Inc. encapsulate how buyers are irrational. They note how customers will pay for products or services through the ‘anchors, bumps and charms’ framework. The following pricing strategies play on ones prospects’ own irrational behaviour:
Every established industry already has anchors in play. The art of pricing, though, is determining how you’ll use those anchors. Significant value-adds allow you to use those anchors as baselines. However, you still need to recognize that established anchors have a very, very strong effect on your prospects’ first reactions to the pricing of your product.
If anchors set the baseline, bumps let people know what grade of product they’re getting. What often gets people to buy a higher grade of product or services isn’t the benefit or features, but rather, the way the prospects view themselves. Many people who buy Audis know there’s mechanically little difference between them and Volkswagens, but they’re buying the premium version because they view themselves as premium customers.
The other dynamic that increases purchases of higher-grade products is the fear of under-buying and having to buy either the higher grade or the same grade sooner. We see this play out in electronics and computers quite often—we know that the mid-grade desktop computer is going to be obsolete in a few years, but surmise that the high-end configuration may live long enough to be worth it. Many people will pay more to overbuy rather than have to replace something all over again in the near future.
The rationale behind charm pricing is that it somehow gets us to perceive the value of the offer at the right amount while we at the same time view the cost as lower. When we see $19.99, we assess the value at $20 but the cost as the same as something that’s in the $10 to $19 range.
Many people think that using charm pricing is somehow demeaning or tricky to prospects—or that playing such games diminishes the seller’s credibility. Still others think that charm pricing doesn’t work on savy, smart buyers.