Pricing Strategy: Anchors
In April, I wrote a blog post on pricing microviews. The post discussed some University of Florida research that discovered consumers think of value in the least significant digit of price. The conclusion was that the more precisely an item is priced, the more likely a seller will realize what he or she is asking.
As a follow-up to this blog post, I’ll share some information on pricing anchors that I recently Stumbled Upon.
A blog post by Ankesh Kothari discusses the use of pricing anchors to persuade consumers to make a desired purchase decision. There are three anchor examples in the post (and it is worth the read), but I’ll only focus on one here.
According to Kothari’s blog, The Economist magazine offered three subscription choices: $59 web only, $125 print only, and $125 print and web. David Airey, a behavioral economist, was puzzled and decided to discover why The Economist offered two options at the same price. Airey found that if the print only option was removed the majority of a test group chose the lower priced, web only option. With the print only option in play, most of the same group went for the higher priced, print and web option.
Airey concluded that the print only option was offered to sell the higher priced, print and web option.
With a little forethought and purpose, consumers’ choices can be managed with the right pricing anchors. Thanks, Ankesh, for a great post.
How have you used pricing anchors to manage buying decisions?
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July 8th, 2008 at 11:08 am
Jeff,
The Economist example is bizarre, although I don’t doubt it a bit. I guess, as consumers, we aren’t as complex as we’d like to think. When it’s $59 for Web and $125 to add print to it, I think of the Web as a bargain–less than half of the combo price. When the framing changes to “The Web subscription is really FREE with the combo” then my focus is on that high end choice, and Web-only is not in the game.
Checked out your April post–interesting stuff. As a consumer, I think those $19.95 prices are all gamesmanship– “they’re just trying to make $20 sound better.” However, when the price, WalMart style,is $18.63, I think “they are so precise, they are trying their best to sell it as cheaply as possible.”
The more precise price also makes you think about it just a fractional second longer; better chance of purchase.
Same thinking as in some housing developments and private roads, where the speed limit is 23 mph, or 17 mph. The odd digits register where more common numbers don’t.
This kind of info could spread. Maybe those pricey golf courses where few people “walk” anyway should charge the same greens fee for walking as with cart. Then people might think “cool, the cart is free” rather than “geez, this course is really proud of itself.”
Or maybe the rate should be $69.34 for 18, instead of $70, to look like the price is related to costs, rather than how high up the scale they think they can get away with.
Lots o’ food for thought here!
July 8th, 2008 at 11:51 am
Mike-
Great insights (and lots of them) as always. The free cart is a big draw. There’s a place near us that has a Monday special advertised as “$50 for two people, cart included”. As you might guess, it is packed on Mondays. (Now I waiting for the time when becomes “so crowded, no one goes there anymore” as Yogi would say).
As a counter example, think of airlines now, which basically operate in an a la carte manner. It is a real turn-off, at least to me.
All this pricing stuff is very interesting. Hopefully, I can make a couple more posts out of it.
-Jeff
July 8th, 2008 at 4:36 pm
Jeff,
Sorry if my comments are too lengthy; must be the provocative quality of your posts.
Plus, it beats real work, and I have to do SOMETHING to keep my mind off golf after last night. The pars I don’t mind remembering. It’s the 9…..
July 9th, 2008 at 7:04 am
Mike-
Please – type away.
Jeff
July 29th, 2008 at 2:48 pm
Hi Jeff,
Thanks for linking to my blog post. Much appreciated.
Your blog looks really good too.
July 29th, 2008 at 6:07 pm
Ankesh-
Thanks for taking a look and the kind words.
-Jeff