Price, Price Range, and the Anchoring Effect

 

Of course you are all familiar with the Anchoring Effect and use it to your advantage. Here’s an interesting twist: Offering a price range both defeats and leverages the Anchoring Effect!

 

Many vendors refuse to offer pricing information to their prospects until sufficient information is collected to be able to provide a precise price. This practice often frustrates and annoys prospects who simply want to understand whether the price of the vendor’s offering is within their means.

 

After all, prospects want to learn early in their investigation whether the price is near their expectations. It is frustrating for a prospect to invest significant time and effort into researching a product only to find that their price expectations are off by a zero or two! (E.g., $200,000 vs $2,000,000!)

 

Accordingly, I recommend that vendors provide a price range to their prospects early in the process to avoid these unpleasant surprises.

 

However, the upper and lower ends of the price range also represent two anchoring points. Setting these anchors too low or too high may impact your prospects’ perceptions of affordability and whether they feel they are getting a great deal once a precise price is revealed!

 

Here’s an example:

 

Your prospect is interested in your offering, but you need more information before you can provide a precise price. You tell your prospect, “The price for this product ranges from as low as $1000 per user per year to as high as $5000 per user per year for some of our premium customers.”

 

This is a large range which helps to defeat the Anchoring Effect, but it leaves your prospect wondering where they sit on this price spectrum. So, you solve this by adding, “Most of our customers who are similar to you [in size, number of users, or other relevant parameters] are paying between $2500 to $4000 annually per user.”

 

This provides your prospect with two new anchoring points. Additionally, it lets your prospect know that they aren’t at the top (or bottom) of the price range. Biasing the range towards the high end offers an interesting advantage: if your final price comes in at or below $2500, they may actually feel they are getting a deal.

 

And that’s no fluke!