Price anchoring is a great tool to have in your arsenal and it can be effective to help develop a frame of reference for your customer. Price anchors are there to guide your customers to make a purchase decision.
In this blog we will take a look at the following:
Price anchors are there to guide your customers to make a purchase decision. It allows for contrast which people are drawn to as most people are indecisive.
If your customer is buying a product from you, they like to use price as one of their decision makers. If they’re buying a laptop and one is $600 for a 15-inch monitor and another is $800 for a 17-inch monitor. Their brain needs to decide whether it’s worth paying $200 for two more inches in screen size.
Remember if your product is the only option available for your customers to buy then it isn’t a case of whether the price is high or low. You can only judge how expensive or cheap it is if you have something to compare it with.
Despite its benefits, price anchoring can also be a hindrance to your online retail company too.
There are other ways you can prove value to your customers without anchoring your price, like using a loyalty program.
An ineffective way to price anchor is to include a fake price on an item, as well as a lower sales price. The only problem with this is that the sales price is just the original price the company where hoping to sell their product for.
So, if your ecommerce store sells apparel and you hope to sell your newest jumper for $40, you would anchor the price, by suggesting the original was $80 and it’s now selling for $40.
This practice is bad because the item has never been listed as the “original price” of $80.
In this instance, you’re being dishonest with your customers. You’re making customers feel as though they’re getting a good deal when in actual fact they are not. When you use such discounts you cause yourself problems.
When you do actually have a big sale, the value and excitement of that sale are reduced. Why would someone be interested in a huge 25% off sale, when you previously were offering 50%?
Your online customers are able to check prices themselves, and if you have a loyal customer base they’ll know straight away that you’re trying to mislead them. They will know the price was never $80 for the jumper.
Anchoring your price in this way means you underestimate your customers and their ability to compare prices with other online retailers.
Online retail poses a problem for those who want to price anchor in this way. They’re underestimating their customers. Customers can easily compare prices with other online retailers and will do this.
If you don’t want to lose your customers trust, then you should try to be as honest and open as possible.
One way to price anchor effectively is to compare the price with something else.
Suppose your ecommerce store sells protein powder and other gym supplements. Your new protein powder costs $20.
In order to know whether this is good value, you need to be able to compare it to something else.
So if the protein powder is $20, but for $49 you can buy the protein powder, protein pancake mix, and three shakers. Now you have a way to compare the two packages. You might now think the $20 sounds reasonable, or you might decide it’s worth it to buy the larger package. Either way, you have been able to anchor your text effectively and can now decide whether you can justify spending the extra.
Adding the second package with a different price point changed the conversation to focus on the value of the items.
A $1,000 Versace bag does not pose any greater function than a $50 bag from your local store.
Versace has set their anchor though, and for this reason, they can sell their bag for a higher price. They have the benefit of social value.
What would happen if your local store started increasing the price of their bags to $1,000 too?
The bag would never be sold. The price is so far removed from the anchors already set within that shop, to have a bag at $1,000 would be absurd and seem like the customer was not getting a very good deal.
Price anchoring is okay when used to compare the price and value of something but not when used to trick your customers.
If you want to run a successful online retail business, you need to be as honest with your customers as possible.
Transparent pricing will help solidify their trust in you and become a repeat buyer.
It’s now so much easier to get smart with how you price your items and analyse your customers. There are other ways you can offer targeting discounts when needed, without trying to trick your customers into buying from you.
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Connect with a Loyalty Analyst