Price anchoring is also effective when there are a large variety of products. In this scenario, it is a win-win for both parties. The business, on the other hand, deliberately created the premium plan to make the standard plan look more attractive in comparison. Because of the $1,000 price anchor, they’ll also believe they are saving $800 a month. Most consumers will sign up for the standard plan because they don’t need unlimited storage. Since consumers tend to desire the highest reward for the least amount of money or effort, marketers can use this to their advantage.įor example, a cloud storage company could offer a premium plan of $1,000 per month with unlimited storage and a standard plan of $200 per month offering 750 gigabytes of storage. In other words, price is always relative and judged after comparison to similar products. Within reason, the definition of a “cheap” or “expensive” product is open to interpretation. More importantly, it leads them to believe that they are receiving a good deal. It allows the consumer to deduce that the shoes have been discounted by 25%. In a $100 pair of shoes that is discounted to $75, the original asking price of $100 is the anchor point. When a price anchor is established, it gives the consumer a frame of reference for valuing the product. Indeed, the anchoring effect is a powerful strategy that businesses can and do use to influence consumer behavior. Dubbed neuroeconomics, the field is a mixture of economics, psychology, and neuroscience and how these disciplines play a role in human decision making. The anchoring effect is part of an entire field of study researching how the brain determines value. The anchoring effect describes the human tendency to rely on an initial piece of information (the “anchor”) to make subsequent judgments or decisions. Price anchoring, then, is the process of establishing a price point that customers can reference when making a buying decision. Digital Business Models Podcast by FourWeekMBA.Business Strategy Book Bundle By FourWeekMBA.An Entire MBA In Four Weeks By FourWeekMBA.100+ Business Models Book By FourWeekMBA.
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