You sit down at a restaurant and see a $150 Wagyu steak. You’d never order it. But because it’s there, the $45 Filet Mignon suddenly looks reasonable. You order the Filet, not because it’s cheap, but because the Wagyu made it feel like a safe investment. You didn’t buy it to save money; you bought it because the anchor changed your perception of value. That is “Anchoring Bias”.
What is Anchoring Bias?
In essence, Anchoring Bias is our tendency to rely too heavily on the first number we see when making a decision. The first piece of information acts as the “Anchor”, significantly impacting how we will perceive the following pieces of information.
If you read our previous article “The Paradox of Choice”, the concept of Anchoring Bias may feel similar to the Tiered Pricing Model; but they exist in two completely different worlds. While the Tiered Pricing Model is a sales strategy used to prioritize a streamlined client experience, the use of Price Anchoring is effectively a negotiation tactic.
Let’s look at a common IT Security scenario.
You want to sell a $4,000/mo retainer. But when you pitch it, clients hesitate. They do the math ($48k/year) and get sticker shock. The Fix: You don’t lower the price. Seems counter intuitive, right? Stay with me.
Instead, try leading with a $50,000 “Intensive Audit” as your primary option (The Anchor). When the client balks at the $50k upfront fee, then pivot with: “Or, we can spread that value out with our monthly advisory retainer for just $4,000”. Suddenly, the retainer doesn’t feel like a cost; it feels like a flexible, bite-sized way to access your expertise.
Decoy Pricing
Price Anchoring is certainly effective, but you can take it to the next level. The strategy of “Decoy Pricing” removes choice paralysis, rather than mitigating it. It stops the client from asking “Is this expensive?” and makes them ask “Which is the better value?”.
Think of it like this: A B2B marketing firm offers a variety of tiered plans, including bronze ($10,000), silver ($25,000) and gold ($35,000). Despite the gold tier being the most profitable option for their business, very few clients are opting to purchase it. By introducing a platinum tier for $70,000 (the decoy), they can persuade clients to see the gold tier as a much better value, considering that it is a small upgrade from silver, as opposed to the very large price increase for the platinum upgrade.
In this situation, you aren’t exactly trying to sell the platinum tier. Of course it has to be a real, functional and effective plan that you offer, but its purpose is almost exclusively to sell the gold tier.
Market-Driven Price Anchoring
While using your own anchor to boost sales is ideal and gives you the most control, the cards don’t always fall that way (in fact, most of the time they don’t). Truth is, outside factors are going to dictate your potential anchors more often than not. This is “External Price Anchoring”, driven by the market.
More than any other form of Price Anchoring, this is the flavor you have likely had to deal with the most. Have you ever been so close to securing a deal with a high-level client, just for them to show you the competitor’s proposal charging less? The client walks in with a competitor’s number in their head.
In this situation, when a client says: “The competitor is 20% cheaper”, don’t offer a discount…audit their scope. If they’re cheaper, they are likely missing critical steps, you need to find those gaps. Then, say: “I see they excluded X and Y. We include those so you don’t get hit with change orders later”. You re-anchor against the Cost of Failure, rather than the competitor’s price.
Only being concerned about anchoring your own price is a death sentence, you need to work within the market that you and your competitors have set.
The Psychology of Budget
Working around the price anchoring effects of the current market is one thing, but working around the lingering price anchoring effects the past can be truly difficult. Ever heard a client say: “Well, that’s a lot more expensive than I paid this other business five years ago”? If you have, you know how much of a pain it is to deal with…but it’s not impossible to navigate.
Breaking the “Legacy Anchor” is going to require you to lean on the changes your industry has gone through since the anchor was introduced. Whether it’s inflation, supply issues, increased demand or even a major improvement in your quality of business, the client needs to understand why the price has changed.
Most importantly, you need to sell to the client that the old price just isn’t a valid comparison anymore. Times have changed, the industry has changed, and above all, the services they are going to receive are significantly better. Remind them: “That old price was for a task. This price is for an outcome”. When you change the unit of measurement, you break the Legacy Anchor.
Conclusion
At the end of the day, making potential clients interested in your business isn’t the ultimate goal: it’s securing them for the future by appealing to their sense of accomplishment. Price anchoring not only allows you to drive business towards your most profitable services, but also makes clients feel like they won the deal.
Looking to take your B2B strategy to the next level with the help of price anchoring? Schedule a consultation today.