#012: How to Use Price Anchoring to Eliminate Sticker Shock And Negotiate Smarter

#012: Use Price Anchoring to Eliminate Sticker Shock & Negotiate Smarter.

Read time - 2.5 min

Today I’m going to share how to address the, “What is The Cost Question,” early on in the customer buying journey.

This question often comes up on the discovery call, and is most frequently where I see founders fumble and negotiate against themselves.

The problem is founders throw out an arbitrary number because they’re unsure of what pricing actually is at this point, and end up charging a lot less than what they can.

Today I’ll show you how to help solve this problem.

Price anchoring is used to influence the prospect’s perception of the value of your product.

Let’s look at an example of how it’s used in everyday life.

Let’s say I’m in the market for a new car and I walk into a dealership and the window sticker says $50,000. That number would be my price anchor.

The way the anchor works psychologically is people are by default automatically drawn to the highest price they hear, or in this case see. 

The goal of the sticker price (anchor) is to lead me to believe that if I’m able to purchase the vehicle for below $50k, it would be a deal.

However, if I know the invoice of the car is let’s say $43,000 and their asking $50,000, then my new anchor would be $43k. My negotiation room is now in between those two numbers, not down from $50k.

As discussed in issue #008: Use These 5 Levers to Negotiate And Close More Business. One of the principles of negotiation is knowing your floor and ceiling.

The Floor is the price you are not willing to go below.

The Ceiling is the (anchor) ideal price you’d like to get for your product.

Here’s how to use it when a prospects asks, “What is Your Pricing?”

Find the ceiling, or your average contract value (ACV) you’d like to get for your product and anchor them on that price.

For Example:

Let’s say you have 3 different pricing tiers that range from $25k - $50k, with your ACV falling somewhere in the middle of the two at $35k.

What you want to do is anchor them on that number.

So if they were to ask you, “What is Your Pricing?”

You’d say exactly this.

“I can’t tell you definitively at this point because I’d have to figure out what needs to be done before I can share concrete pricing. I will say our pricing ranges anywhere from $35k - $50k, based on what the build would look like. Here’s what I’d suggest, let’s schedule the demo, and based on the information you shared with me on this call I can figure out exactly where you’d fall in that range, and following the demo if it makes sense we can discuss next steps from there.

Is that fair enough?”

Now, you notice my range starts with my ACV of $35k. The reason I start there is because when you provide a range people logically think they’re not going to be at the high, or the low end so they’ll fall somewhere in the middle. In this case the middle of $35-$50k is let's say $42k. There’s the anchor. So when you come to them with a price of $35k, they believe they got a deal, because it’s below $42k.

Key Takeaways

• People always anchor on the highest price they hear.

• You should always sell with pricing tiers. Ideally three.

• Know your ACV. If you’re unsure, take a guess based on comp pricing.

• Anchor them on a range with your lower number being your ACV.

• Use the rebuttal provided above to address the pricing question.

That’s it for today folks.

See you all next week!

Darren

P.S. If you’re ready to level up you can book a call with me here.