Price anchoring - 4 anchor tips for more profit!
In short, the anchor effect describes how irrationally we judge prices. We rarely know the true value of a product. There are many reasons for this: The variety of products has increased immeasurably. Marketing plays a major role in pricing. And we often mix up the ideal value of something with its material value. For example, the new iPhone X costs 1,200 euros – not because it is worth this price according to economic cost accounting, but because Apple demands it.
In order to assess the value of a thing, we orient ourselves on comparative values, because intensive price research is often too much trouble for us. It is much easier when we orient ourselves to the first price we associate with a product in a specific environment. This price is then our anchor. It determines how we value other prices. Whether we find them expensive or cheap. We do not check whether the anchor price is justified. That’s nice and comfortable – but it’s not rational.
However it can even be more irrational: The anchor price can also be a completely arbitrary number, as Prof. Prelec’s 1998 experiment at the Boston MIT proves. Prelec had 55 students write down the last letters of their social security number as a price. Afterwards, the students estimated the prices of two wines, chocolates, a design book and more. The question was whether the first price arbitrarily derived from the social security number would influence the bids? Would it serve as an anchor? The answer is YES! The students with the highest final numbers (80 – 99) gave the highest prices and those under 20 gave the lowest.
|1998er Côte du Rhône||1996er Hermitage||Neuhaus-Pralinen||Design book||Cordless Keyboard||Cordless Keyboard|
|00 – 19||$ 8,64||$ 11,73||$ 9,55||$ 12,82||$ 16,09||$ 8,64|
|20 – 39||$ 14,45||$ 22,45||$ 10,64||$ 16,18||$ 26,82||$ 11,82|
|40 – 59||$ 12,55||$ 18,09||$ 12,45||$ 15,82||$ 29,27||$ 13,45|
|60 – 79||$ 15,45||$ 24,55||$ 13,27||$ 19,27||$ 34,55||$ 21,18|
|80 – 99||$ 27,91||$ 37,55||$ 20,64||$ 30,00||$ 55,64||$ 26,18|
Dan Ariely: Predictably Irrational. The Hidden Forces That Shape Our Decisions (2008)
What does this mean for your email marketing? Use the anchor effect for your price strategy: Set anchor prices! Control the sales! Increase your profits! We will show you how: with 4 profitable anchor tips!
Anchor Tip #1 – The Most Expensive First!
Do it like smart sellers from the retail trade: If a customer comes into a shop, for example to buy a suitcase for 200,- EUR, the seller first shows him more expensive models. With this he sets the anchor price! Afterwards the customer buys a model, which can be up to 50, – EUR more expensive than the set budget. Always place high-priced products of a product category at the beginning.
A watch for 2.000,- EUR also sells better if a model for 7.000,- EUR is placed in front of it. Customers often buy the second most expensive product.
Anchor Tip #2 – Sell the middle!
Would you like to force the sale of individual products? Clever anchoring of prices makes it possible!
If, for example, you want to sell a certain wine more intensively, then anchor it between a higher-priced and a cheaper wine. The Sancerre for 14.80 EUR becomes a bestseller if you place it after a Sancerre for 24.99 EUR and before one for 8.99 EUR.
Since most people do not know the exact prices, especially for wines, they tend to buy the medium-priced product. Here they assume the best price-performance ratio.
In order to benefit from this effect, it may even make sense to include a more expensive or less expensive product as “bait” in the assortment.
Anchor tip #3 – The clever use of bait!
Years ago, the US business magazine The Economist published the following offer with three subscription options:
1. online subscription for 59 dollars
2. print subscription for 125 dollars
3. Print & online subscription for 125 dollars
Dan Ariely, professor of psychology at Massachusetts MIT and author of “Predictably Irrational”, was stunned because the pure print subscription made no sense. Inspired by this ostensibly absurd offer, he started a survey. 100 students took part. Ariely wanted to find out which subscription model the students would choose. As expected, no one opted for the pure print subscription. Only 16 favored the online option; the overwhelming majority, 84 students, chose the combined subscription.
But how would the students decide if the uninteresting print subscription were to be dropped? The result was completely different: Now the majority, 68 students, would have bought the cheap online subscription. Only 32 students chose the expensive combi-subscription! So, the unattractive print subscription was just bait! A bait that sold the expensive product better! Only why?
Ariely explains it with our tendency to compare things that are easy to compare. We avoid difficult comparisons on the other hand. In the case of the Economist offer, print and combo subscriptions were easy to compare. The pure online subscription, on the other hand, was not included. Irrationally, people simply ignore offers that are difficult to compare. The focus is on offers that are easy to compare. Here they then decide on the more attractive offer.
Ariely has underpinned this phenomenon with further experiments: From travel to real estate to the choice of partner, the more attractive offer from the easy comparison always sold better!
For your email marketing, this means: If you want to promote the sale of a product, you should provide it with a similar, less attractive bait. This way, sales can be steered, and profits doubled!
Anchor tip #4 – Labelling discounts profitably.
Make more sales and more profits with discount promotions through clever anchoring! Don’t just put a percentage disrupter next to the promotional price, make sure you also indicate the expensive original price – small and crossed out. It serves as an anchor for your customers! It gives you a clear idea of your bargain. The more rewarding, the stronger and more profitable it activates your sales!
No matter how you use the anchor effect for your business, it will definitely help you to make more profit.