This week, the focus lies on an effective behavioral economics phenomenon: the anchoring effect! Various fields of marketing, such as neuromarketing, use this to positively influence a potential customer’s purchasing behavior:
This technique takes advantage of humans’ flaw to not take into consideration the intrinsic value of a product. Instead, humans tend to compare products based on their comparative values. In essence, an individual relies too heavily on an initial piece of information or first impression in order to make a judgment, instead of trying to rationally take most alternatives into consideration.
A relatively common example of anchoring refers to the scenario when you are looking for similarly priced hotel rooms in a holiday destination and what they offer. If one of these two offers a free coffee in the morning, you are much more likely to go for this offer and not look further into the quality of the details of the rooms offered, anchoring your decision in this initial perception of a ‘better deal’. Companies take advantage when comparing deals against each other.
This can also be used for multiple unit pricing, in which portraying the value of a bundle can increase sales instead of looking at each unit individually. An example would be, ‘5 rolls of bathroom tissue for $2’ instead of ‘On sale, $0.40/roll’. The former option performs better because the brain anchors the initial number 5, subconsciously thinking it is a better deal (Wansink et al., 1998).
Furthermore, purchase quantity limits is another technique used to anchor the client’s option and increase sales. If there is a certain limit that a customer can aim for, such as a limit of 10 items per customer, this will increase the average purchase per customer compared to when this is not available. This happens because the customer anchors its mind to the number 10, and adjusts downwards, generating a significant increase in sales per client. In contrast, without the presence of this quantity limit, the customer would have to start from a lower number of items, such as 1 and work its way upwards. The sole presence of a quantity limit subconsciously makes the customer believe that it is having a better deal by purchasing a higher amount than originally planned.
Finally, the versatility that the anchoring technique provides means that it does not have to be considered only in a marketing setting, but also in other life scenarios such as bargaining and decision making in general. Companies take advantage of the existence of such bias and this can be a useful tool to use in pricing or advertising. Nonetheless, there are additional factors that affect the effectiveness of anchoring that must be considered, such as personalities and cognitive abilities; by being aware of these factors, we can adjust the technique to boost the bottom line, which is the profitability of the business.