The Anchoring Bias and Sales, Oldest Trick in the Book

by | Dec 3, 2015 | Business & Entrepreneurship | 0 comments

The human mind is not always as logical as you’d like to think. We are all susceptible to a range of cognitive biases, a systematic deviation from rational judgment due to inferences based on illogical thought patterns. One cognitive bias often used in sales and marketing is the anchoring bias.

When making a decision you don’t always judge something on its intrinsic value, but instead compare it to its immediate surrounding alternatives. People will tend to overly rely on the first piece of information they receive, and judge any subsequent alternatives against it. Price anchoring is a well known and well used example. We’ve all seen both online and offline stores trying to make their products look like great deals by giving a high initial anchor price, and next to it a reduced sale price?

“The fundamental principle of price anchoring is that nothing is cheap or expensive by itself, but rather expense is relative” Alice Hannam.

If you give an initial low price, then your customers will assume low quality. Lowering the price further will not change that impression, and raising the price after will only make it look like you’re trying to increase your margin on a poor quality product. If you start with an unrealistically high figure, any further reductions will still look too high. The customer will judge the price on the first price they encounter, any subsequent price will be judged alongside the initial value.  However, if you set the initial price just a little on the high side, you will get some buyers. Reduce that in a sale and a lot more people will be interested in buying.

This pricing strategy can work well when the consumer isn’t aware of the true value of the product, and does not have alternative choices. More informed consumers will spot the price strategy for what it is. Supermarkets in the UK have recently been criticised unethical pricing strategies and use of the anchoring effect (The Guardian).

Another price anchoring strategy is to first expose the consumer to higher priced products, and then present them with a lower cost but equally effective product. For example present a customer with 2-3 breadboards priced around £25 first, then show them one priced at £15 and it looks a good deal. But, show them some breadboards priced at £5 each first and the £15 board no longer looks attractive.

The anchoring bias doesn’t just work on price, you can use it on any feature you’re trying to highlight. for example, if you are marketing a car based on its low fuel consumption you might want to first show the fuel consumption of a couple of competitors gas guzzlers, and then show how much better yours is. This works as long as the comparison is reasonable, don’t try comparing the fuel consumption of a hatchback to a couple of 4×4’s.

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