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.

By starting off with a high anchor price lower prices introduced subsequently will be more attractive, but only because of the context provided by the anchor price.

One great example involves the introduction of the original iPad. At the time consumer tablets didn’t really exist and Apple was creating a new market. Would they be positioned as a high priced luxury item only few could afford? Or as a great value within reach of the masses?

The introduction was fascinating. For several minutes a price of $999 dominates the screen, establishing that as the anchor price, while Steve Jobs talks about the product and how they decided to price it.




Then, at the end, when the actual price of $499 crashes down from above and crushes the larger figure there is an audible gasp from the crowd. This amazing new device, which they were just told was worth $999, is actually being sold for half of that.




Would the reaction have been the same if the $999 anchor had been left out, and they had gone straight to the $499 price? Almost certainly not. Nobody knew what that new kind of device would cost. $499 seemed like an incredible deal primarily because the anchor had just been established at $999.

Examples abound in retail. Any time you see a Manufacturer’s Suggested Retail Price (MSRP) followed by a lower sale price you are seeing the anchor effect in action.

You can watch the relevant section of the actual iPad introduction below: