Price Anchoring and the Ps of Marketing
If you study traditional marketing textbooks, they talk about the “4 Ps of Marketing”, which are Product, Price, Place, and Promotion.
More modern texts have updated this to the “7 Ps”, which include Physical evidence, People, and Process.
One often overlooked P in marketing is Price, and it’s an area I’ve studied quite a bit since a lot of consumer’s are price sensitive.
In past posts, I’ve talked about the Decoy Effect, High-Low vs Every Day Low Pricing (EDLP) pricing strategies.
Today, I’ll remind you of something you are most likely are familiar with, which is price anchoring.
Price anchoring is when you establish a price for a product (even if you make it up), and then show how your new price by comparison looks like a deal.
Steve Jobs famously did this when he announced the first iPad – a product that previously had no basis of price.
He told the audience that he could realistically sell this new device for $999, which he displayed on a big screen. He let that number sink in.
When it came time to reveal the actual price of $499, the crowd erupted in excitement.
Was $499 the right price for an iPad? Who knows! But it certainly looks like a deal next to the anchor price.
You see this all the time on infomercials or car dealerships with big slashes through the anchor price.
Everyone loves a deal so playing that up can result in creating demand.
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