Anchoring: So Powerful It's Worth Risking Lawsuits

Anchor pricing, the practice of using a high price to create a frame of reference that makes a lower price seem like a great deal, is a powerful pricing technique used by many retailers. Most commonly it is used on the price tags of sale items, where the standard (non-sale) price is used to make the discounted sale price seem almost irresistible.

It works very well. So well that some retailers started using fake anchor prices in the form of MSRPs that weren't real (the product was never intended to sell at that price) to make discounted sale prices more attractive.

Some of them got caught – companies that included Saks Off Fifth, J.Crew, Michael Kors and T.J. Maxx.

That might have sent a message to other retailers but now Kate Spade is being sued over “illusory” discounts in its outlet stores – the company has been hit with a proposed class action in California federal. It alleges that the retailer advertised discounts from original prices that never existed.

The suit follows a flurry of others filed over the past year against a wide range of retailers, accusing the companies of violating consumer protection laws by using price tags that list a “discount” price on items in their outlet stores...

Anchoring works, so much so that it's tempting (but ill-advised) to abuse it. But, used honestly, it remains a powerful technique for retailers.