Price

Thinking through the Price Anchor

A price anchor is a mindset that your customer has about the value of a good or service. Every time your customer makes a decision to transact, they do so by thinking through a price comparison. Your customer tries to compare the value of what you are selling to some other form of value. Your customer’s comparison might be to that of competitive or similar purchases that they have done in the past. Or they might compare it to something that they would like to purchase in the future.

For instance, you might be selling environmental consulting services to small business owners. If your customer has never purchased these services before they might compare your services to the cost of other professional services. They might compare your environmental services to that of an accountant, or a lawyer.

A person might also do a price comparison between more abstract goods or services. For instance, different forms of entertainment could be compared such as concert tickets, dining out, or a spa package.

Creating a Price Anchor

Your customer will struggle to make a decision when they have no reference framework to compare the price to. In this case, it would be good for you to provide them with assistance in the price comparison process. During the engagement with your customer, you could help them think of the outcomes that your offering provides them. This might serve the customer better than thinking about the actual product or service that you provide. Your customer is really purchasing the benefits, the enhancements, or the pain relievers that your product provides them.

For instance, if you are a dentist and you are providing your customer with dental implants, your customer is less concerned about the costs involved in the procedure (anesthetic, drills that you will be using, the chair they will sit on, hours spent doing the procedure). They are more concerned with the outcomes. The ability to live a longer and have a healthier life or having a beautiful smile. As a dentist when your customer does a price comparison you would therefore want their anchor to be related to living a longer and healthier life. This is a better price anchor than comparing it to the number of hours that you will be working on their teeth.

Example of creating a price anchor through package comparison.

An Artificial Price Anchor

It might also benefit you to create an artificial price anchor for your customer. For instance, you can provide two packages for the same services, one being less expensive without an added benefit and one being more expensive with an added benefit. In this example, your customer compares the price to the anchor that you have provided to them. They are now comparing one service to another and in so doing also comparing one price to another. Be careful though as providing too many packages could distract your customer. This might make it difficult for them to compare pricing.

Have a look at the below video. How do you believe Steve Jobs makes use of Price Anchoring?

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