Price anchoring in SaaS: what it is and why it works

When it comes to a successful SaaS pricing strategy, you’ll start with the fundamentals. You’ll choose your optimum pricing model, land on costs for your various packages, and so on.

But you’ll also want to leverage certain psychological strategies. Strategies, that is, to help guide customers to the right products and ascribe a desired level of value to your product.

This is where price anchoring comes in. It’s one of the ways you can display and disclose your pricing to help customers make their purchase decision.

Here, we take a closer look at price anchoring in SaaS, what is it, why it works, and how you can use it.


What is price anchoring?

Price anchoring is where you supply an ‘anchor’ price to a potential customer before you suggest or show them the option you want them to choose.

It’s where companies establish a price point that customers can then refer to, to help them measure their options and make a decision. So, you use a price to create a frame of reference for the customer when valuing your product.

In other words, anchoring is the occurrence that sees consumers use the first piece of information offered as a comparison point.


In example…

Price anchoring is a bit like an estate agent showing you a ‘bad’ house before they show you the house they want you to buy. With the worse house as a reference, the shortfalls of the target house don’t seem as big a deal.

Or, consider shopping for a new item. You have a budget of £100, but when you go into the shop, you’re initially shown luxury items at the cost of £500. When you come to the items you want, and they’re £150, the price doesn’t seem exorbitant.

Another example comes during the sale season. When you see the original price of the item crossed out, that price serves as an anchor to compare with the new price — helping consumers to place a higher value on the sale item.


How and why price anchoring works

Price anchoring works by taking advantage of a cognitive bias in our brains.

When we as consumers are making a purchase decision, we intuitively seek out — and use — comparisons to gauge value. As such, we tend to rely heavily on the first piece of information offered to us.

Despite being a well-known psychological phenomenon, even experts are affected by it.

This means that if you provide an anchor price on the top end of the spectrum, a high price that’s comparatively low won’t seem so bad. For instance, £500 might seem like a lot, but not when it’s compared to £1,500. Lower anchor prices, meanwhile, may lead to consumers devaluing a product.


Implementing price anchoring in SaaS

When you use price anchoring in SaaS, you’re offering your software and service packages in an order that takes this bias into account.

Draw attention to your most expensive SaaS offering first — even if it’s not the one you usually sell. This makes your top-tier premium offering the anchor price for the visitor — instilling a high sense of value in your offering. From there, your more popular, lower-priced options will look more affordable in comparison.

If you opt to run a discounted price for a service, don’t be afraid to show what the original price was. It can act as an anchor that shows what a great deal your customers are getting.

You can also use price anchoring in SaaS when upselling. Here, you’d start by pitching your expensive upgrades, and work down to the lower-priced ones.


Price anchoring in SaaS

TL;DR:

Price anchoring is one of the psychological tactics you can use when pricing your SaaS offering. It’s all about managing the way that your customer values your services — and what they compare it to.

So, is it time you revised your SaaS pricing page?


Useful links

SaaS pricing models explained

How to raise your SaaS prices

Grandfathering in SaaS: the pros and cons