If you’ve ever shopped at Costco, you’ll notice that the front of the store is filled with high-priced electronics. But the store primarily sells cheaper items like groceries.
This layout isn’t done by accident, Costco is employing a commonly-used retail pricing strategy called “price anchoring”.
If a retail customer immediately sees high prices when they walk in, then they’ll subconsciously consider the rest of the store’s products to be more affordable. Price anchoring allows consumers to evaluate the prices within a store, giving them confidence in their decision-making and a feeling of perceived ‘value’ — which keeps them loyal.
Cannabis retailers in the legal market can and should implement a price anchoring strategy at their dispensaries to keep pace with the growing competition in the cannabis industry.
Below we outline the best price anchoring options and how they might look at a cannabis business.
How cannabis customers understand price
Price anchoring assumes that consumers don’t necessarily know the value of a product without additional information. It’s the idea that numbers (i.e. prices) without context mean absolutely nothing.
This means cannabis customers will often base their purchasing decisions on a point of reference in order to make a decision.
If a dispensary customer sees premium flower next to a regularly selling strain, they’ll immediately compare the two prices (whether they realize it or not). After that price comparison, the regularly selling strain will seem more reasonably priced in the mind of the customer.
You’ll see a similar type of price anchoring happen with consistent cannabis shoppers.
These frequent cannabis consumers may base the value of a product on what they’ve paid for it in the past. If they’ve been to other stores and purchased the same product for a lower price, they’re less likely to keep shopping for that product at yours. But cannabis products vary significantly between stores and can be cycled regularly so there is a high probability that a customer will not be shopping for an identical product at multiple locations.
For new cannabis shoppers, there is no previous cannabis shopping experience, so they’ll consider complementary products from their everyday life (like health products, medicine or high end chocolates) and compare them to cannabis products. These consumers may also be more easily convinced of a product’s inherent value based on your store’s layout, marketing, and price anchoring strategy.
Because dispensary shoppers — and their perception of price — are affected by external factors when making purchases, cannabis retailers can implement a price anchoring strategy to impact the way their customers feel about the price of their products.
This proven strategy will lead to higher sales and repeat customers who have a greater appreciation for the prices your dispensary offers.
Examples of price anchoring
Creating a price anchoring strategy can start small. You can try out any of the examples below and track the impact. If it works, consider adding a second price anchoring angle. If it doesn’t, try a different one.
Below are four popular examples of price anchoring for cannabis companies.
Costco-style price anchoring
In the Costco example, a retailer places their more expensive items near the entrance so they’re the first thing a customer sees when entering the store. From there, all other cannabis prices seem more reasonable — subconsciously making the customer feel comfortable spending more.
Implementing this strategy at your dispensary:
- Determine what kind of changes you need to make depending on the size of your store. If your dispensary is small, you may want to identify where your customers are looking when they walk in. If you have a large dispensary, you can place high-price items near the entrance for customers to walk past as they’re entering.
- Smaller dispensaries — You’ll want to draw the attention of customers as they walk in to make sure they’re seeing your high-price products first. Use items that are flashy and generally capture the eyes of customers on a day-to-day basis. You can’t go wrong with custom glass pieces or high-tech vaporizers.
- Larger dispensaries — Create a display of your more expensive products near the entrance of your dispensary. Depending on the amount of space you have to work with, you can play with the size of your displays. Just make sure your customers are noticing the prices.
Product grouping
Another easy way to anchor prices in the minds of customers is to display a high-price item next to your other more average-priced products. If you are trying to increase sales of a more expensive product, simply place an even higher-priced item next to it.
Implementing this strategy at your dispensary:
There are a few useful options to group your dispensary products.
- Group the same products — Display a very expensive vape cartridge next to your more regularly selling cartridges with lower price points.
- Group different products — Place items like vaporizers and high-tech accessories next to your flower.
- Mix expensive products throughout the store — Scatter expensive glass pieces around the store and near things like edibles, flower, and concentrates.
Displaying these high-priced products (with a clearly visible price tag) will effectively make everything else seem affordable in your shop.
Tiered pricing
Tiered pricing should be used by every retailer, especially in cannabis. Tiered pricing is a strategy where pricing is segmented to suit different target markets. There may be a budget option for consumers just looking for some quick flower, a moderate option that is consistent, and a luxury option for special occasions or big spenders.
Implementing this strategy at your dispensary:
Tiered pricing is a common strategy used by cannabis retailers because it works great with flower. Dispensaries often group their flower by “shelf,” similar to how a bar will display liquor. So you have top shelf (expensive, high quality) flower, middle shelf (standard, average) flower and bottom shelf (affordable, budget) flower.
By grouping your flower products in these tiered categories, you’ll make price easier for your customers to understand and also give consumers an immediate sense of value for each type of flower you carry.
Strike-through pricing
Strike-through pricing is a very common type of price anchoring. You’ve probably seen it on sites like Amazon.
A product will have two prices next to it. One higher price which is crossed out and then a lower price next to that one. The customer is going to immediately assume they’re getting a deal because they realize the price is lower than usual.
Implementing this strategy at your dispensary:
Using strike-through pricing at your dispensary starts with your signage and displays. You can create signage that shows a price that is crossed out, with a lower price next to it. Retailers can also use price cards, which provide a more boutique and comprehensive view of a product’s price.
Dispensary retail pricing strategies
As cannabis legalization picks up across the United States and Canada, there is a greater need for dispensaries to level up their strategies. In the last year alone, the cannabis market is quickly becoming saturated which means businesses have to do more than sell legal cannabis to stand out. And this will all be expedited once the federal government moves forward with making cannabis federally legal.
This is why creating a retail pricing strategy is important for medical cannabis and recreational cannabis businesses. To increase profits you need to make sure you’re selling as much as possible to every customer walking in the door.