Question

NOTE FROM STUDENT: Please be very descriptive, examples, etc

What is the difference between and the use of Reference Pricing and Anchor Pricing? (10 points)

Answer 1

Reference pricing refers to how much consumers expect to pay for a good in relation to other competitors and the previously advertised price.

1. Reference pricing could refer to a situation when a firm sells price just below the main price of its competitor. (BD)
2. Reference pricing also refers to a situation where a firm sales a good at a large discount to a previously advertised ‘reference price’ (OFT)

When buying goods consumers give importance to comparing the price of the good with a ‘reference price’ The price that they would usually expect to pay or the price they think the good is worth using all previous data.

Anchor pricing

An anchor pricing is when you use a price to give your customers a frame of reference for valuing your product. This allows you to guide your customers into choosing the exact product you want them to choose at the exact price you want them to buy.

Today, customers all around the world are influenced by different types of anchoring during their decision-making process. It’s one of the most effective psychological pricing strategies out there.

Anchoring can be achieved through prices, promotions and placement of your products as well as the product itself. In truth, any element on your page could potentially act as a pricing anchor to influence potential customer decision-making.

For example, let’s take two TVs. One is priced at £600 while another is only slightly bigger and is priced at £1,000. It’s reasonable to think that the £600 telly is a far better deal, but what if that was the exact product the retailer wanted you to go for in the first place?

You could also use the power of suggestion as a product anchor. Have you ever seen items labelled as “most popular”? This can have a really big psychological impact on a customer’s decision-making process when stuck between products.