Latest / The Pricing Marketing Podcast with Fexingo: Price Anchoring, Bundling, and Conversion Pricing / How a Starting At Price Anchors Your Add-On Spending
Transcript
- Lucas: You've seen the ad: 'Toyota RAV4 starting at $27,000.' That number sits in your head. Then you walk onto the lot and the salesperson shows you the XLE trim with leather seats for $31,000, and suddenly that feels like a small jump. That $4,000 difference barely registers because your anchor is the $27,000 base. Luna: So the 'starting at' price is deliberately low to make the upgrades look reasonable? Lucas: Exactly. And it's not just cars. Think about software subscriptions. Slack's 'Pro' plan starts at $6.70 per user per month. But the 'Business+' plan at $12.50 per user—almost double—doesn't feel outrageous because the anchor is that $6.70. The gap is only about six bucks. Luna: But what if the base price is too low? Doesn't that sometimes backfire? I remember reading about a hotel that listed rooms at $59 a night, and guests assumed it was a dive, so they didn't book. Lucas: That's the risk. Anchoring too low can undermine perceived quality. There's a sweet spot. For the RAV4, Toyota knows that $27,000 is respectably mid-range for a compact SUV. It's not suspiciously cheap, but it's low enough to make the $31,000 and $34,000 trims feel like natural upgrades. Luna: So they're not just anchoring the price; they're anchoring the value ladder. Lucas: Right. And the ladder works because each rung offers a clear improvement. The base model gives you the essentials. The next trim adds comfort. The top trim adds luxury. The consumer compares each step to the one below, not to the absolute cost. That's the anchoring effect in action. Luna: Is there data on how much more people actually spend when they're shown a base price first? Like, versus being shown all options at once? Lucas: There's a classic study from MIT: they showed people a subscription offer for The Economist. One group saw three options: web-only for $59, print-only for $125, or print plus web for $125. The middle option was a decoy, but the anchor was the $59. Nearly everyone chose the $125 combo. Another group saw only the web-only and the combo without the print-only—the base anchor was still $59, but the combo felt pricier, and fewer chose it. Luna: So the presence of that middle $125 print-only option anchored the combo as a bargain relative to that. But the base anchor—the $59—still set the floor. Lucas: Exactly. That's the dual anchor: the low base and the high decoy. But even without the decoy, just the base price alone shifts perception. Car dealers have known this for decades. They rarely show you the fully loaded price first. They show you the 'starting at' and then let you build your own upgrade path. Luna: What about the opposite—where a company leads with a high anchor and then discounts? Like 'was $100, now $50.' That's more common in retail. Lucas: Totally different mechanism. That's a reference price anchor. The high original price makes the sale price feel like a steal. But the 'starting at' anchor works in the opposite direction: it's a low anchor that you then build up from. One is for discounts, the other is for upgrades. Luna: And which one works better depends on the context. For a product where people want customization, 'starting at' is powerful. For a commodity, discount anchoring might be better. Lucas: Right. And there's a nuance: in B2B SaaS, 'starting at' often comes with a usage limit. Like Slack: the free tier is the ultimate low anchor—zero dollars. Then the paid tiers feel reasonable because you've outgrown free. But they also have a 'starting at' per-user figure that anchors the per-seat cost. It's layered anchoring. Luna: Let's talk about the psychology behind it. Why does the 'starting at' number stick in our heads so effectively? Lucas: It's the availability heuristic. The first number you see becomes the reference point for all subsequent comparison. Your brain automatically adjusts from that anchor, even if you rationally know the base model lacks features. The gap between base and upgraded seems smaller because you're zoomed in on the difference, not the total. Luna: So it's a framing effect. You're framing the purchase as a series of small upgrades rather than one big expense. Lucas: Exactly. And that's why car dealers always start with a base price, then add on options one by one. Each option is a few hundred dollars, compared to the tens of thousands of the base. It's the classic 'penny-wise, pound-foolish' trap, but in reverse—you're 'pound-wise' on the base, but then the 'penny-wise' on add-ons adds up to a lot. Luna: Does it work for digital products too? Like, a base version of software that only does the essentials? Lucas: Absolutely. Think about Zoom: basic free plan anchors you to zero. Then the Pro plan at $14.99 a month seems like a small step. But Zoom also offers Business at $19.99 and Enterprise at custom. Each tier anchors you to the one below. The 'starting at' for paid is $14.99, and that's the anchor. Luna: I've also seen this with videogame editions. A game might be $60 standard, $80 deluxe, and $100 ultimate. The $60 anchor makes the $80 feel like a middle ground. Lucas: Good example. And interestingly, some game companies deliberately set the standard edition price low—like $40—and then the deluxe at $50, and ultimate at $70. That lower anchor makes the middle option feel even more reasonable. It's a different tier structure. Luna: So there's an art to choosing the base price. Too low and you risk quality stigma; too high and the upgrades look unaffordable. Lucas: Right. The optimal base price is one that's low enough to attract budget-conscious buyers, but high enough to signal a baseline quality. It's a Goldilocks anchor. For the Toyota RAV4, $27,000 hits that sweet spot—above the econoboxes, below luxury. Luna: Let's look at a case where anchoring too low backfired. I recall a clothing brand that launched a 'starting at $10' line, but the quality was poor, and customers felt cheated even for $10. They didn't upgrade because they didn't trust the brand. Lucas: That's the danger. If the base product disappoints, the anchor poisons the entire line. You need the base to deliver enough value that customers feel excited about options. Otherwise, you're just anchoring a bad experience. Luna: So the 'starting at' price isn't just a number—it's a promise. Lucas: Exactly. And if you deliver on that promise, the upgrades become a natural path. That's why in SaaS, they often give you a generous free trial. The anchor of zero is compelling, but the product has to be good enough to make you want to pay. Luna: Speaking of which, if these pricing conversations have sparked something you've actually used at work or in your own shopping, they're brought to you by our listeners. We keep this show ad-free because of people who support it at buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a simple way to keep the podcast going without interrupting the flow. Every little bit helps us do deep dives like this. Luna: So if you've gotten value from any of these episodes, that's a great place to show it. And now back to the psychology—Lucas, you mentioned the promise of the anchor. How do companies test what the right base price is? Lucas: A lot of A/B testing. E-commerce sites will show one group a 'starting at' price and another group a final price. They measure click-through and conversion. For example, a furniture store might test a sofa starting at $800 versus showing the $1,200 version first. Often, the 'starting at' approach yields higher total order value because people add on cushions or delivery. Luna: So it's not just about selling the base; it's about steering people toward upgrades. Lucas: Exactly. And the key is to make the upgrades feel like a bargain compared to the base. That's why you often see 'premium package only $500 more' when the base is already $30,000. The $500 seems tiny in context. Luna: But what if the base and the premium are too close? Like, $30,000 base and $30,500 premium—the upgrade is trivial, but maybe buyers wonder why they'd pay anything extra for so little. Lucas: Then the anchoring effect weakens. The gap needs to be significant enough that the upgrade seems like a distinct step, but not so huge that it feels like a rip-off. Typically, 15-25% premium for the next tier works well. That's the sweet spot. Luna: I've seen that in software too: the next plan is often 30-50% more, but with double the features. Lucas: Right. And the higher price reinforces the value of the lower plan, even if few people actually choose the middle plan. It's a form of decoy anchoring. Luna: So as a takeaway for marketers: when designing a pricing ladder, start with a carefully chosen base anchor that feels like a good deal, then structure the upgrades so the value gap is clear. Lucas: And remember, the base price isn't just a number—it's the foundation of the entire pricing psychology. One wrong anchor can derail the whole strategy. Luna: Yeah. Next time you see a 'starting at' ad, you'll know the hidden math behind it. Lucas: And you'll think twice before you start adding on—or maybe you'll use that knowledge to set your own anchors. Luna: Fair point. Until next time.