As usual you are making your way to your local supermarket to get your favourite candy, you walk through the aisles to find the spot just to see the price jump by another dollar or two, you get it anyways but it gets you thinking. ‘Wasn’t it just half of this price only 5 years ago?’ This is no doubt a common occurrence and you are not mistaken for thinking that prices have been rising sneakily without you noticing it, in this article I will delve into a few aspects of how and where these subtle price jumps are occurring, and how they can all be linked to the same concept - Price Anchoring.

Price anchoring is when consumers first see a certain price and reference other goods and services in reference to that price tag, making them take irrational actions in the disguise that it’s rational by skewing their sense of perspective.

The first technique seen in supermarkets is now fairly outdated, and it’s done by rounding figures down, for example instead of saying $10.00 they would say $9.90 or even $9.99, this psychologically is very different than the original 10 bucks as the leading number is different, as such people perceive it as significantly more cheaper than it actually is and end up purchasing it, taking the price anchor as the leading ‘9’. In recent times, due to its widespread use people have slowly adapted to this by unconsciously rounding it up anyways to the nearest whole dollar, in other words anchoring to the ‘10’ instead. Companies have tried to get around this by selling at 9.39 or 9.29 to squeeze an extra few cents per unit to limited success.

Another very common method used by supermarkets and companies is fictitious pricing, this is still a fairly new phenomenon and as such people easily fall prey to it. This occurs when a good goes from say 10 dollars to 20 dollars, this sudden jump causes profits to be squeezed for a short time, however the company takes this step to then slash prices to 15 dollars with a “25% off” price tag. This, while technically true, can be considered unethical as the company never intended to sell products at 20 dollars and only did so to be able to legally use the price tag. This practice, also called false reference pricing, is legal everywhere as the line between a fictitious price or a poorly judged one that any institutional changes would have limited impact, if any any benefit at all. As such, the consumers are left to fend for themselves. Unfortunately, most people simply look at the sale price, see that there’s a 25% discount and hence buy it. This is because their anchor is a fictitious price and the bandwagon effect incentivises them to buy the goods now as the discount may run out soon. A way to remedy this, although time-intensive, is to research the long term prices of the goods before purchasing instead of looking at the discount price. If enough consumers did this financially smart strategy corporations would be forced to adopt new strategies and would be a better situation for everyone.

The last and most prevalent form of price anchoring is subscription based goods and services. This technique got accelerated during the internet boom of the 2000’s due to increased connectivity and the rise of online purchases.  Similar to how printers are sold for a loss only for the ink cartridges being sold at insane margins to squeeze the consumers for profits. Companies used subscription platforms by showing the costs per month for one month or multi year plans, this then makes the longer plans look cheaper and a better value which then locks in the consumer for prolonged periods of time and causes them to pay more for a service that they may not even want. The way around this sneaky way of price anchoring is by looking at the overall price for the entire plan and seeing if you are able to afford or buy this.

I hope these tips help you get around the subtle effect that is price anchoring and allows you all to save money, live happily and buy smarter!

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