In 1938, Ferdinand Porsche designed and built his first sportscar. Dubbed the Type 64, it foreshadowed many of the construction techniques that would come to be synonymous with the company’s craftsmanship still today. Any idea what it’s worth?
You wouldn’t be the first to come up empty, or even decline to try.
The fact is that when someone asks us to estimate a value or even choose between a couple of options, we all look for a starting point. One-of-a-kind items don’t provide that luxury, which is why they’re so valuable.
But it’s not just the one-of-a-kind items that trip us up. Ever been shopping and had an expensive item catch your eye only to have a salesperson tell you that it’s your lucky day because that item just so happens to be on sale that day? Sure it is.
Usually, this happens with things like high-end clothes or even the average couch. Those companies know that if they set the anchor high and then offer you a deep discount (sometimes more than 50%), the perceived value is just too hard to pass up. And they make those sales every day.
What do those companies have that you don’t?
Aside from a strong understanding of the psychology behind price anchoring, nothing. Pricing is always a difficult topic to address. The temptation to discount our own value is strong. After all, some money is better than no money, right?
The problem with that mindset is that it’s easy to price yourself into non-profit territory when you are very much a for-profit business.
The truth is that no matter what you’re selling, you can influence your customers’ perception of your value before she even thinks about negotiating.
Why and how it works
We’re told that today’s consumers are getting more and more savvy. Maybe they are. The Internet allows for a good deal of price comparison. But maybe they’re not. When faced with a range of prices, researchers can predict, with surprising accuracy, which option consumers will choose. The second most expensive option almost always wins.
There will always be people who think that the highest price means status or premium service. There will always be people who only look at the price and always select the cheapest option.
But the vast majority of us don’t want the cheapest or the most expensive option. We stay in the middle. The middle is a very profitable place to be.
If you tell a customer that she can get the very best package you have to offer for $400, the same product minus a couple of bells and whistles for $300, or a completely stripped down version for $75, you’ll make $300 sales all day long. Why? Because in their minds, they’re getting a great deal.
What this means for you
Price fairly, but price aggressively. Don’t be quick to offer discounts at random. Instead, build out a pricing schedule and display it prominently on your website and in print materials.
- Be sure that the first price sets a subconscious anchor point
- Highlight the differences in the various packages you offer, not the similarities
- Create a sweet spot where price and service intersect, don’t be shy about calling it the best deal
- Leave some value for your cheapest offering; some people will use it as a stepping-stone to a relationship with you
Finally, you have to understand that value isn’t just about pricing. Back up your prices with solid, insightful, and helpful information, whether in person or through your blog. Provide unwavering support to your customers and clients. Be an authority, especially if what you have to offer is truly unique in any way.
Like anything in the sales world, there are right ways and wrong ways to apply the anchoring effect. Have you used the process of anchoring before? Thinking back, can you recognize times that a salesperson may have used it on you in the wrong way? What are some of the right ways you could use anchoring to set value and price in your business?