Why your first price matters more than you think: the anchoring effect in pricing

In any pricing strategy, how you present a price can be just as influential as the amount itself. In this article, we’re looking at one key principle from the field of pricing psychology—price anchoring.

Pricing psychology has been studied since the late 1800s. It’s based on the idea that people don’t assess prices purely on logic; instead, our brains rely on mental shortcuts and emotional cues to make decisions.

Here’s our take as pricing consultants on one of these psychological principles: price anchoring. Anchoring happens when the first thing you see becomes the reference point against which all others are judged. When anchoring is applied to pricing, it means that showing a higher price first makes the next one seem smaller by comparison. For example, place a £250 bottle of wine next to one priced at £100, and the £100 option suddenly feels like better value, even if you had no intention of spending that much in the first place.

However, price anchoring is much more than just a point-of-sales tactic. In fact, in this article, we’ll explore how anchoring can be used in different ways across the purchase experience:

  • Setting the first reference point
  • Framing packages and options
  • Influencing discount perception
  • Shaping willingness-to-pay over time

By understanding the range of applications for price anchoring, teams can use it deliberately to shape perception, guide choices, and avoid accidental value erosion.

Anchoring: the invisible hand in pricing

Unconscious bias and everyday cognitive shortcuts are a constant in our daily lives. From choosing what to wear to deciding what route to take to work, our minds make lightning-quick links between every new situation and what we’ve learned and experienced before.

The same mental shortcuts come into play when we see a price. We don’t assess it in isolation; we compare it to whatever reference point we’ve already established through our experiences and understanding of similar products, services and prices.
When we understand these patterns, we can design and present pricing in ways that feel clearer, more intuitive, and more credible to customers. In the case of price anchoring, it means guiding how customers interpret prices and understanding how they perceive what is “expensive,” “reasonable,” or “good value.”

Let’s get a closer look at four specific pricing moments in a customer journey where anchoring can be used to shape decision making deliberately and ethically.

Four pricing moments where anchoring shapes decisions

1. The first number seen

The number a customer first sees in a decision-making moment can have a disproportionate impact on their perception of consecutive prices. This number could be:

  • The price of the product or service in an advertisement or on a website
  • The price of a related or alternative product shown alongside it
  • Or even a non-price number—like “10,000 happy customers” or “50% faster delivery”

Whatever the case, this ‘first number’ becomes their reference point, or anchor, against which all other numbers are judged.

So, for example, if a pricing page first shows a £599 Premium Plan, all lower prices after that seem more reasonable by comparison. This first number, therefore, becomes a mental benchmark.

This effect shows up even when the number has no logical link to the product. In one study, people were first shown an unrelated number before being asked to state what they would pay for an item. Those who saw a higher number consistently offered to pay more—sometimes several times more—than those who saw a lower number.

So ‘10,000 happy customers’ has a positive impact on how ‘Premium Plan, £599’ is received. By linking the price to a much higher number, the perception of the actual price is lower by comparison, therefore more appealing.

Anchoring works the other way around, too. So avoid leading with something like: 5% off the marked price of £45. The problem? Leading with a low number anchors the perception of price on a lower number.

2. Price tiers and packages

When customers evaluate what to buy, they rarely judge a price on its own; they compare it to other options available. This is why, when you’re selling packages or bundles of products or services at different price points, the way you set and display those prices matters.

A common approach for presenting packages is the “good-better-best” model. For example, a software company might offer:

  • (Good) Basic – £29/month (core features only)
  • (Better) Pro – £59/month (core + advanced features)
  • (Best) Enterprise – £129/month (full features + dedicated support)

However, the same company could present the same options in reverse order:

  • (Best) Enterprise – £129/month (full features + dedicated support)
  • (Better) Pro – £59/month (core + advanced features)
  • (Good) Basic – £29/month (core features only)

Listing the highest-priced option first sets a strong initial anchor, making the following options feel less expensive by comparison and can nudge more customers toward the mid-tier.

There are other benefits of offering ‘best-better-good’ options, too. Sometimes referred to by pricing consultants as the ‘Goldilocks effect’, presenting three options can naturally steer customers toward the mid-tier choice, or the one that feels “just right.” The higher-priced package can anchor price perception, making the mid-tier feel more reasonable. On the lower end, a deliberately less compelling option known as a ‘decoy’ can be positioned to nudge customers toward the package you most want them to choose (read more on the decoy effect in the book Predictably Irrational).

3. Discounts and Promotions

It’s the price anchoring effect that makes discounts like “Was £120, now £80” extra appealing. The higher original price creates a reference point that makes the discounted price feel like a bargain.

But anchoring can backfire if promotions are mishandled. Avoid these common pitfalls:

  1. Don’t devalue your brand. If the discounted price is too low, it can undermine perceptions of quality and make it harder to sell at full price later.
  2. Avoid “always-on” discounts. If customers only ever see your lower price, they may distrust the higher “original” price and learn to wait for a deal.
  3. Be transparent. Misleading end dates or unclear discount periods can erode trust quickly. Savvy customers will notice and may walk away.

4. Renewal and future pricing

Price anchoring isn’t just useful for the first sale; it also plays a big role in renewal and future pricing. The price a customer pays at the start becomes their mental benchmark for what your product or service “should” cost. How you set that entry point, and how you position future increases, can make a big difference to retention, lifetime value, and long-term profitability.

Take renewal pricing for software subscriptions. Once their initial contract or subscription period ends, customers will be faced with a choice: pay the fee to continue using a product or service, or walk away.

  • If the renewal price is the same as their original price, the existing anchor holds, and the decision often feels low-friction.
  • If the renewal price is higher, the original price becomes the anchor they compare against, so any increase stands out more sharply.

For example, a US QuickBooks subscriber who started on a $60/month online essentials plan in 2023 would now be paying $75/month. That original $60 figure can still be fresh in their minds, influencing how they judge the fairness of the new price.

So how can you raise prices at renewal without damaging trust? Here are some key approaches:

  • Be clear on the value and benefits. Remind customers what’s new or improved since they first joined: features, benefits, and outcomes that justify the higher price.
  • Use introductory offers with care. Be clear about how long the discount lasts and what the regular price will be afterward, so the lower first-year price doesn’t become the lasting reference point in the customer’s mind.
  • Provide choice at renewal. Let customers choose between different tiers, payment plans, or bundles so they feel in control and can opt into what is right for them.

 

Use the price anchoring effect deliberately as part of your pricing strategy

As we’ve discovered, price anchoring and the wider world of pricing psychology have an important part to play in how prices are received and perceived. By understanding the theories behind anchoring, business can tap into the innate cognitive behaviours of potential customers to tip the balance in their favour.

The most successful companies apply pricing psychology in ways that align with their brand values and build long-term trust. Used ethically, these principles can strengthen relationships and enhance the customer experience.

If you’re looking for pricing guidance, consult our expert team at Untapped Pricing to ensure your approach is fair, transparent, and impactful.