The Anchoring Effect
Do we always have control over our thoughts, or do other people and things have an impact on them? The psychology of subtle manipulation and persuasion is an interesting subject to research.
When you think of an anchor, specifically a ship, what comes to your mind? Well, you need to familiarise yourself with a confusing term which might be a key tactic that both huge companies and average people are unaware of.
How frequently do you say, “Wow, that’s quite expensive! Let’s wait for the Big Billion Sale ?” or “Hey, Look at the price of that Zara dress. Last time I checked, it was listed so high!” When buying goods and services, many buyers consider the value of a good deal. How do shoppers determine whether a product is a good deal? Or have you ever observed why Zara and H&M stores display the most expensive items in a shop window? The 1000 rupee clothing appears more affordable next to the 3000 rupee shirt that you first see. Similar tactics are employed by other luxury firms to maximise sales.
You would have noticed that the marketer frequently substitutes 99.9 rupees with 100 rupees when quoting pricing for goods. These price tags cause the client to associate 99 rupees rather than 100. According to a study, this tactic results in an average 24 percent boost in sales.
When making judgments, those who are susceptible to the anchoring effect focus on the first piece of information (the “anchor”) that is made available to them. Customers frequently choose quantities that are skewed towards the anchor value, which has an impact on decisions involving numerical values like price, both value-based and cost-plus. The anchor value’s presentation can affect a customer’s purchasing decision. So, the anchoring effect is also known as the focalism effect.
Normally, if you set your price too high, you might scare away potential customers. The higher initial price acts as an anchor, making the new sale price look like a much better deal when the vendor later announces the lower sale price (which may be the price they had truly intended to sell the product for). If the product had been initially marked with the lower sale price, the customer would have been far less inclined to make the purchase. This may make it more difficult for the customer to find a fair and affordable pricing.
Price anchors are a powerful instrument that retailers can utilise in their pricing strategy, as they are well aware of. The manufacturer’s suggested retail price is frequently seen on the price tags of goods at numerous retail establishments (MSRP). The MSRP often serves as a reference point or anchor for consumers when making future decisions.
Dan Ariely, a behavioural economist, claims that prices are always being presented to consumers. The price itself isn’t often the anchor, though. Only when the consumer considers purchasing the good or service at the given price does the price become an anchor. When consumers compare prices, they can realise that there is a variety of fair pricing. Consumers nevertheless always return to the original anchor, much like a bungee cord. As a result, an initial anchor has an impact on many subsequent decisions, including those made right afterwards.
We occasionally become caught up in the web of information, bargaining, and anchor. Your wit and awareness of the market and the prices of rival companies will now be put to use. According to studies, the majority of these websites may be broken up by discussion. Analyse the provided information, look for the hidden anchor, and then attempt a wise bargain.
Another instance of understanding and comprehension also occurs. We need to know what to do next or how to make a decision that will be in our best interests after we have a strong understanding of anchoring and the accompanying rewards and losses. Remember that while a vendor is putting you through anything, their recommendations are anchors. Remembering that you are being anchored is essential. In particular during negotiations, try not to let your cognitive biases influence your decisions.
We must distinguish between price and worth, and this is something to be kept in mind. Forget about the “bargain” or the object of the punt. Make decisions based on the transaction’s inherent worth.
Author : Vaishnavi Singh
References :