6 ways to increase conversion rates and revenue using price anchoring

By
Dave Gowans
on
February 13, 2017

In our first of a series of practical articles focusing on some of the most effective ways to convince your users to buy from your website, I’m looking at Price Anchoring.

One of the biggest reasons for users not converting on a website is usually price, or at least the user’s perception of price. If a user doesn’t feel that the product or service gives them value for money they’ll look for alternatives or simply won’t convert. Using a price anchor can help to overcome this, by making the price appear less expensive.

What is price anchoring?

Anchoring is a cognitive bias - an unconscious reaction in the brain to the outside world. What that means is that your brain is influenced without you realising it, changing your perception of the information you see around you. There are hundreds of these cognitive biases, but one which is often involved in purchase decisions is anchoring.

The concept is quite simple - when given new information, people will start with a first approximation (their anchor) of what that means and will then adjust this based on additional information they receive.

For example - if you see a new computer priced at $800, that will be your initial anchor price of the ‘value’ of that computer. If you then do more research  you may find others with similar specifications priced at $600, $750 and $685. This is the additional information you are taking in, which you will use to evaluate whether you think that $800 is a fair price for the computer.

This seems quite straightforward, but the cognitive bias comes in when we discover that the original anchor has more influences us more than the additional information  That means the original $800 price tag will subconsciously have more importance to us, than the three others prices we found when evaluating the value of the computer.

This may seem strange, but it has been supported by many experiments. For example, Tversky and Kahneman asked two groups of people to work out a calculation in their heads in just five seconds:

  • Half the people were asked to calculate:
    1 x 2 x 3 x 4 x 5 x 6 x 7 x 8
  • And the other half:
    8 x 7 x 6 x 5 x 4 x 3 x 2 x 1

Of course five seconds wasn’t enough to calculate the exact answer, so the participants had to estimate after the first couple of calculations.

Those in the first group had a median estimate of 512 however those in the second group estimated much higher: 2,250. The lower guess in the first group was because they were anchored to a lower number at the start (1 x 2 = 3) than the second group (8 x 7 = 56).

The real answer was in fact 40,320.

Interestingly, even the suggestion of a number, even one that is clearly nowhere near actual answer has an effect. Two groups of students were asked a question:

  • Did Gandhi die before or after age 9?
    or
  • Did Gandhi die before or after age 140?

They were then asked to guess the age he actually died. The first group guessed significantly lower (average of 50) than the second group (average of 67) - they had been anchored by the lower number.

These and countless other experiments have shown the anchor effect is real, so how can we use this to increase conversion?

How should you use anchoring to influence your visitors?

There are two main important ways:

  • If people don’t have an idea of what something costs, they are very open to being influenced about value (they have nothing to compare to). Price anchoring can be very strong here in influencing how your products price and value will be evaluated.
  • When comparing different price options, people will be influenced by the first price they see or read. If you have three price options, presenting them with the lower price first will anchor people lower:

Let’s now look at six examples of how anchoring can be used to influence your visitors:

1. Use a high monthly price to make the annual cost appear lower

Runkeeper, the hugely successful fitness app, uses price anchoring to make the cost of their subscriptions seem much cheaper.

The upgrade screen shows the monthly price (£5.99) followed by the annual price of £23.99:

Runkeeper anchors the user to a higher price by using a significantly higher price for monthly users.

This is a great approach. On its own, £23.99 may seem expensive for a subscription to an app but price anchoring means that the person has already subconsciously looked at the monthly cost and worked out that the annual price is a really good deal in comparison (equivalent to less than 5 months subscription, or an annual saving of about £48).

Runkeeper’s visitors have no initial concept of how much a year’s subscription should cost, but the anchor means that they perceive it to be much higher than Runkeeper actually want to charge - making the annual subscription seem like a bargain.

2. Reverse anchoring to sell a subscription

Amazon use the opposite principle to upsell users to a Kindle Unlimited subscription.

In search results, when a book is available as part of the subscription, they list the Kindle Unlimited price as £0.00 before the actual price to buy the book.

By using the low anchor of £0.00 for a Kindle book, Amazon make their subscription service seem more appealing,

Again, users often don’t have a perception of how much they expect the book to cost. This isn’t a particularly expensive book, but once the user has been anchored to £0.00, the £3.72 price seems expensive. That makes them more likely to consider the subscription - a far more lucrative option for Amazon than a single sale.

3. Show a sale price first to make the product seem cheaper

One of the most commonly used, and effective methods of price anchoring is to use a “was” price or sale price. GoDaddy do this very effectively, by listing a “regular” price of £10.99 for a domain, with a sale price of £0.99:

Using a "was" price of £10.99 makes the domain seem like a bargain at £0.99

This appears to be a fantastic deal as in the user’s mind the value of the domain has been anchored to £10.99. It doesn’t work so well if you try it the other way round as iPage do:

Much of the price anchoring effect is lost by showing the discounted price first

Although the price and discount are similar to Godaddy’s, the user is already anchored to $1.99 for a month of hosting before they see the discount, negating much of the effect.

Was/sale/regular pricing is hugely effective, but to get the most value from it, put the higher price first to anchor your visitors to the higher value.

4. Use any large number to anchor the user, not just a price

The great thing about the anchoring bias is that you don’t just have to use a price to anchor the user. On Hotjar’s pricing page they show the number of visitors included in the package first:

Hotjar's users will be anchored by the large number at the top of the page, even though it isn't a price

This has already anchored the user’s mind to a high number (20,000) before they start looking at prices. Although the 20,000 and €89 price aren’t related, as the “Ghandi” experiment  showed, this doesn’t matter. Users will already be anchored to the high number, so the price will seem more reasonable.

Investment company Nutmeg also approach this well by using a fee calculator. It shows the value of the portfolio first (a very large number), followed by the monthly fees (a comparatively very small number):

Nutmeg use the value of your portfolio to make the weekly fee appear cheaper.

The user is anchored to a large number first so the fees seem far smaller.

If you don’t have multiple prices or packages to use for anchoring, finding another number (perhaps a feature of your product or service) to anchor the user at a higher value, can help to make your price seem more reasonable.

5. Make your anchor price stand out so that it's looked at first

The key in anchoring a user to a specific value is to make sure it's looked at first. Site5 make their “hostPro+Turbo” package stand out so much that the price is the first thing the visitor sees on the page. As it has the highest price, both other packages seem very reasonable in comparison:

By making the most expensive package the most obvious thing on the page, Site5 make sure it is the first thing seen by the user so that it acts as an anchor.

The important factor here is that this is a cognitive bias. It happens unconsciously, so think very careful about the first number or price the user is seeing. Even if you can’t put the large number first on the page, draw the user’s attention to it using other design and usability techniques.

Booking.com have a very effective technique where they use a “loading” indicator for a few seconds when the sale price is being loaded. This gives the user’s mind time to anchor on the original price for the hotel, and also draws attention to the lower price when it is loaded:

Booking.com delays the display of their sale prices so that the user takes in the original (higher) price first.

Using design and UX techniques can be very effective in drawing the visitor’s attention to your anchor price and making it more effective.

6. Order prices and packages from highest to lowest

The most common layout of pricing pages, particularly for subscription services, is to offer three or more of packages, ordered from lowest to highest in price. These pages often try to use all sorts of psychological techniques to upsell users, such as labelling packages as “best value” or “most popular”, however simple price anchoring can be even more effective.

Compare A/B Tasty’s pricing page:

A/B Tasty order their packages in increasing price order, so most users will read the lower price first, making the Plus package seem more expensive.

To that from competitor Convert:

Convert show their most expensive Enterprise plan on the left, making the other plans seem like a better deal.

Convert’s page shows the enterprise price first - anchoring the user. Their $499/month Lite package then appears like a great deal. In contrast, A/B Tasty’s $249/month seems relatively expensive as there’s no high anchor to guide the user.

When to be careful

Price anchoring is a very effective technique, but doesn’t come without risks. Some of the things to be careful of are:

  • Don’t put users off with a high price too early. If users know little about your product and see  a high price early on they may just leave without investigating further. Make sure you have users’ attention and interest before using anchoring.
  • In retail and travel, be particularly careful about very cheap products showing in search results. For example when searching for iPhone on Amazon’s site, several very cheap accessories are shown first. This will subconsciously anchor the user to this lower price, making the actual iPhone seem more expensive than it actually is.
A cheap accessory gives an unconscious price anchoring effect when searching for an expensive consumer product.
  • Test to work out what is right for your visitors. Although effective, this doesn’t work for everyone, so make sure you A/B test your changes to find out the effect they have on your users.

Conclusion

Price anchoring can be hugely effective when used in the right way. By carefully evaluating your visitors’ behavour on site, you can find the best and most effective places to use this technique.

If you’d like to see what price anchoring and other persuasion technqiues could do for your site, why, not get in touch for a free discussion.

This is the first in a series of articles looking at persuasion techniques. If you’d like to find out when we publish the next article, please subscribe to our mailing list.