A while back I did a study with a group of consumers. I told them it was a pricing game and they were to guess the price of two vacation trips and write the prices down on a slip of paper. For the first one I described a trip for two in which they flew into Calgary, Alberta, and then took a seven-day bus trip through the Rocky Mountains and stayed at a lodge in Banff National Park. Ultimately, they wound up in Vancouver where they flew home. The prices they guessed ranged from $800 to $1,400. The actual price was $2,700.
For the second trip I told them they flew into Miami, and boarded a cruise ship for a seven-day cruise that went to Nassau, St. Thomas, St. Maarten and then returned to Miami where they flew home. But on this trip I had an associate say he took this trip last year and the cost was $2,400. All of the prices guessed ranged from $2,200 to $2,600. The actual price was $1,700. The experiment showed if you provide an anchoring price, a mental benchmark around which people start to make their decisions, right or wrong, people tend to adopt it.
What does this mean to the producer?
An annuity purchase is often started with two question marks. The producer wants to know how big an annuity premium to ask for. The prospect wants to know how low a premium is needed. Sometimes there is only one question mark because the consumer has a number in mind to commit to the annuity purchase. In either case the producer needs to create the consumer’s pricing anchor and he does that by quoting or showing a high number.
If you’re showing a hypothetical annuity illustration and you’d usually use a $50,000 premium you might want to instead use $80,000 or $200,000 as the suggested premium. Or if the consumer asks, “What is the minimum premium?” a good answer is “The average premium is $52,000 but the carrier will accept as little as $5,000.” This does not mean the prospect that was going to put $25,000 in the annuity will now put in $80,000, but they are more likely to put in $50,000.
Don’t be afraid to talk about an $80,000 or $800,000 premium in front of the prospect. If they “only” have $50,000 they will be happy they can still participate. On the other hand, if the prospect really has $800,000, and you only use $50,000 examples, the prospect is more likely to only pony up $50,000. You will do yourself a favor by setting the anchor high.