Latest / The Pricing Marketing Podcast with Fexingo: Price Anchoring, Bundling, and Conversion Pricing / How a Crossed-Out Price Boosts Your Purchase Decision
Transcript
- Lucas: You've seen it a thousand times. A price tag with a higher number crossed out, a lower number in red. That crossed-out number is a price anchor, and it's one of the oldest tricks in the marketing playbook. Luna: But does it actually work, or is it so common that we just tune it out? Lucas: It works, but only if the anchor is believable. If the original price is inflated beyond reality, consumers see straight through it. In fact, the FTC has guidelines on what constitutes a legitimate reference price: the item must have been offered at that price for a reasonable period in the recent past. Luna: So a store can't just slap on a $200 MSRP that was never real and call it a deal? Lucas: Right. And research backs this up. A study in the Journal of Marketing found that a legitimate reference price can boost purchase intent by up to 20% compared to a sale price alone. But when the anchor is fake, the effect disappears and can even backfire. Luna: So the 'was' price has to be a price the product actually sold at for a while. That makes sense. But what about the 'compare at' prices you see on Amazon or in department stores? Lucas: That's a different beast. 'Compare at' is an external anchor — it's comparing to what other retailers charge, not the store's own previous price. It can still work, but it's harder to verify. Some retailers abuse it by using inflated RRP, which weakens trust over time. Luna: I've definitely seen 'compare at $300' on something that's priced $99 and wondered if that's realistic. Lucas: Exactly. The more unbelievable the anchor, the less effective. There's a sweet spot where the original price is high enough to make the discount feel substantial, but not so high that it triggers skepticism. Normally, a 30-50% discount off a real price works best. Luna: Do you have a concrete example of a company that tested this and saw real results? Lucas: Sure. A well-known clothing retailer ran an A/B test on their website. One version showed the product at $49 with a crossed-out $79. Another version just showed $49. The version with the anchor saw a 15% higher conversion rate. And they confirmed the $79 price had been in place for two weeks prior. Luna: So the anchor had credibility. That makes sense. What about online vs offline? Does the effect change? Lucas: The psychology is similar, but online it's easier to display the anchor prominently. Physical stores sometimes use 'was' tags on shelves. But online, you can also add countdown timers or stock scarcity to amplify urgency. The anchor plus scarcity is a powerful combo. Luna: And do you think consumers are becoming immune to this tactic? We see it everywhere. Lucas: There's some saturation, but it still works because the anchor taps into a cognitive bias: we evaluate value relative to a reference point. Even if we're aware of the trick, it's hard to ignore the comparison. However, overuse by certain brands can erode trust. Luna: So for marketers, what's the ethical playbook? How do you use this without crossing the line? Lucas: First, be honest: only use a crossed-out price if the product actually sold at that price for a reasonable period — the FTC says 30 days is safe. Second, avoid fake MSRPs. Third, test your anchors to see what feels fair to your customers. If the discount seems too good to be true, it probably is. Luna: And if you're a consumer, how do you protect yourself? Lucas: Use price tracking tools or browser extensions that show price history. If you see a 'was' price that hasn't been seen in months, take it with a grain of salt. Also, check multiple retailers. The anchor only works if you accept it as the true value. Luna: That's solid advice. So where is this heading? Are we going to see personalized anchors? Lucas: Absolutely. With dynamic pricing and AI, some retailers are already testing individualized reference prices—showing you a 'was' price based on your browsing history or past purchases. If you've been looking at a $200 jacket, they might show a crossed-out $250. Luna: That's clever but also a bit creepy. It feels manipulative if it's tailored to what they think you'll accept. Lucas: It's a fine line. But understanding the psychology helps both marketers use it responsibly and consumers see through the illusion. If these pricing conversations have sparked something you've actually used in your own business or shopping, we want you to know this show is ad-free and listener-supported. You can support us at buy me a coffee dot com slash fexingo. That's buy me a coffee dot com slash fexingo. Even a small contribution helps us keep digging into these topics. Luna: Yeah, it really does make a difference. We appreciate everyone who chips in. Lucas: So back to the future of reference pricing. The key challenge is maintaining trust. If everyone starts using personalized anchors with no transparency, consumers will become more skeptical and the whole tactic could lose its power. Luna: So transparency might actually be a competitive advantage. Lucas: Exactly. Brands that are honest about their pricing history and offer genuine, verifiable discounts will stand out. In a world of fake anchors, real ones become more valuable. Luna: That's a great takeaway. So next time I see a crossed-out price, I'm going to check the history. Lucas: And if you're setting prices, remember that the anchor you choose shapes the entire perception of the deal. A real, credible anchor can boost conversion, but a fake one will eventually cost you customer trust.