Growth Newsletter #252

The largest ski company in the world has completely flipped its business model over the past 15 years.

In 2008, 65% of skiers at Vail Resorts bought single-day lift tickets. Today, 75% of their customers purchase season passes, committing thousands of dollars months before the first snowfall.

This transformation didn't happen by accident. It was a deliberate strategy to address a serious threat to their business: climate change.
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Analysis of 652 sites across the Western U.S. reveals a troubling trend: 81% of ski areas have experienced decreased snowfall since 1955, with almost half seeing drops of 20% or more. Unpredictable snowfall creates unpredictable revenue—a nightmare for any seasonal business.

Hat tip to @sportsball on Instagram for their fantastic data visualization on this topic that inspired our analysis. Check these guys out.

Vail’s solution? Use pricing psychology to drive non-refundable annual season pass purchases.

Since 2010, the company has steadily increased the price of single-day lift tickets to an astonishing $329 per day—nearly triple what they cost just a decade ago. Meanwhile, they’ve kept their unlimited Epic Pass around $1,000 for the entire season.

The brilliance of this strategy is in the mental calculation it triggers:

“If I ski just 3-4 days this season, the annual pass pays for itself!”

This pricing approach presents several advantages:

1. Hedge against uncertain weather: Vail collects payment upfront, regardless of future weather.
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2. Cash flow improvement: The company receives a substantial capital boost before their high-cost operating season begins.
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3. Perceived value: Customers feel like they’re getting a deal, even as they commit more money upfront.

But this isn’t just a ski industry phenomenon. Companies across sectors are applying this same psychological trigger—and we recently spotted a particularly good example.

The "Anchor Shock" Strategy in Action: Screen.Studio’s Clever Pricing

While researching screen recording tools, we stumbled across an example of anchor pricing in action, Screen Studio. Their pricing triggered the same result as Vail's, more annual signups.

Screen Studio's pricing page initially shows a very affordable $9 per month. It looks like a great deal until you notice it's for annual billing. Switch to monthly pricing, and you'll experience the "anchor shock" as the price jumps to $29 per month.

$348 for a year of monthly payments versus just $108 for the annual plan. The math feels obvious—you break even after just four months of use, making the annual plan feel like the only rational choice. (And yes, we became annual subscribers.)

While most SaaS companies offer a modest 15-20% discount on annual plans, Screen Studio's dramatic 3X difference creates a much stronger pull toward annual commitments.

This example prompted us to investigate: How effective is this pricing strategy? To find out, we ran the numbers.

The “Anchor Shock” Math: Why Dramatically Lower Annual Prices Can Generate More Revenue

To understand why companies are embracing this strategy, we created a simple model comparing two hypothetical pricing approaches for a SaaS product:

What happens when 100 potential customers visit each pricing page and we track the revenue from this "month 0" cohort for two years? Let’s examine the assumptions for our model:

Key differences between our two scenarios:

1. Conversion Rate (2% vs. 6%): The Anchor model converts three times more visitors. When a $50/month product is suddenly available for the equivalent of $12.50/month (annual plan), it becomes accessible to a much wider audience. What was previously a considered purchase becomes closer to an impulse buy.
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2. Plan Mix (50/50 vs. 83/17): In the Standard model, we assume a 50/50 split between annual and monthly subscribers (1 annual, 1 monthly). This is conservatively high, and favorable for the Standard model. In the Anchor model, we see a dramatic shift toward annual plans (5 annual, 1 monthly). This shift occurs because the annual discount is so compelling that it’s hard to justify the monthly option.
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3. Annual Renewal Rate (50% vs. 80%): The Anchor model’s annual price ($150) creates much less “renewal friction” than the Standard model’s $500 renewal. At $150, it’s more likely to be approved without scrutiny, while $500 often triggers a “do we still need this?” evaluation.

Now let’s see how these models perform at key stages:

Month 0: Initial Conversion

Right from the start, the Anchor model generates 45% more revenue ($800 vs. $550) due to higher conversion rates and more annual plans.

End of Year 1

By the end of the first year (including renewals), the Anchor model has generated $1,950 compared to the Standard model’s $1,350—a 44% advantage.

End of Year 2

After two years, the gap widens. The Anchor model produces a cumulative $2,530 versus $1,575 for the Standard model.

That’s $955 more revenue from the same 100 visitors—a 61% increase—despite charging 70% less for annual plans ($150 vs. $500).

It’s important to note that our model only follows the initial cohort from Month 0. In reality, these effects would compound month over month, year over year, as each new cohort follows the same pattern.

Want to play with the numbers for your business? Reply to this email and we'll send you the full editable model.

Why The Anchor Shock Strategy Works

The Psychological Principles at Work

This strategy leverages several cognitive biases:

• Price anchoring: The high monthly price makes the annual price seem like a bargain by comparison.
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• Loss aversion: Once customers do the math, choosing the monthly option feels like “losing money.”
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• Future discounting: Most people overestimate how long they’ll use a product, making the annual commitment seem like an even better deal.

How to Implement the Anchor Shock Strategy in Your Business

There are two primary ways to implement the anchor shock pricing strategy:

1. Increase your monthly price while keeping your annual price stable (if your monthly plan is currently underpriced).
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2. Decrease your annual price while keeping your monthly price stable (if your monthly price is already appropriate and you have margin to spare on your annual plan).

Either approach can work—the key is creating a ~3X differential between the 12 month total cost of your annual and monthly plans.

Beyond that core principle, here are specific implementation tips:

1. Set your monthly price point strategically

This becomes your anchor—the reference point against which everything else is judged. Don’t be afraid to set it higher than you might normally think.

2. Create a large gap to your annual plan

Instead of the typical 15-20% annual discount, aim for a 65-75% difference when calculated on a monthly basis.

3. Lead with the annual price (shown monthly)

This is critical: On your pricing page, show the monthly equivalent of your annual plan FIRST. Seeing the lower monthly price first is what sets the psychological hook.

4. Test different gaps

While 3X appears to be a sweet spot, every business is different. This is something you can A/B test relatively quickly to see how the math works for your specific audience and business model.

5. Consider adding a premium tier

This further enhances the perceived value of your annual plan through comparison, making it look like the reasonable middle option. Screen Studio also has a $229 "Pay Once" option, which also makes $108 feel like a great deal.

Industry Examples Beyond SaaS

Online Courses:

• Monthly access: $49/month
• Annual access: $199/year ($16.58/month equivalent)
• The pitch: “Access all courses for less than 5 months’ worth of the monthly plan!”

Coaching Business:

• Pay-per-session: $299/session
• 12-session package: $1,199 ($99.92/session)
• The pitch: “Book a 12-session package and save 67% per session!”

When It Might Not Work

While the Anchor Shock strategy has proven effective across many businesses, it may not be right for every situation:

• Low retention products: If your product has inherently low retention regardless of price, the annual renewal advantage may not materialize.
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• Premium positioning: For luxury or high-end products, dramatic discounts might undermine perceived value.
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• Complex pricing structures: Products with multiple tiers, add-ons, or platform pricing (like HubSpot...sheesh) may find it difficult to implement consistently across their pricing matrix.
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• Long sales cycles: Enterprise products with lengthy approval processes may not see the same impulse buying effect.

Final Thoughts

The Anchor Shock strategy challenges conventional wisdom about maximizing revenue per customer. By optimizing for conversion and retention rather than unit economics, companies can achieve significantly higher overall revenue.

Whether you’re running a ski resort facing climate uncertainty or a SaaS startup looking to improve cash flow, consider experimenting with this approach. Your customers might thank you for the perceived deal, while your business benefits from higher conversion rates and predictable revenue.