Ever get the comment “I’d love to buy your product, but I just can’t afford it”? Or–how about the even more blunt “That seems expensive!”
Here’s the truth: You probably don’t need to lower your price! In actuality, you can tweak your sales presentation or website by adding just a couple sentences, and that will close significantly more sales.
Read on for more details…
Why They Didn’t Buy: What Is Happening in Your Customer’s Mind?
Something I’ve probably never talked about on this blog is that I have a lot of issues with my teeth. I have big teeth and a small mouth, which has caused numerous problems over the years.
I’ve had pretty much everything done to my mouth, including several pulled teeth, retainers, a bionator, braces for 9 years, Invisalign, and five (!) gum grafts (which are major surgeries.) My teeth have been a mess ever since I was a kid, and my parents and I collectively have spent a small fortune trying to fix them.
I recently attended the Longevity Conference in Costa Mesa, CA. One of the speakers there was pretty interesting; she mentioned one of my specific problems–gum recession and regular gum grafts–as a common issue. And she said, as my dentist had mentioned, that gum grafts only last about 10 years. She claims to have found a way to cure this issue. If you follow her procedures every day, not only would you not have to have gum grafts, but you also wouldn’t have to go to the dentist all the time.
If You Don’t Set the Anchor, Someone Else Will
I was at the conference with a friend of mine, Wendi. During the talk, Wendi whispered to me that her son had a similar problem to mine and bought a Water-Pik to help his gums. It really helped clear out all the bacteria that were irritating his gums. I wondered idly how much a Water-Pik would cost, and came up with a number: $75.
In the meantime, the woman on stage was talking about a blend of essential oils that she had developed that, when put on floss, killed all the bacteria between your teeth and helped your gums out. She held the bottle up. A thought wandered through my mind: I’ve bought bottles of essential oils before that were a similar size. And the bottles cost between $8 and $16.
At the end of her presentation, I was pretty excited about the possibilities of not having to deal with gum grafts and constant dentist visits, so I got up and went to her booth to see what she was offering.
She presented me with a small pouch of various items. It included a toothbrush, a bottle of the essential oils that kill all of the bacteria, a tongue scraper, some dental floss, and a couple other miscellaneous items. She also handed me a laminated sheet of paper with bullet points describing each item.
I started the conversation being very interested in what she had to offer. But I also had a number in my head: $75. $75 just seemed “reasonable” to me for what was in the pouch.
Then I asked her how much it was. She said, “$200.”
At that point, I put the pouch and the sheet of paper down and walked away.
The Answer (It’s Not Lowering Your Price!)
From the salesperson’s perspective, this loss is a big deal. Here was someone–me!–who perfectly fit her target demographic: teeth problems; lots of surgeries; the prospect of more annoying surgeries. This kit could potentially fix all of that. It would seem, on the surface, to be a perfect fit. What happened?
You may have had this happen, too. When you meet certain potential customers, you think, “Ah, this is exactly who I envisioned would buy this product.” Yet, they don’t buy.
And you may think your answer is to lower your price. Here, I’m going to surprise you: It’s not the price itself, that mattered. You didn’t fail because your price was too high.
You failed to connect with that person because you didn’t set an anchor.
Here’s what happens. In our brains, we are constantly comparing what you have to offer with other stuff that we’ve either bought in the past or are thinking about buying. And, whether we know it or not, we have numbers in our heads of what we expect to pay.
Quick: What would you pay per month for a standard web hosting package? $8/month? $10? Yep, that’s your anchor.
How Starbucks Reset Anchors for Millions of People
What would you pay for a cup of coffee? $1.50? $3.00?
Aha–now here’s where it gets tricky. Starbucks managed to reset our anchors for a cup of coffee, didn’t they? We were all used to paying $0.99 or $1.50 or so at Dunkin’ Donuts or the local place. Suddenly, Starbucks came in, and now $3.00 (or more!) is the new normal.
How did they do that? I watched Dan Ariely’s presentation at South by Southwest, where he explained the concept of anchors and how Starbucks managed to reset our anchor for something many people drink every day–not an easy feat!
The first trick they used was to make their stores completely unlike a typical “coffee shop.” They ripped out the fluorescent lighting and piles of donuts and sold fancy pastries instead. Then, you had to learn a new lingo to order. Instead of a “small coffee”, you now order a “venti latte.”
They added comfy chairs, wi-fi, interesting music (that they then sold in the store!), and gourmet drinks like the Frappucino. The first time you walked into a Starbucks, you may have thought people were crazy to pay $3 for a cup of coffee. But, as Starbucks emphasizes, it’s not just a coffee you’re buying. You’re buying into an experience–a far more upscale experience than the Dunkin’ Donuts down the street could provide. You can feel safe meeting people and hanging out at a Starbucks, but you probably would grab a coffee and go at the other place.
Starbucks became a profit machine because they completely destroyed the anchor we had for “cup of coffee” and created a new anchor of “upscale experience”.
As a business owner, you have to understand that if you don’t create the anchor for someone, they’re going to create it themselves. In the dental hygiene workshop I attended, the speaker failed to create an anchor of “buy this or you’ll likely be subject to a $4,000 surgery, only a small portion of which will be covered by insurance.”
She set no anchor, and the anchor I had for “Water-Pik”, which my friend said had helped her son, was $75. Where did I come up with $75? No idea–but it was her lack of setting an anchor that killed the sale.
Are Anchors Rational?
Dan Ariely wrote a book called Predictably Irrational: The Hidden Forces That Shape Our Decisions–which is really a must-read for business owners. In it, he reveals an eye-opening study of setting anchors.
A professor asked students to think of the last two digits of their Social Security number. Then he asked them to bid on various items in an auction. Each person was asked to write down the last two digits of their Social Security number, plus their bid, and hand it in. The highest bidder would pay their bid and take the object home.
Here are the results:
“The students enjoyed this class exercise, but when I asked them if they felt that writing down the last two digits of their social security numbers had influenced their final bids, they quickly dismissed my suggestion. No way!
When I got back to my office, I analyzed the data. Did the digits from the social security numbers serve as anchors? Remarkably, they did: the students with the highest- ending social security digits (from 80 to 99) bid highest, while those with the lowest- ending numbers (1 to 20) bid lowest.
The top 20 percent, for instance, bid an average of $56 for the cordless keyboard; the bottom 20 percent bid an average of $16. In the end, we could see that students with social security numbers ending in the upper 20 percent placed bids that were 216 to 346 percent higher than those of the students with social security numbers ending in the lowest 20 percent.” (emphasis mine)
Do you now see how setting an anchor is important? Obviously, you don’t want to ask people to write down the last two digits of their Social Security numbers…but you can set anchors in your sales presentations.
How to Set Anchors
Here’s how I set two anchors for Guest Post Secrets:
I compared it to pay-per-click, and used the word “Imagine.” I wrote: “Imagine…thousands of targeted visitors showing up to your website, ordering your products, and sending you letters of appreciation…at no charge.
Do the math: Even at 10 cents per click (which is a pretty great rate, these days!) 4,000 visitors to your website would cost you $400. Or you can get super-targeted visitors absolutely free using this step-by-step system.
It’s your choice.”
Right there, I’ve set up a framework: This system works better than pay-per-click, and it’s not going to cost you $400 to send 4000 people to your website. In fact, this method is free.
Here’s another anchor from the same sales letter for Guest Post Secrets:
“In fact, if you called me on the phone right now and requested an hour of my time so I could teach you this, it would easily set you back more than $500…and you would have gotten more than your money’s worth! In Guest Post Secrets, you are getting three videos with a total of over 30 minutes of step-by-step content that you can play again and again…as long as you like until you are one of the Internet’s top bloggers! To think you get all this for less than the price of a single 1-hour session!”
Now I’m comparing it to an hour of my time, on which I set a value of $500.
Then the person sees that the price is just $67 (and sometimes, they have a coupon code that brings Guest Post Secrets down to $47), and the decision becomes a lot easier.
To set an anchor, compare what you’re offering to something that costs a lot more. A web design company I worked for many years ago had this text featured prominently on their website:
“The services that [company] provides allows you or your organization to utilize the ‘Information Super Highway’ at a fraction of the cost that it would take for you to do it on your own. For your organization to duplicate the services of [company], you would have to rent 6 DS3 lines ($12,000 / month), hire a systems administrator ($60,000 / year), get a programming staff ($150,000 / year), a graphic design staff ($150,000 / year), and buy the server and support hardware ($20,000). [company] has all of these items already in place and distributes the cost over many organizations while maintaining excellent performance.”
This was in 1998–and at the time, this company was one of the premier design and development organizations in my local area.
Remember: regardless of whether you’re setting the anchor or not, the anchor is being set. As the salesperson (business owner), you need to make sure you’re the one setting it. Otherwise, you will sell far less of your product–regardless of the merits of your product.
Don’t lower your price to compete with others. Focus on resetting your potential customers’ hidden anchors instead.
Recommended Reading:
- Predictably Irrational: The Hidden Forces That Shape Our Decisions. Dan Ariely–who has an amazing personal story that he shares with you in the book–takes a look at why we really buy products.
- How to Read People’s Minds (And Then Create the Product They Most Desire) Two methods by which you can (almost) read your potential customers’ minds.
- How Do All Those “Idiots” Make So Much Money? Does it drive you nuts that some idiot with a terrible product seems to be constantly making sales, when you know your product is better? What’s the difference between you and that “idiot”?
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6. April 2010 at 10:27 am
Setting anchors in this context makes a lot of sense, and you’re the first person I recall discussing it.
(I found another, really insidious problem with low-priced products: I just can’t be bothered with writing an effective sales page, even though I know the product(s) is (are) easily worth the price.)
I’ll be thinking about how to set an anchor as I’m writing a sales page today. Very timely information indeed.
6. April 2010 at 10:28 am
Ahoy Erica,
Great article. As you say, it isn’t about the price at all. If you lower the price, you will still hear the same “excuses” for why they don’t buy. Another way I think about what you call the anchor, is adding more value to the product. You must build up the value in your product, and Starbucks is an excellent example.
Another example, and the one that started a phenomenom back in the 70′s is Ginsu Knives. I still remember the TV ads. The commercial would talk about the product, a knife, then after a few moments ask you what the knife was worth. The reason, this forces you to pick a dollar amount (they let you set your own anchor), just like you explain above. After you pick your number (your anchor), the TV ad says, “But Wait!” Then they add another knife and repeat the process. They do this over and over, adding more and more, and forcing you to move the value up and up (you are forced to move the anchor price higher). Then they hit you with the low price. You can’t believe what a great deal you are getting, and you sold yourself! Excellent marketing.
Take care of those gums…
CaptRob
6. April 2010 at 10:49 am
Very cool post with awesome insight!
6. April 2010 at 10:49 am
That was a good read. I’d add that many people fall into the old marketing trap of overselling price anchors. You know the kind of thing: “This package of products is worth $8000!” And then you scroll down to the bottom of the page, and you can buy it for $27.
For me that has the opposite effect of a solid anchor.
6. April 2010 at 10:50 am
Excellent! Just what I needed to know!
Thanks Erica for sharing such awesome information that I’ve been struggling with…you must be a mind reader as well! LOL.
I’m going to put it into practice today! Make it a great day!
Deb
Freelance Ghostwriter
6. April 2010 at 11:16 am
Erica,
Great article!
This should help people “see” the value of setting anchors not only in phone calls, but also in website copy, and especially sales letter copy.
Thanks!
Trap
6. April 2010 at 11:29 am
Hi Erica –
Thanks for taking the time to put this together. It’s a very important issue for business owners and consumers alike. I am an entrepreneur starting an escorted, luxury tour agency with excursions to central México. I am in the beginning stages of my planning and have reached the financial aspect of the process. Though there are not many direct competitors in this space (luxury tours to México), I am having trouble setting the price tag because travelers are used to seeing your typical México trip priced in $995 range. This doesn’t even cover my costs, as I include airfare and 5-star hotels. How do I go about setting an anchor in my marketing and sales presentations without sounding too cheesy? After all, this is a luxury service.
Thanks!
- Eric
6. April 2010 at 11:35 am
Hi Eric,
Excellent question! Thanks for posting it.
You’ll want to do research on trips priced far above yours and compare your trip. The most obvious comparison would be Europe. Assuming you’re marketing to folks in the U.S., you can point out the cost (and time!) differences in traveling to Mexico vs. Europe. After all, Europe is a *long, expensive* flight both ways. Also, make sure to really emphasize the benefits of traveling to Mexico–what cultural experiences are people expecting when they travel to Europe? What similar experiences can you offer in Mexico?
Looking forward to seeing what you come up with on this one…very interesting business model!
-Erica
6. April 2010 at 12:15 pm
Oooh anchors! Yes! I remember reading the story with the social security digits, and the freakiest part is that no one thinks that influenced them.
I once mentioned this study during an interview because I was asked to come up with an arbitrary number and I used a number we had already discussed. Programming stuff, woo.
Like Mike CJ says – sometimes it can go the opposite way. $8000 down to $27 can be a weird let down in some ways. Still, the technique is super useful.
Thanks for highlighting it in your examples too.
6. April 2010 at 12:27 pm
Wonderful explanation of anchors. I’ve read about them before but leading in with the story about your personal expectations really helped me understand what might be happening in a prospect’s mind when I’m not deliberately setting an anchor.
6. April 2010 at 1:00 pm
Great post, Erica. This is something I touched on with my blog a few weeks ago, but I called it “Strategic positioning”. Anchoring is simpler and sounds better, though.
But, little tip for people on how to apply this: Offer a consulting option on your blog. I’ve done this, and while I will surely deliver like crazy if anybody takes me up on it, the real reason I did that was to create an anchor for pricing on my other products.
See, a confession – just for your readers.
6. April 2010 at 1:36 pm
Erica, coincidentally I’m on my laptop getting some work done and saw your post as I’m listening to Tony Robbins course, “Mastering Influence”. The section I’m listening to is, “The Science Of Persuasion: Why We Buy”.
Your post was perfect for what he’s saying.
He’s talking at this second about how salespeople need to learn to sell consequences. For instant, like you said, “In the dental hygiene workshop I attended, the speaker failed to create an anchor of “buy this or you’ll likely be subject to a $4,000 surgery”.
If the salesperson had reset your anchor from $75 (which she didn’t know was your anchor) to positioning it as a potential $4000 expense if you didn’t spend $200, you may have bought.
In any event, the combination of you and Tony Robbins is really making me think about this topic today.
Thank you!
6. April 2010 at 3:14 pm
Interesting concept. This is basically creating a brand that stand out, isn’t it? Similar to how a luxury car stands out from a regular car.
6. April 2010 at 3:19 pm
Well written and useful article. However I do have to agree with Mike CJ. Especially in the internet marketing realm, this is often over-used and exaggerated. I think that it’s important to keep numbers realistic, and realizing that many people are developing this attitude, address it head-on, or be more modest about the numbers.
6. April 2010 at 5:26 pm
Hi,
I sell a product that exactly fits into this predicament. It’s heli and cat skiing, and the average price of a day doing this is 10x what it pays to ski in a resort. But of course, the experience and value is way more than 10x in value.
What I am really selling is the realisation of an adults’ dreams. Testimony from my clients which I am going to start posting is that this is the ‘Best day of their entire lives’, that they ‘haven’t felt this much anticipation and joy since they were kids on Christmas Eve waiting to see what’s under the Christmas Tree’, etc I have this stuff on video. When you add up the best day of their lives until now, it might be their wedding or getting a new car or job or graduating university or whatever. We spend so much of our lives being sensible, and there is no real financial way to justify heli skiing except how do you place a value on the best experience they may have? I just have to take this advice and anchor people around the concept of trying something that literally changes their lives…that’s difficult, but i am up for the challenge. Thanks for this post.
6. April 2010 at 7:50 pm
That’s like the hour long sales pitch my husband and I sat in on for a waterless cooking set. It was awesome and the guy had us hooked. We would have bought it if it was at the price I tallied in my mind – $600.
The darn set costs $3000+ granted u got the vegetable slicer. But puh-leeeze! $3K?? Lost us there.
So even with the potential ‘health benefits of not losing essential nutrients during the cooking process’ it didn’t get me. Maybe because I know better and am aware the internet exists.
The same set can be found for $175.
7. April 2010 at 5:54 pm
I haven’t ever considered the anchor theory before. I’m a Multimedia Director (and freelance writer!) and we definitely experience the anchor effect when it comes to selling theater tickets. What’s it worth? Why? What are they getting? How do shows differ?
It’s the same in my side projects as well.
I like the approach Chris Guillebeau takes. He tends to set several anchors and offers different value for different prices. Also chances to upgrade afterward. It’s interesting. I’m fascinated with price setting and brand development.
Thanks!
7. April 2010 at 7:25 pm
Here is another perspective. Setting a price anchor and being aware when people are trying to manipulate your price anchor can help you as a consumer as well. Whenever I see an ad for a product and they don’t mention the price or delay revealing the price that causes me to be skeptical. It usually means that the product is selling for more than what I would consider a fair price. In your example knowing that the products were worth about $75 saved you $125.
7. April 2010 at 8:16 pm
I love the discussion as much as the post! Pricing yourself can be difficult, especially if your product is new or unique or a different twist on an old product (Starbucks). Hayley from TotalHeliski is on the right track with her enthusiasm. To entice new customers you need to sell it as one of those once in a lifetime before you kick the bucket experiences, like skydiving or climbing Everest that people will pay the big bucks to do. Make sure you send them away with great photos and video so it is unforgettable.
Selling luxury in Mexico like Eric I presents a different challenge because Mexico isn’t synonymous with luxury like Europe is. Although it definitely has an amazing beauty, it is very under-appreciated and not well known in the States. I have seen some ads for resorts that actually didn’t emphasize or even mention the country they were in! Perhaps emphasizing the experience over the location might be the best option.
Best of luck!
14. April 2010 at 12:50 pm
This post has given me food for thought about the pricing I have done for several products I’ve created over the years. While subconsciously I am aware of the “anchor” strategy, I did not put it into practice. I’m going to change this today. Thanks!
Suzanne
17. April 2010 at 8:59 pm
Erica,
Recently completing my first e-book ” Everything you need to know about the security clearance process, but are afraid to ask, I have never thought of the anchor process when trying to come up with a price for my book. I finally settled on the price of 19.95.
Thanks for the GREAT information, I have been struggling with this….
Any suggestions on how to market the ebook?
Diane Griffin
21. April 2010 at 9:13 pm
Hi Erica,
I’m new to your blog and have never posted a comment before, so first, I’d like to say “Hi” to you and all of your readers. Hi!
Next, I’d like to pass on a really good tip. A tip that could have you drop the whole anchoring process all together (because who really wants to spend that much time and effort doing all that when they can do this).
Break your product into pieces!
This works especially well with info-products and software.
Instead of offering a complete ebook on an entire concept (like internet marketing, weight loss, etc.).
Break your ebook into reports. If you have an ebook with 10 chapters, then you now have 10 small reports. Assuming you would be charging around $1 per page, you’d probably normally sell your ebook for $97.
Now, you can sell 10 small reports for $9.99 a piece! The cool thing about this approach is that all you have to do to sell these is eliminate the parts of your copy that pertained to the other chapters of your ebook. You may have to re-write the headline and pre and sub headlines a bit, maybe tweak a few senteces.
But it is all pretty easy and takes maybe two to three hours to do.
Your customers who wouln’t buy before, may now most likely buy all 10 of your small reports, PLUS, you’ll get a bunch of customers who now know how valuable your small reports are, and can now easily sell them a $29, $49, $100, and even $299 product.
It’s ten times easier to sell to someone who has already experienced your buying process and enjoyed than it is to sell to a first time customer.
This method works very well for situations like what you’re speaking of, and again, it doesn’t take much more than a few hours of one-time work.
If you’re selling software it’s the same process. Instead of selling software that does a ton of stuff, break it up into software that does one thing well and automatically.
For example, there are a number of sofwares available online that will submit press releases, submit your articles to forums, etc.
The softwares I see making most money are the ones that just submit your articles to the article directories with one-click. Software that just does one thing or is for one aspect of a bigger tactic. Instead of creating one promotional software and selling it for $397, sell an SEO software, article writing software, article submission software, affiliate software, and press release submissions software, and a keyowrd software for $77 to $97 a pop. Now you make more money in the long run (because if customers buy them all for a lower price per software they end up spending close to $500 instead of $397
)
Hope you get what I mean as it works very well not only for me, but also for the “big names” in our industry (such as Allen Says of the Warrior Forum and others).
23. April 2010 at 8:21 am
OK! I began to understand what you convey, though still need elaboration. There is no harm if the strategy is developed by adjusting the anchor setting the target market. In his practice, required a more subtle tactic to attract buyers, and this does need its own thinking with the adjustment type of product that we sell. All implementation strategies always a risk, for example, sell at cheap prices and quanta hopes sales will increase and it is the risk of fixed income or slightly increased and the biggest risk is market saturation could occur. If the strategy of setting the anchors carried out properly, then the price will be stable and allow for the addition of quanta of sales, even though we actually spend in other forms for the convenience of buyers.
Perhaps this understanding while I can catch and has started to open my mind to make a more appropriate setting.
Thank you for understanding this and for your success,
Best regards,
28. April 2010 at 7:27 am
when i said i will visit this blog again i knew i was making the right decision, amazing post Erica
1. June 2010 at 9:19 am
You are an amazing person. I have been reading your other posts and am awed st your accomplishments at such a young age and having battled disease.
This anchoring tip is brilliant. Not only am I going to implement it (especially on our virtual gastric band offer) but I am going to refer the people in my Registries to your blog.
Your wisdom and energy leave me breathless. And that’s not only because I’m 71
11. August 2010 at 10:08 pm
This is literally one of the most awesome blogs in the world. I’m not into Starbucks because I’m not a coffee drinker; however, I always did wonder how they managed to attract so many people. Anchor is my new favorite term I will apply to my clothing line.
Thanks.