Decoy Prices & Price Anchoring

Nov 08, 2014

 

New content added this week covers decoy pricing and price anchoring. Both concepts are defined in the pricing glossary with additional examples in the case studies section.

 

Over the past week new content has been added that covers some very powerful pricing techniques.

The first is decoy pricing. A full definition of decoy pricing (and an explanation of the related asymmetric dominance effect) has been added to the pricing glossary. The basic idea is that introducing a decoy price can make an existing price much more attractive. The key is that the new decoy price be only partially dominated by all but one of the other options (meaning it is inferior to them in some, but not all, aspects) and completely dominated by one of the other options (inferior to that option in all aspects). This makes the completely dominant price much more attractive than the others.

Examples of decoy pricing were also added – in addition to the classic example of decoy pricing on subscriptions to The Economist there is one from another publication, the New York Post. Another example, that looked at how decoy prices were effectively used on the popular crowd funding site Indiegogo, has been on the site for several months.

The new content also covers the concept of anchor pricing. A definition of anchor pricing, one that uses the introduction of iPad pricing as an example of anchor pricing, has been added to the pricing glossary.

The idea behind anchor pricing is that humans tend to place too much information on the first piece of information received and basing later evaluations of information received subsequently on that "anchor". By introducing an anchor price first it is possible to favourably frame the value in prices introduced later.

Another example of anchor pricing, one that you see on almost any trip to the mall (and definitely any visit to Amazon.com) involves the way sale prices are presented on price tags. The discounted sale price is almost always presented alongside the higher original price. This allows that higher price to serve as an anchor, one that makes the discounted sale price seem much more attractive in comparison.



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Related Material

Anchor Pricing In The Extreme

A $55,000 pair of headphones illustrate anchor pricing in the extreme, making even $2,500 headphones feel like a relative bargain.

Diminishing Marginal Utility, Anchor Pricing & Attraction Tickets

The historic ships in Baltimore, open to tourists, recognize that they offer diminishing marginal utility and price accordingly.

Other Benefits Of (And Approaches To) A Loss Leader Strategy

There is an additional pricing benefit to a loss leader strategy when it comes to implying value, and it can be flipped around to suggest quality.

Anchor Pricing and Event Registration Fees

A high anchor price (the standard registration fee) establishes the value of an event and makes the discounted early registration price almost irresistible.

Advanced Pricing Strategies From Hollywood

The pricing strategies used by Hollywood often show as much imagination and creativity as the movies themselves, and other vendors can learn from them.

Presenting The Same Offer Different Ways

Ordering printing online shows how simply changing the way an offer is presented can have a powerful effect on the way it is perceived.

Raising Prices to Enhance Credibility and Increase Sales

Lower prices don't always mean more sales. Raising prices can be even more effective - adding prestige to your brand and anchor prices to your strategy.

Decoy Pricing on Indiegogo

A recent Indiegogo campaign does a great job of using discounting and decoy pricing to increase the number of units sold.

Competing To Be The Most Expensive

What would worry you more – a competitor that charged less or a competitor that charged a lot more?

Decoy Pricing on Daily Newspapers

The Economist magazine might have provided the most famous example of decoy pricing but there are other examples in publishing.

Anchoring On Price Tags

The price tags on sale items often use anchoring very effectively by including the higher regular price alongside the discounted sale price.

Decoy Price

Decoy prices are introduced to make another, usually more profitable, price seem more attractive.

Anchor Pricing

Anchor pricing takes advantage of the human tendency to rely too heavily on the first piece of information received and make later judgements in relation to it.

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