The psychology of price anchoring
Updated on Jun 07, 2020
I recently wrote an article on iWeb’s website about using price anchoring online to increase conversions.
Price anchoring takes advantage of the ability to influence peoples decision making. It is a form of cognitive bias. By setting an initial price for a product or service, all future decisions are compared to the original anchor.
For example, a second hand car dealer displays a price in the window of a car. All negotiations after that are based on the original price. This means that any lower price seems more reasonable, even if that lower price is still higher than the market value.
This method of pricing extends to online. A £1000 watch looks like a bargain next to a £5000 watch but expensive next to a £50 one. The position and order of your products could heavily impact the buying decision of your customers.
In a pricing study, subjects were asked to estimate the worth of homes. Two groups were tested. One was made up of undergraduate students and the other estate agent experts. Pamphlets were provided with information about the surrounding houses; some had normal prices and others were artificially inflated. Results found both groups were swayed by the pamphlets with higher prices. In the follow-up interviews the professionals denied any influence by the initial price despite the results showing otherwise. By placing a premium product near a standard option you can create a clear sense of value. This makes the lower priced item feel like a bargain.