Humans are naturally indecisive. It’s been a reality in the past if you’ve visited an ice cream shop and were unsure of whether to choose between cookies or chocolate chip mints dough. The dilemma can become too difficult that people may even leave due to the stress. But, a good way to avoid this is to identify the options by their “most popular” option or the “flavor of the day.” The process of directing people to a particular level or product via this bandwagon effect can be essential as it creates a framework of reference for consumers. As some marketing gurus generailize, there is no cheap or expensive, it is all perception. Furthermore, the suggestion coupled together with an anchor cost permits users to make an easy either or not decision about paying for the anchor price. Most of the time they will choose yes since it’s the easiest way to alleviate not just their pain this product relieves however, also the burden of making a decision. Making the cost closer to their “willingness to pay’ amount will enhance the ease of buying it.
There are a variety of strategies can be used to increase sales conversion rates. We have discussed about nudging in another article. In this article we will discuss price anchoring.
In a nutshell, Price anchoring is a strategy whereby a business offers a product or service at a higher price point than its competitors, making the customer believe that they are getting a good deal. This is not unethical, and it essentially enables inherently undecisive buyers to make up their mind faster through the power of suggestion and anchor bias.
While most often to making price anchoring work is to ensure that the customer perceives the value of what they are getting to be greater than the price they are paying, there is also an use case for reverse anchoring. If done correctly, this can be a powerful sales conversion strategy that can help businesses increase their revenue. When a customer is considering a purchase, they may assess the cost of the item against the value they are getting in return. If the customer feels they are getting more value than they are paying, they are more likely to make the purchase.
A price anchoring strategy relies on the primacy effect, which is sometimes called an anchoring bias. The idea of a number even one that’s far from the actual answer, has an impact. Two students were asked to answer a question:
Then they were asked to guess at the death date. The first group was considerably less (average fifty) in comparison to the next groups (average for 67) as they were held by the smaller number.
As authors like Dan Ariely have pointed out, decisions are not always rational. People might display a primacy bias when it comes to making decisions. As consumers, we perceive the prices relative to our purchasing power. The best piece of information is the first piece of information. It establishes a frame of reference and sets the stage for the other information.
This means you can use the first price your customers see to influence how they feel about subsequent prices. Higher-than-average initial prices may direct their attention to the products’ positive qualities, whereas lower initial prices may direct their attention to the products’ negative qualities.
Low initial prices direct their attention to the negatives. In fact, the part of our brain that makes decisions is only one part of the brain. The other part of our brain, called the limbic system, helps determine our emotions. That is right. We make economic decisions with the part of our brain that determines our emotions.
When Steve Jobs introduced Apple iPad, 999 was prominently displayed on the screen. He outlined the many virtues of iPad which justified a 999 price point, however when he announced the introductory price of USD 499, that sounded like a USD 500 discount to the buyers.
Anchor bias is a powerful device used by marketers. What makes this effect so magical is that it works even if you’re aware of it. The truth is, we’re suckers for this psychological ploy and we all convince ourselves that we make rational, calculated buying choices.
One of the questions asked in a real estate apprisal study was how well the home inspector apprised the home value. All of the real estate agents were asked about the list price, but all of them denied that it factored into their decision.
People know the list price will influence their decision, and they’re not ignoring it enough to overcome the anchoring bias. This means that people fall for this trick time and again while still convincing themselves that they don’t.
Anchoring bias is a powerful thing to harness in your pricing strategies, website copy and ad campaigns. Make the most of it and watch your conversion rates soar! Price anchoring is an important sales strategy for small businesses because it can help increase sales conversions. By setting a higher price for a product or service, you create a reference point that customers can use to compare other prices. This can make your other prices seem more attractive and increase the likelihood that customers will buy from you.
Price anchoring can help increase sales conversion by providing customers with a reference point for evaluating the price of a product or service. This reference point can be used to encourage customers to purchase a product or service, or to motivate them to consider making a purchase. Additionally, price anchoring can help businesses to increase their profits by setting prices that are above the customer’s reference point.
You can classify your customers into two broad categories.
Another way to use price anchoring in your inbound markmarketing automation strategy is to use it to increase the average order value. This can be done by offering discounts for larger orders, or by bundling products or services together at a discounted price. By increasing the average order value, you are able to increase your overall revenue. Below is a list of some of the tools you can consider for Price Anchoring:
Convertbloom allows you the flexibility of multiple tools to experiment and iterate the various price anchoring techniques during your growth hacking journey. However, be careful of a few potential pitfalls:
Price anchoring is an important sales conversion strategy that can help small business owners increase sales. By understanding how price anchoring works, they can use this technique to their advantage and boost conversions. When used correctly, price anchoring can be a powerful tool that helps close more sales and grow your business.
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