You know how it goes. You step into a movie theater, swearing to yourself that you’re just going to get a small bag of popcorn — check it, small — and a bottle of water. You know that the massive bucket will cost you an arm and a leg, and that you probably won’t even finish the damn thing by the end of the movie. You’re dead-set on your refusal…until the kid behind the concession counter starts talking. Turns out, that bucket is only 50 cents more expensive than the medium, which in turn is only a dollar more than the dinky “small” carton. It’s a great value, comparably. Wouldn’t it be stupid to not take advantage of it?
Then, like every other poor schmuck who gets pulled into an upsell conversation, you end up walking away with a popcorn container that could feed a family of four. You pay $10 for the privilege and, as expected, throw out half of the bucket once the end credits roll.
I’ll tell you: It’s because marketing is psychology. If you want to thrive in marketing, you need to understand how people gauge pricing. What makes a consumer turn up their nose at a $40 price tag but pull out their wallet when they see the same product priced at $39.95? Perception drives purchasing — and, as a marketer, you need to know how to influence that perception in your favor.
But let’s take a beat here. Before we can talk methods, you need to understand a foundational concept called, “Anchoring.”
Here’s how writers at Harvard Business School define the term: “The anchoring effect is a cognitive bias that describes the common human tendency to rely too heavily on the first piece of information offered (the “anchor”) when making decisions. During decision making, anchoring occurs when individuals use an initial piece of information to make subsequent judgments.”
Let’s put this theory into (hypothetical) action. Let’s say you’re on the lookout for a new car. You head over to your local dealership, and they convince you to test-drive one of the cars on their front lot. You like it — but you’re shocked by the sticker price, which is tied to an unrealistic MSRP and stands several thousand over what you thought the cost would be.
You start negotiating with the salesman, who tells you that he’ll go to his manager and see what he can do. Does he actually need to get beat-for-beat approval from his higher-ups? Probably not — but when he comes back, he’ll tell you that he “fought for you” and managed to knock a couple hundred dollars off of the asking price.
By the end of the conversation, the price you’ve settled on seems more than fair because it’s a few hundred bucks lower than the original sticker price. But what you may not know is that the price you so happily agreed to is still a couple thousand dollars over what the car is worth.
Because the salesman started at a certain benchmark (the “Anchor), you viewed the negotiation within the context of that baseline. Subconsciously or not, you perceived that first starting price as the acceptable standard, and were therefore convinced that after negotiations, you walked away with the better end of the deal — even though you technically overpaid for the product at hand. You were anchored to an unrealistic starting cost and literally…paid the price for it.
Pricing is all about perception. You can leverage baseline values as a buyer or seller; all you need to do is manipulate perception of the product within the context of what people think it’s worth to establish a new anchor.
Don’t believe me? Wait a second, and I’ll sell you a pen for $99.
I know, I know; why would you buy a pen for $99 when you could pick up a ballpoint at your local drug store for $0.99? I’ll tell you — it’s because the ink in this pen isn’t your run-of-the-mill black dye. It’s squid ink, painstakingly harvested from a species that only lives in the depths of a saltwater lake in Tibet. Each batch is collected by a reclusive community of monks who call the lake’s shores home. But these monks can’t strap on their diving gear any old time; instead, they have to plan their trips in time to avoid the authorities that claim ownership over the lake.
It takes an incredible amount of effort to get the stuff. But let’s talk about product quality, too; the monks say it’s the purest ink in the world and lasts four times longer without fading than your average pen. Given all the labor that goes into the collection and the sheer value of the ink itself, $99 is a steal. Who wouldn’t pay it?
You shouldn’t, because I’ve just anchored you to total crap. But you can see my point. Countless marketers use stories to rationalize their price tags and convince customers that their ask isn’t just reasonable, but a bargain.
These are just a few examples of how marketers leverage pricing theory and psychology to boost consumer buy-in. In each case, the foundational point is the same: (Over)pricing only works if the consumer accepts the initial anchor presented to them.
Let’s circle back to my opening example to finish this off. You’re at the movie theater. Would you buy a trough-sized bucket of popcorn for $10, even though you knew you were going to leave half of it untouched? Probably not. But, because the small bag is $8.50, the bucket looks reasonable by comparison.
The question you really should be asking is whether you’re willing to agree that $8.50 is a reasonable starting price for a bag of popcorn, given its relative worth to you. And, if the answer is no, you’ve got to ask yourself: Why are you letting a pricing anchor you don’t accept, “Draw you in?”
You may use anchoring to further your marketing goals to others– but don’t let it control your buying decisions.