Latest / The Pricing Marketing Podcast with Fexingo: Price Anchoring, Bundling, and Conversion Pricing / How Median Price Anchors Your Perceived Fairness
Transcript
- Lucas: So we talk a lot on this show about anchoring — how the first price you see shapes what you're willing to pay. But there's a quieter version of that effect that's everywhere, and it's not about the first price you see. It's about the median price in a category. Luna: The median? As in, the middle price when you line everything up? Lucas: Exactly. And the reason it matters is that our brains seem to use the median as a fairness benchmark. Not the average, not the cheapest, not the most expensive — the median. And that has real consequences for how you set prices. Luna: Huh. So if you're pricing a new product, you might want to know what the median price is in your category. Lucas: Right. And there's a study that really nails this down. It's from a few years back, actually 2017, by a marketing professor named Daniel Read. He ran experiments where people had to set a fair price for a new product in a category they knew well — like chocolate or wine — and their 'fair' price was heavily influenced by the median price of the other products in that category. Luna: So the median is basically a magnet for what we think is fair. Lucas: Yeah, and it's not just about fairness. Read also found that people's willingness to pay for a new product — how much they'd actually shell out — was strongly correlated with that median price. Shift the median, and you shift what people expect to pay. Luna: That's a powerful tool. But let's back up for a second. These conversations we have every day — the ones that make you think differently about pricing — they're only possible because listeners like you support the show. If you've gotten something out of these episodes, a couple of dollars a month genuinely keeps us going. You can find us at buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a small thing that makes a real difference, and we're grateful. But back to the median — this isn't just theoretical. I was looking at a real-world example the other day: David's Cookies. They sell cookies in a few sizes, and the median price tier is the one they actually want you to buy. It's not the cheapest, not the most expensive, but it feels like the sweet spot. Luna: So they're using the median as an anchor to nudge you toward a specific tier. Lucas: Exactly. And that's a deliberate strategy. But median anchoring also has a cautionary side. If you price your product way above the median in a category where people have lots of alternatives, you're fighting against that fairness benchmark. It's why a $6 coffee in a city where the median is $4 feels like a rip-off, even if it's objectively better beans. Luna: But luxury brands do that all the time — they sit way above the median and thrive. So isn't the median only part of the story? Lucas: That's a great point. Luxury brands are an exception because they're not really competing on the same fairness scale. They're signaling exclusivity, and the high price is the point. But for ordinary products, the median is a powerful gravitational force. If you're selling a mid-range product, you need to know where the median is, because that's what people will compare you to. Luna: So what's the practical takeaway for someone pricing a product today? Lucas: First, figure out the median price in your category — not the average, which can be skewed by expensive outliers, but the actual middle. Then decide whether you want to be at the median, below it to signal value, or above it if you can justify the premium. But know that going above the median means you have to overcome that fairness hurdle. Luna: And that's harder in markets with lots of substitutes, I'd imagine. Lucas: Exactly. If there are dozens of similar products, the median is a stronger anchor because people have easy comparisons. If you're in a niche where people can't easily compare, you have more wiggle room. Luna: So how does this play out in something like subscription pricing? I'm thinking of Spotify — they have a free tier, a premium tier, and a family plan. The median price is probably the premium tier, and that's the one they want you to buy. Lucas: Right, and Spotify's pricing is a good case. The free tier anchors your sense of value at zero, but the median premium price — that's what you compare against when you decide if the family plan is worth it. They're using the median to make the premium tier feel like the obvious middle choice. Luna: So it's not just about the decoy — it's about where the median sits. Lucas: Exactly. And you can see this in action in a lot of software pricing pages. They'll have three tiers, and the middle one is often priced close to the median of the category. That's not an accident. It's a deliberate positioning to make the middle option feel safe and fair. Luna: But what if your product is genuinely better? Can you ever escape the median? Lucas: You can, but you have to create a new category in people's minds. That's what Apple did with the iPhone. There wasn't a clear median for a smartphone when it launched; it was a new thing. But once a category matures and the median gets established, it's tough to break away. Luna: So the median is like a ceiling or a floor for price perception. Lucas: More like a magnet. It pulls prices toward it, unless you have a strong reason to be far away. And that's why I find this so useful — it's a concrete way to think about where to set your price, rather than just guessing. Luna: I'm thinking about a time I was at a grocery store and saw a $12 jar of pasta sauce next to a bunch of $4 ones. The $12 one felt absurd, even though it might have been amazing. That's the median effect. Lucas: Exactly. And that's why premium products in grocery stores often come in smaller jars or use fancier packaging — they're trying to justify a price that's way above the median. But if the median is $4, a $12 jar has to tell a really compelling story. Luna: So what about discounting? How does the median affect how we perceive sales? Lucas: Great question. A discount anchors your price relative to the original, but the original is still in the category. So if you start with a high price and then drop it to near the median, it feels like a deal. But if you price below the median from the start, you're signaling value, not a deal. The median is always in the background. Luna: So it's not just about your own price history — it's about the whole category. Lucas: Exactly. And that's why market research matters. You need to know where the median is, not just what your competitors charge, but what the middle of the market actually is. Luna: How do you find the median in a messy market? Like, there are thousands of products. Lucas: You can start with a sample of the top sellers in your category — that's a decent proxy. Or you can look at price comparison sites. But the key is to be intentional about it. Don't just set a price that feels right; set one that's relative to the median in a way that works for you. Luna: So if you want to be seen as premium, you need to be far above the median, but not so far that you lose credibility. Lucas: Right. There's a sweet spot. And if you're a value player, you want to be below the median, but not so far that people wonder what's wrong with your product. Luna: That's a delicate balance. Lucas: It is, but that's what makes pricing interesting. It's not just arithmetic; it's psychology. And the median is one of the most underappreciated levers. Luna: So next time I'm at a store and see a price that feels unfair, I'll think about the median. Lucas: And you'll probably be right. Because our brains are wired to compare, and the median is the benchmark we use without realizing it. Luna: That's a nice note to end on. But before we go, any final thought on how to use this? Lucas: Just this: know your median. Whether you're pricing a cookie or a subscription, the median is your anchor. Use it, don't fight it, unless you have a really good reason.