Anchor & Reference Pricing

SOHAM SANGHAVI ISHAN AGGARWAL

E-MARKETING –IIINDIVIDUAL CLASS LEADERSHIP

Steve Jobs Price Anchoring Master Class

https://www.youtube.com/watch?v=f0uBANguiQs

WHAT IS PRICE ANCHOR?• The initial price that your customer first comes across would be

considered the anchor price because that’s the price that’s going to stick in their mind and it’s the price that they’re going to base all other prices on when it comes to that specific product.

• The key to this pricing strategy is to set the anchor high.• When you all of a sudden set a “sale” price, which in reality is your

normal price, for that item, customers will believe they are getting a deal on the “discounted” item.

• Many online retail stores use this method because it’s very effective.

Anchor prices are used to make other tiers of services seem like great values

For example, let’s look at this laptop advertisement

The MacBook Air is an anchor price to make the Windows laptops seem like a bargain.

ONLINE TICKET BOOKING

This snaphot is taken from sky scanner website. We can seen that the website displays competitors pricing.

How e-marketers can take advantage?1. Price perception• A product is truly never "cheap" or "expensive"; it’s all relative. People love

to compare when valuing products and having an anchor price allows them to do that. If you’re out shopping for a TV, you might look at two different models and compare their features and prices. One might be 50 inches and cost $1,000 while the other might be 48 inches and cost $600.

• In this case, you’ll probably think that the $600 TV offers the best value because you’re paying $400 less for a TV that’s only 2 inches smaller. That thought process is exactly what the retailer intended for you to do. They wanted the $1,000 TV to be an anchor so the $600 TV looked like a bargain in comparison.

2. Decision making and the power of suggestion

• Humans are naturally indecisive creatures. If you’ve ever been to an ice cream stand and felt conflicted about choosing between mint chocolate chip or cookie dough.

• The decision can become so debilitating that some folks might even walk away because of the anxiety.

• Yet, a great way to prevent this flight is to label choices as the "most popular" option or the "flavor of the day."

• As humans, we may like risks and extremes in theory, but most of us like to keep with the crowd and not wander to extremes.

• This is also reflected in something as simple as buying your morning cup of coffee.

• Most people choose a medium coffee as opposed to a small or a large because it's more than the least filling option, and less than the biggest.

• This kind of behavior translates especially to price anchoring as well. • Essentially, you should surround the ideal option with a higher and a lower tier. • The higher and lower tier on your pricing page effectively function as anchor

prices, which then push your customers toward purchasing that middle tier.

3. Avoiding extremes

How to implement it online?• Create a tiered pricing strategy, providing different versions of a core

product at different prices. This automatically builds in your anchor prices and allows you to take advantage of the multi-price mindset.

• Another potential strategy is to show your competitors’ prices on your pricing page.

What is Reference Pricing?Reference pricing refers to how much consumers expect to pay for goods in relation to other competitors and the previously advertised price.

How amazon uses reference pricing?

How Reference Pricing is Used• A firm can sell goods at a price

just below the main price of its competitor.

• A firm can sells goods at a large discount to a previously advertised ‘reference price’.

How E Stores can use Reference Pricing

• Set an Artificially High Reference PriceThey establish a high reference price for its product, and later offer discounts. Consumers think they are getting a good deal because they have a discount on the reference price.

• Charge High for ShippingConsumer relate ‘virtual’ stores to lower overhead cost and expect these lower costs to be passed to the consumers. But sometimes they charge higher prices when shipping costs are included.

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