Anchors Away: How to Lift a Pricing Conversation

I want to do a thought experiment with you.??

Step 1: Get something to write with; pen and paper

Step 2: Write down the last two digits of your social security number or your phone number.

Step 3: Put a $ sign in front of those two digits; that now becomes your price point (PP).?Got it??Good!

Now, I have 3 products I’d like to sell you.

Step 4: First, I want to sell you a wireless mouse for your computer.?Question: Would you pay your PP for it??If yes, do nothing.?If no, what would you pay $_______; write it down.

Step 5: Next, I want to sell you a wireless keyboard for your computer.?Question: Would you pay your PP for it??If yes, do nothing.?If no, what would you pay $_______; write it down.

Step 6: Last, I want to sell you an (Industry Specific) Book.?Would you pay your PP for it??If yes, do nothing.?If no, what would you pay $_______; write it down.

You’re done!

Dan Ariely, Professor of Behavioral Economics at MIT made his students go through a similar exercise. He wanted to confirm whether or not jotting down a price would influence (i.e., act as a reference anchor) what you were willing to pay for a product.???

After collecting the data and before ending the class, he asked his student if they thought writing down the two digits (price point) would influence what they would pay for an item, they simply dismissed it as ridiculous.??

Yet, when Ariely looked at the data and organized it (see the grid below), what he found didn’t seem all that ridiculous.??

Across the top, Row 1, you’ll note the two-digit range of one’s social security (or phone) number.?For example, the last two digits of my social security are 63 which means I’m in the 60-79 column and my PP is $63.?

Now,?if I move downward, I can see what the average bid was for each item.?For example,?since my PP is $63,?I’m in the 60-79 column.?You’ll note that the average bids are:

• Wireless Mouse: $21.18
• Wireless Keyboard: $34.55
• Design Book: $19.27

Now, find your grouping column based on your PP and compare the averages for each of the three items to what you wrote down above.? Are they close?

Now, take a look at the grid again.?What do you notice??? You’ll notice that the higher the student’s PP is, the more the students were willing to pay.?For example, if someone’s PP was 13 which puts them in the 00-19 column, the average bids are much lower than my PP of $63:?

• Wireless Mouse: $8.64
• Wireless Keyboard: $16.09
• Design Book: $12.82

The difference is stark when you compare the 00-19 column with the 80-99 column.

How does this apply to selling??Well, it can be used in various forms, but primarily one could use this ‘anchoring effect’ to influence what a buyer is willing to pay.?

For example, if I’m selling a ‘system’ (software, hardware, firmware) and I want to influence a buyer’s perception of pricing in the market, I could drop a price anchor by saying, “Companies in your industry are spending on average $150,000 to implement this type of system.”??

Doing this can have two effects:?

• If the client had a price point that was lower than that, you’ve essentially ‘lifted’ that anchor to a more reasonable expectation.
• If the client had no price point in mind, you’ve just set the anchor point for them.

Setting an anchor price is key, especially during a negotiation or pricing discussion.?By dropping an anchor price, you have taken control of the ‘how much is this gonna cost’ conversation.??The buyer will now have to respond to YOUR anchor, not the other way around.

Lastly, if the buyer says, “That’s too expensive." , (see video on handling this) that now gives you, the seller, an opening to ask questions as to how they arrived at their price point. Either way, using pricing anchors allows you to be offense-oriented, as opposed to defense-oriented, in a pricing conversation.

Victor Antonio