For those of you who take incoming service calls, does this exchange sound familiar?
Your customer: “So how much will it cost?”
You: “Between $300 and $500…”
You just set a price anchor (and probably didn’t know it).
It turns out we humans rely heavily on the first piece of information we see/hear to make judgments and decisions. This is called price anchoring.
Keep reading to learn:
- What defines a price anchor
- Why price anchoring can affect job prices (and hurt your business)
- How to price anchor as much as possible
Price Anchoring: What is it?
Hubspot defines price anchoring as:
A pricing strategy that plays on buyers’ inherent tendency to rely heavily on a piece of initial information to guide their next decision.
In the scenario above, $300 is the first information received about price. This has become your customer’s price anchor. They will rely on it (probably too heavily) to pass judgment on the final price.
What about the $500? That was the second piece of information heard and has much less impact.
So when you present the final invoice, if the total is much higher than the $300 anchor, bad things may happen.
Your customer: “What happened to the $300 you quoted?” they holler. You have an upset customer and a price complaint to deal with. Ouch!
Interestingly enough, if the final HVAC service pricing total is much lower than $300, your customer will also have a negative reaction. They won’t complain about the price, but they will question it (and you).
- Did you cut corners?
- Were cheap/used parts installed?
- Did you misquote, possibly indicating you are not competent?
- Why the discrepancy from what you first quoted?
The farther off your final HVAC service price from the anchor, the more pushback you will receive. So your takeaway: Make sure the first price you present is fairly close to the final price you charge. Even better, don’t quote a job until you have evaluated the issue while on the job (more on this to come).
Whenever possible, give an exact price upfront and stick to it. It’s one of the big reasons we’re fans of flat-rate pricing.
Anchoring Affects the Price
This following video uses a leather jacket to explain price anchoring. It’s fascinating how the human brain reacts to the first price given and uses that anchor to estimate the value of an item.
Price anchoring is used in every industry to influence price. Just like the jacket in this example, HVAC, electrical and plumbing trades may use price anchoring when pricing their services.
And here’s a summary of the Anchoring Bias phenomena. This site is packed with interesting psychological tidbits.
It’s important to remember that people will anchor whether you want them to or not. It’s a psychological phenomenon that we are all prey to. Consider it when you set your service prices.
So How Do I Avoid the Pitfalls of Price Anchoring?
Our top tip to avoid price anchoring issues: Do NOT quote a job over the phone or via email before you have laid eyes on the job. There are just too many factors at play:
- What if an entire HVAC unit or septic system has to be replaced?
- What if the issue is with older equipment or materials and takes much longer to repair?
- What if the customer didn’t clearly explain the issue over the phone, and the problem is completely different once you are on the job?
So how do you even get invited to a job site before giving a price?
We always recommend a service call fee. That way, the buyer knows that you will charge them a set amount to diagnose the issue, and you can give them a clear idea of cost once you have inspected the issue first-hand.
You are also much more likely to avoid negative price anchoring if you use a flat rate pricing model.
Flat Rate Pricing is Preferred by Customers
Flat rate pricing takes the guesswork out of the whole buying experience. Technicians present one price to the customer before the job starts and that’s what they are charged.
This price factors in the service, parts and markup and all unapplied time. By using a flat rate pricing tool, techs or staff can easily give an accurate quote.
Why do 92% of homeowners prefer flat rate pricing?
Want to see how FieldEdge Flat Rate pricing works?
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