

The first method of price anchoring is to use an “anchor” to show a comparison. In this method, you would showcase an anchor at a premium price point by highlighting it in some fashion to make the other options look more desirable by comparison. You would want the anchor to be set at a high initial price to make the other options look like better deals and thus more desirable to the consumer.

Comparison pricing

The most common method of anchor pricing is the one you’re probably most familiar with, which is the principle of showcasing discounts by showing the original price next to the sale price. By showing the customer what the original price was, they can see that by comparison, there is a better deal. In many cases, this can drive more sales than simply indicating the percentage off.

How can businesses outside of retail use this method?

If you have a business selling a service, and you are not running a sale or don’t have comparative services to showcase, you can still use this by using competitive data as a comparison.

For example, even if you know that you are selling a product or service at a price that is well below your competitors, without showing that comparison, the standalone price doesn’t look like a good deal to the customer. You don’t need to call out a competitor by name, but you could showcase something to the effect that “average competitor price is XX”. This will help the end-user see that your service is a good deal.

The Takeaway

It’s only a good price if there is something to compare it to.