Anchoring Bias: The Invisible Price Tag in Your Mind

When Steve Jobs introduced the iPad, he put a giant "$999" on the screen. He left it there for a long time. He talked about how the pundits said a tablet should cost a thousand dollars. He talked about the value of technology.

The audience sat there, accepting that $999 was the price. It seemed reasonable for a revolutionary device.

Then, he shattered the screen with an animation, and the price dropped to "$499." The crowd went wild. $499 isn't cheap. But compared to $999? It felt like a giveaway. If he had just started with $499, people might have thought, "Five hundred bucks for a big phone?" But because he anchored them at a thousand, five hundred felt like a steal.

This is Anchoring Bias. We rely heavily on the first piece of information offered (the "anchor") when making decisions.

Why does the first number dictate the entire conversation?

We have no internal objective scale for value. We don't know what a car should cost or what a website design is worth. We look for clues.

The first number thrown out sets the context. It becomes the center of gravity. Any adjustment we make is relative to that number. If a used car salesman says "$20,000," and you negotiate him down to "$15,000," you feel like a master negotiator. You saved $5,000!

But the car might only be worth $12,000. You didn't win; you just adjusted from his anchor. You were playing in his sandbox.

How do you set the anchor before the price page?

In sales and marketing, you must control the anchor. If you don't set it, the customer will set it themselves—usually based on the cheapest competitor they Googled.

You need to prime the user with high-value contexts before they ever see a dollar sign.

Comparison against the expensive alternative

This is why agencies say, "The cost of a full-time senior engineer is $150,000 a year. Our service is $5,000 a month."

They are anchoring you to the $150k salary. Suddenly, $60k a year for the agency seems cheap. If they just said "$5,000 a month," you might compare it to a $10 Netflix subscription and think it's outrageous.

The "Price-Anchor" SKU

You can also do this on your pricing page. You should always have a "Call for Pricing" or "Enterprise" tier that is visibly expensive (or implies high expense) positioned to the left or right of your target tier.

Restaurants do this with wine lists. They put a $200 bottle at the very top of the menu. They know you won't buy it. But after seeing $200, the $60 bottle feels moderate. If the top bottle was $80, the $60 bottle would feel like the "expensive splurge."

When does anchoring backfire?

The only time anchoring fails is when the anchor is completely implausible. If you tell me a toothbrush is worth $10,000 and you are selling it for $5, the gap is too wide. The link breaks. I don't believe the anchor, so I don't credit the discount.

The anchor has to be defensible. Jobs could defend $999 because laptops were $2,000. The agency can defend $150k because that is the market rate for talent.

You cannot anchor against a fantasy. You must anchor against a different, more expensive reality.

What should you remember?

Never present your price in a vacuum. Always provide the context.

Anchor against the problem you solve. Anchor against the cost of not acting. Anchor against the expensive alternatives.

When you control the anchor, you control the perception of value. Combine this with the Decoy Effect, and you can effectively guide your customer to the exact choice you want them to make.