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Price anchoring is a psychological promotion strategy where a product at a higher price is set against the lower-cost option. This form of presenting the price is meant to make the lower-priced product or service more attractive.
In this technique, the high-price option is used as an anchor. When the low-price option is compared to the anchor option, it feels more appealing and convincing to customers. The anchoring effect is based on the anchoring bias: the initial benchmark price of the product makes the lower price look relatively much more convincing.
How does price anchoring work?
In the price anchoring marketing technique, the way of presenting purchase options to customers is intended to influence the way they make their purchase choices. Setting two (or more) different prices against each other creates a contrast that impacts the customer’s mental trade-offs between available options. Even if the cheapest option is actually moderately-priced or even expensive, it will look more inviting when it’s compared with a more expensive option or options.
The pricing strategy of anchoring is related to other marketing techniques and psychological effects, such as the Decoy Effect or the Compromise Effect, in which three options are compared.
What is the difference between price anchoring and price referencing?
Price anchoring is actually a form of reference pricing, which is a tactic where you emphasize the difference between the discounted product price and the price after the discount is applied. This gives a customer additional encouragement to complete a purchase, as the cognitive perception of the relative value of the purchase grows when compared with the initial price.
In fact, the EU Omnibus Directive, which came into force in 2023, requires European businesses to disclose the original price of the discounted product, or more precisely: the lowest price in the last 30 days. On the one hand, this stops sellers from manipulating the price display; but on the other – the directive makes anchor pricing a good habitual practice.
Examples of price anchoring
Retailers and service providers of any kind use price anchoring to persuade customers to a purchase by presenting a set of options and highlighting the price differences. For example, Amazon presents other available options for a given item on a given product page.
Here’s a Sephora example of price anchoring in relation to the initial price, based on the strikethrough pricing strategy. The new discounted price serves as a point of reference. It is highlighted to appear even more inviting. In contrast, the previous strikethrough price of the product is crossed out. This way of presenting the discount is more meaningful to the customer than just showing the percentage amount.
Is price anchoring marketing legal?
Yes, price anchoring is legal, as long as you present real prices of products and avoid manipulating customers by showing pumped up prices as the anchors. Customers may see through any attempts at manipulation, so it’s a better idea to remain transparent and use price anchoring based on the actual prices of the products you offer. This way, you will employ anchor pricing in an effective way, at the same time refraining from any illegal practices.