I love reading books that talk about the psychology of buying. There is nothing more fascinating to me than the human mind. Recently I was reading and came across the concept of anchoring. I remembered the term from my marketing classes, but my experience in the internet space gave me a whole new perspective on the topic.
What Is Price Anchoring?
From Wikipedia: “Anchoring and adjustment is a psychological heuristic that influences the way people intuitively assess probabilities. According to this heuristic, people start with an implicitly suggested reference point (the “anchor”) and make adjustments to it to reach their estimate. A person begins with a first approximation (anchor) and then makes adjustments to that number based on additional information.”
In more lay terms, anchoring is comparing one price to another “anchor” price to determine how good of a deal the item is. You go to the store and see tomatoes on sale for $1.49/lb. You know that the farmer down the street sells tomatoes at his stand for $1.00/lb and therefore the store tomatoes don’t seem very cheap to you. However, another shopper sees the $1.49/lb tomatoes in the store and thinks it’s a great deal because the last time they bought tomatoes in the store they were $1.99/lb (and they don’t know about the farmer.) These two customers perceive the price differently because they have different anchors. Anchoring has a large effect on how we perceive value.
What If My Product Is Unique?
For those companies with unique products & services, your customers may have no anchor to help them see the value of your offering. Consider yourself lucky because you have the opportunity to set an anchor for them. Here are two examples:
Just below the video and quotes you’ll see the three purchase options: Pro, Pro Plus and Pro Elite. If you want to join SEOmoz and are a cheapskate, you’ll pick Pro. However, for just a little more you could get Pro Plus and it’s nowhere near as expensive as Pro Elite. SEOmoz uses Pro Elite to set the anchor and that makes Pro Plus and Pro look more reasonably priced. I don’t have user data (but I’d love to hear from a Mozzer in the comments) but I would guess that Pro Elite is their smallest customer base. Sure they make more per customer, but even more than that, it improves the value perception for Pro and Pro Plus.
BaseCamp has some interesting variations. First, they actually make the Plus plan larger so it jumps out and call it their “Most Popular Plan.” Second, they have ordered the options with the highest priced on the left and the lowest priced on the right. Despite these differences we see the same idea of using the Max plan as the anchor. They’re actually making it more explicit since left-to-right reading will have us see the Max plan first.
How To Fix It?
Some of you may only have two offerings and you’re wondering how you can use anchoring? Say your pricing looks like this:
LotusJump Pro may be the best value, but it looks expensive compared to Basic. What if you were to add a third plan that had increased functionality and a higher price point? This would serve as the anchor and make the Pro plan look that much more appealing.
What do you think?