Anchor Pricing In The Extreme
Last fall a respected maker of headphones released a new model at $55,000. This is, to most, an exorbitant amount. It is also well out of line with the other high-end headphones, the most expensive of which is just under $2,200.
The $2,200 headphones promise to "deliver sound that is as natural as possible and true in every detail", so it's hard to imagine that that that the $55,000 pair (which cost exactly 25 times more) deliver sound that is 25 times better.
But those $55,000 headphones do serve as a remarkable anchor. If the next best pair of headphones can be had for 96% less... they seem like a great deal at what might otherwise seem like the still exorbitant price of $2,200.
That $55,000 pair serves other purposes as well.
First it lets people that really want to spend more an opportunity to do just that. This is something that is often forgotten – we all tend to get so consumed with the bargain hunters and price sensitive buyers that we forget that there are plenty of customers that associate price with quality and will happily pay more.
Why don't we notice those buyers? Partly because we're more likely to notice the "squeaky wheel" buyers that complain about prices and grind about discounts. The ones that just pay happily and move along can fly under the radar. And, unfortunately, sometimes the high-rollers may have moved on – choosing to pay more to another seller that is willing to charge in line with their expectations.
They also lend credibility and prestige to the brand. In the 80s companies competed to sell the most expensive blue jeans – they would actually reference how expensive they were in the marketing material – to make their product seem to be the most prestigious. Hockey skate manufacturers and countless other companies do the same thing – they try and claim the high ground by having the highest prices.
"If they can charge it... then they must be worth" is the thinking, a kind of social proof. If a company claimed that their $99 headphones were the best in the world nobody would believe them.
The $55K headphones take care of all this. Serious about audio? Believe more equals better? We have the pair for you! Trying to figure out which company makes the best headphones? We make the most expensive – that must tell you something!
Anchor Pricing In The Flower Business
Florists can benefit from these effects too. At this time of year, leading into Valentine's Day, there is always talk about getting press. One way to do that is to drop by a local radio station with your Signature Valentine's Day piece – a $1000 masterpiece of floral design.
It's so outrageous it generates interest. If there is anyone out there willing to pay $1000 for Valentine's Day flowers you are now likely to find them and, more importantly, not undersell them – you'll give them what they want.
Everyone else comes way impressed – if you can charge $1000 for an arrangement then you must be a quality shop. And that $150 Valentine's Day special now seems like a great deal compared to the $1000 signature arrangement.