How can you maximize your revenue while simultaneously making customers feel as if they’ve scored a good deal? One word: Anchoring. If you’re not familiar with this pricing strategy (and, no, it doesn’t have anything to do with seafaring), allow me to explain.
Anchoring is a cognitive bias that is often seen when people are faced with a choice.
People in this type of situation typically rely heavily on the first piece of information they receive as their baseline, or “anchor,” in the decision-making process.
So, how does this help you reap profits and bolster consumer satisfaction at the same time? In the simplest of terms, when you break the proverbial ice with a high-priced item, a cheaper (though still marginally expensive) item will seem like a good value in comparison.
Here’s a real-world example: Restaurants often make use of anchoring by placing expensive items at the edges of the menu. People browsing the list of an establishment’s offerings tend to start from the outside and work their way in, meaning they’ll see a high-priced item first, followed by a lower one. The psychological effect of the first price makes the second seem more reasonable, which often convinces even the thriftiest of diners that they’ll be getting a decent amount of bang for their buck.
Rose Rabbit Lie in Las Vegas makes use of this tendency. Note the $1,200 King Crab entree on the outer right of the menu! A $275 Beef Wellington or $56 Ribeye seem like pocket change in comparison.
The anchoring tactic can also be applied in a retail setting. For instance, if you take $400 shoes and display them next to footwear priced at a more modest $100, you might just find those expensive boots aren’t made for walking after all – at least as far as consumer preference is concerned. But place the same $400 shoes beside their fancier $1,000 brethren and they’re much more likely to fly off the shelves.
Whether your business is focused on people’s palates or their soles, you’ll be surprised how much anchoring can boost your bottom line.