Price Anchoring: How Retailers Trick You Into Thinking You’ve Found a Great Deal
Todd noticed that Carnival offered two options for water at drastically different prices per bottle. Cruisers could preorder either:
- A single bottle of water for $3.95 or
- A 12-pack of water for $4.95
The cost difference between the options is just $1, but in the second choice, customers get twelve times as much water!
Todd asked “Why?! Are there really people buying only one bottle? I wonder what the ratio is and why people only buy one bottle if anyone is. I wonder why Carnival is offering water at these two prices. I’m not able to make sense of the weirdness of this.”
Todd is right — superficially, this looks ridiculous. Is Carnival expecting people to buy the single bottle when the twelve-pack is only a dollar more?
The answer is no, they aren’t. So, what is going on here?
Understanding Price Anchoring
The real reason that Carnival offers the two water options at such strange prices is that it is using a marketing tactic meant to make the twelve-pack of water feel cheaper.
Consumers typically think of pricing as directly proportionate to value, but the reality is that companies often approach pricing as a marketing decision. One of the ways that companies determine prices is by predicting how those prices will affect consumer behavior. This is called “psychological pricing strategy,” and it includes a wide variety of techniques. The one being used here is called “price anchoring.”
The concept behind price anchoring is simple: Introduce the consumer to a product with a high price first, then show them a similar product at a lower price. The first, higher-priced product that they see will set their pricing expectations and make the second, lower-priced product feel cheap in comparison — even when it’s not.
Let’s return to the water options on the cruise. Carnival is selling a 12-pack of generic-brand water for $4.95. That’s hardly a great deal — at Walmart, for example, you could pick up 40 bottles of water for about the same price.
However, by placing the 12-pack option right next to the single bottle option, Carnival makes the former feel like a good deal. Customers see a single bottle of water for nearly four dollars and think “that’s outrageous!” Then they see that they can get twelve times as much water for only a dollar more, and feel like they’ve found a great discount.
Not only do cruisers end up buying the overpriced water, but they feel like they have found a steal! That’s great marketing.