Latest / The Pricing Marketing Podcast with Fexingo: Price Anchoring, Bundling, and Conversion Pricing / How the First Number You See Anchors Every Decision
Transcript
- Lucas: Luna, I want to talk about something that feels almost unfair in pricing — the fact that a totally random number can change what someone is willing to pay. I'm talking about arbitrary anchor pricing. Luna: Arbitrary as in, the number has nothing to do with the product? Like, the last digits of your phone number kind of thing? Lucas: Exactly. There's a famous study from MIT and the University of Chicago — Dan Ariely and his colleagues ran it. They had students write down the last two digits of their Social Security number. Then they showed them a series of items — a cordless keyboard, a bottle of wine, a box of chocolates — and asked if they'd pay that dollar amount for each item. Luna: So if your last two digits were 35, they'd ask, would you pay $35 for this keyboard? Lucas: Right. Then they asked the students to state the maximum they'd actually pay. The result: students whose Social Security digits were in the top 20 percent bid, on average, 346 percent more than those in the bottom 20 percent. For the same exact products. Luna: That is massive. And totally irrational. But it shows how our brain latches onto the first number we see. Lucas: Exactly. The Social Security number is meaningless in that context — it's not related to the product's value at all. But once that number is in your head, it becomes an anchor. Everything else is compared to it. Luna: So for a marketer, the first price a customer sees is incredibly powerful. Even if it's a high price you never expect anyone to pay. Lucas: That's the classic decoy, but the anchor can be even more subtle. Think of a menu: if the first item listed is a $45 steak, suddenly the $28 chicken seems reasonable. The steak is the anchor, even if no one orders it. Luna: And it doesn't have to be a product price. It could be a suggested donation amount, or a starting salary number in a negotiation. Whatever shows up first. Lucas: Right. And the effect is robust even when people know it's happening. In the study, they told some students about anchoring — explained how it works — and it barely reduced the effect. Knowing about the bias doesn't make you immune. Luna: So what does that mean for someone launching a product? If you're a startup, you might be terrified of setting the first price too high and scaring people off. Lucas: But actually, setting a higher anchor can lift your entire pricing ladder. Take Apple — the iPhone Pro Max starts at $1,199. That anchors the whole lineup. The regular Pro at $999 feels like a deal, and the base model at $799 feels almost cheap. Luna: Apple is a master of this. They also use the 'limited edition' or 'premium tier' that most people won't buy, but it makes the next tier down look like good value. Lucas: And it's not just tech. Williams-Sonoma famously introduced a $275 bread maker that didn't sell well on its own. But once they added a $429 model next to it, the $275 model started selling. It was the anchor that made the cheaper one look reasonable. Luna: So the $429 model was the decoy. But the anchor was the higher number. And people felt smart for 'saving' by buying the $275 one. Lucas: Exactly. Now, here's a nuance — anchors can also backfire if they're too extreme. If you anchor at $10,000 for a $50 product, people might dismiss the whole offer as out of touch. There's a sweet spot. Luna: What's the range? Is there a rule of thumb? Lucas: Research suggests the anchor should be plausible — it should be within the realm of what someone could imagine paying for that category. For a mid-range restaurant, a $100 steak might be plausible, but a $500 one would feel absurd and break the effect. Luna: Which brings up another angle: digital products. With software, the anchor is often the highest tier. You'll see a plan at $299 per month, then one at $99, then one at $49. The $299 plan is the anchor. It might have features most people don't need, but it makes $99 feel like a bargain. Lucas: That's standard in SaaS. And it works. But here's the twist: the anchor doesn't even have to be a price. It could be a number that primes a feeling. For example, 'limited to 100 customers' anchors scarcity. Or 'saves you 10 hours a week' anchors time value. Luna: Anchoring isn't just about dollars. It's about any numerical reference point that frames the decision. Lucas: Right. And that's why the first number a customer encounters is so critical. Whether it's on your pricing page, your landing page, or even in a conversation with a sales rep. Luna: So what can a marketer do today? Is there a quick win? Lucas: Audit your first touchpoint. If your pricing page lists a $10/month plan first, that becomes the anchor. But if you list a $50/month plan first — even if it's the most expensive — everything below it looks cheaper. Just test it. Luna: That's a low-effort change. Rearrange the order of your pricing tiers. Lucas: Exactly. And if you have a range of products, don't lead with the cheapest. Lead with the premium option or a decoy that makes the middle option the sweet spot. Luna: I want to push back a little. Doesn't this assume customers are always new? If someone has bought from you before, they already have their own anchor — what they paid last time. Lucas: Great point. Existing customers have a history anchor. That's why price increases are so sensitive — you're breaking their internal reference point. That's a whole other episode. Luna: So for new customers, you set the anchor. For returning customers, you have to manage it carefully. Lucas: Exactly. And if these kinds of marketing insights are sparking ideas you've actually used, that's exactly why we keep the show ad-free. The way that works is listener support — buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small gesture that keeps us independent. No sponsors, no interruptions. Lucas: So back to anchors — let's talk about one more application. Subscription pricing. If you offer a monthly plan at $15 and an annual plan at $120, the monthly is the anchor. $120 divided by 12 is $10, so the annual feels like a discount. Luna: But that's a rational comparison. The anchor is still the $15. Lucas: Right. And you can make it stronger by showing the monthly price next to the annual. 'Normally $15/month, now $10/month when billed annually.' The $15 anchors the perceived value. Luna: This is so common now that I think consumers are getting wise to it. I've seen people deliberately look at the middle option first to avoid being anchored. Lucas: That's a smart counter-strategy. But for most buyers, especially when they're not highly involved, the anchor still works. And as a marketer, you should still set it intentionally. Luna: Fair. So to sum up: choose the first number carefully, make it plausible but high enough to lift everything else, and test different orders. Lucas: That's the takeaway. And remember, the anchor isn't just for prices — it can be any number that frames the decision. Use it wisely. Luna: Thanks, Lucas. I'm going to go rearrange my pricing page right now. Lucas: Happy anchoring.