In retail, businesses constantly try to influence customer decisions to drive sales. One of the most effective strategies online retailers use is comparative pricing, which involves presenting products at different price points side by side to encourage consumers to view one as a better deal compared to others.
By carefully structuring how prices are displayed, retailers can shape a buyer’s perception of value. When done effectively, comparative pricing—anchored by a higher-priced item—makes lower-priced products seem more appealing, often leading to increased conversions.
Here, we will explain how this technique works and why it’s so effective in the digital marketplace.
Understanding Comparative Pricing
The core principle behind comparative pricing is that our perception of value is heavily influenced by price. When a customer sees two products side by side, one expensive and one cheaper, they start to make judgments about perceived value. The more expensive item acts as an “anchor,” making the cheaper one seem like a bargain, even if the cheaper item is still relatively pricey.
This “anchor price” is important because it sets a mental reference point for comparison. For example, if you were calling around for a tooth extraction, one dentist might quote £500, while another quotes £25. Rather than feeling like the £25 option is a great deal, you might question why it’s so cheap and wonder if the more expensive dentist offers a better service.
In both cases, comparative pricing influences your perception. It doesn’t necessarily reflect the product’s true value but is a concept we’ve learned—often, expensive equals good quality. While this logic often serves us well, it can also make us vulnerable to manipulation, a tactic retailers use to boost sales.
Price Perception and Post-Purchase Impact
Interestingly, this pricing influence extends beyond just pre-purchase decisions—it can also affect how we feel after buying. For instance, if someone chooses the cheaper dentist and later discusses their experience, they might rate it poorly, influenced by the low price.
On the other hand, if they opt for the expensive dentist, they may report a more positive experience. This shows how deeply price perception affects not only decisions but also post-purchase satisfaction.
This is called Post-Purchase Cognitive Dissonance, when someone spends money, they may try to reduce dissonance by convincing themselves they made the right decision, leading to higher satisfaction.
Anchoring a Product
Price anchoring is a cognitive bias that plays a huge role in how we perceive value. When we see an initial price (the “anchor”), it sets a mental reference point for evaluating other prices.
This bias was famously studied by behavioural economists Daniel Kahneman and Amos Tversky, who found that the first number we encounter, whether it’s a price or even a random figure, acts as a mental anchor and influences our decision-making process. In retail, we know price anchoring can significantly sway consumer choices, especially when used with comparative pricing.
How Comparative Pricing and Anchoring Work Together
When retailers use comparative pricing, they create a structured choice for customers. Anchoring works by drawing attention to the higher-priced item, which sets a mental benchmark. The nearby lower-priced item is then evaluated in comparison, making it seem like a better deal.
Here’s how this process works:
The High-Priced Anchor
Retailers prominently display an expensive product to set the context for customers’ perceptions. For example, you might see a bed priced at £1,500, even though the average price of beds is closer to £500.
The Middle Ground
A mid-priced, high-quality product is placed next to the expensive anchor. This option appears to offer better value in comparison. In the bed example, this might be a £500 bed.
The Bargain Product
A low-priced product might also be displayed, but the goal is to steer customers toward the middle-priced option by making it appear the most reasonable and value-rich.
When a low price seems too low, as in the dentist example, customers may question its quality.
Nobody likes to walk into a shop, see the 1st product is way above their budget and walk straight back out, it’s embarrassing. Care should be taken about what product is used as the anchor, it should be high, but not exceedingly large that it will want to make people walk out of the shop or indeed, bounce off a website landing page.
Examples of Comparative Pricing in e-Commerce
Subscription Models
Many SaaS platforms use price anchoring with tiered plans:
Basic: £20/month
Premium: £50/month
Enterprise: £150/month
Here, the £150 plan acts as the anchor, making the $50 plan seem like the best value compared to the basic option.
Consumer Electronics
Retailers often place high-end models next to budget-friendly ones. For instance, a £1,500 laptop next to a £900 model makes the lower-priced laptop appear more attractive.
Fashion Retail
Luxury brands often display expensive items alongside more affordable ones. A £2,000 handbag close to a £200 one makes the latter seem like a great deal, even though it’s still a premium price.
Why Comparative Pricing with Anchoring Works
Relative Value
Shoppers tend to choose products based on perceived value rather than absolute cost. Comparative pricing, combined with a high anchor price, makes the lower-priced item appear to offer a much better deal.
Perception of Quality
Higher prices are often linked to higher quality. Displaying a high-priced item subtly suggests that the nearby lower-priced item shares some premium qualities, making it a smart buy.
Avoidance of Extreme Options
Most consumers avoid the cheapest and most expensive options, gravitating toward the middle. Comparative pricing takes advantage of this tendency, guiding customers toward the mid-priced product.
Experiment with Comparative Pricing
Comparative pricing, especially when combined with price anchoring, is a powerful tool in eCommerce and brick-and-mortar retail. By presenting multiple price points, retailers can influence customers’ perceptions of value, encouraging them to choose products that offer higher profitability.
When used effectively, this strategy not only boosts sales but also enhances the customer’s overall shopping experience by guiding them toward what they perceive as the best deal.
If you would like to discuss this sales technique further or need help implementing an experiment, just reach out to Frankenstein Digital today to discuss it with our team.
Sources:
Anchoring and Pricing in Behavioral Economics: Kahneman, D., & Tversky, A. (1974). Judgment under Uncertainty: Heuristics and Biases. Science.
How Consumers Respond to Price Comparisons: Simonson, I., & Tversky, A. (1992). Choice in Context: Tradeoff Contrast and Extremeness Aversion. Journal of Marketing Research.
The Influence of Price Anchoring on Consumer Behavior: Nagle, T. T., Hogan, J., & Zale, J. (2016). The Strategy and Tactics of Pricing.