The Price You See First: How Brands Use Anchoring Bias to Influence You
Imagine strolling through a bustling electronics store, eyes scanning the shelves for the perfect flat-screen television. Your goal is to find a top-notch TV without breaking the bank. You spot one that seems promising — a sleek, high-definition screen with all the latest features. But there’s one thing that instantly grabs your attention: the price tag. It boldly displays the original price as $2,499, but today, you can have it for just $999.
Now, ask yourself: Did you stumble upon a once-in-a-lifetime deal, or did the store cleverly manipulate your perception of value?
This scenario is a classic example of a phenomenon deeply ingrained in human decision-making: anchoring bias. It’s the tendency for our brains to rely heavily on the first piece of information we encounter — the anchor — when making judgments and decisions. And it’s not limited to electronics stores; it’s a psychological quirk that businesses around the world leverage to influence your choices.
Understanding Anchoring Bias
Anchoring bias is a cognitive bias that describes the human tendency to rely heavily on the first piece of information encountered (the “anchor”) when making decisions or judgments. This initial information often disproportionately influences subsequent thoughts and choices, even if it’s irrelevant or arbitrary. Anchoring bias can significantly impact how people perceive and evaluate options, especially in the context of pricing, negotiations, and decision-making.
The psychological basis of anchoring bias can be understood through several cognitive processes and heuristics:
- Selective Attention: When presented with a piece of information, our brains tend to focus on it, giving it more weight and attention. This selective focus on the anchor occurs because it provides a mental starting point for our decision-making process.
- Anchoring and Adjustment: One common cognitive process associated with anchoring bias is the “anchoring and adjustment” heuristic. When people encounter an anchor, they often use it as a starting point and adjust their judgments or decisions from there. These adjustments are typically insufficient, leading to a biased outcome.
- Availability Heuristic: The availability heuristic plays a role in anchoring bias by causing individuals to rely on readily available information or examples when making judgments. The anchor, being the initial piece of information, is readily available in the decision-making process.
- Cognitive Fluency: Anchors are easier for our brains to process because they provide structure and a reference point. This cognitive fluency encourages people to accept anchors as valid inputs for decision-making, even if they lack relevance.
- Effort Reduction: Anchors allow for cognitive shortcuts and reduce the effort required for decision-making. Rather than evaluating all available information, individuals often latch onto the anchor as a convenient reference point.
- Confirmation Bias: Once an anchor is established, individuals may unconsciously seek out information that confirms or supports it, further reinforcing their initial judgment.
- Primacy Effect: The primacy effect is the psychological tendency to remember and prioritize information encountered early in a sequence. The anchor, typically presented first, benefits from the primacy effect and remains influential throughout the decision-making process.
- Perceptual Contrast: Anchoring bias can cause perceptual contrast, where subsequent information or options are perceived in relation to the anchor. This can lead to distorted judgments of value and significance.
Understanding the psychological basis of anchoring bias is crucial for recognizing its impact on decision-making and making more informed choices in various aspects of life, including consumer decisions, negotiations, and pricing evaluations. Brands and marketers often exploit this bias to shape consumer perceptions and influence purchasing behaviour, making it a vital concept in the world of marketing and psychology.
How do Brands Leverage Anchoring Bias?
Brands are well aware of the power of anchoring bias and employ various strategies and tactics to influence consumers effectively. Here are some common ways brands exploit anchoring bias:
Reference Prices: Brands often display reference prices alongside the current price of a product. For example, a product might be listed as “Sale: $49 (Regular Price: $79).” The higher reference price serves as an anchor, making the sale price appear more attractive.
Tiered Pricing: Brands use tiered pricing structures to set anchors. By presenting a high-end option first, they can make the mid-tier or basic option seem more affordable. This strategy is common in subscription services, where premium plans are highlighted.
Loss Leaders: Retailers sometimes offer certain products at a significant loss (loss leaders) to anchor consumers to their store or website. These attractively priced items encourage customers to explore and potentially purchase other, more profitable products.
Bundling and Upselling: Brands bundle products together or offer add-ons at a higher price to anchor consumers to a higher total cost. For example, when purchasing a laptop, the brand may suggest upgrading to a more expensive model with additional features.
Discounts and Sales: Promotions and discounts are effective anchors. Brands highlight the original (higher) price before applying a discount, making consumers feel like they are getting a great deal.
Cross-Comparisons: Brands encourage consumers to cross-compare products, highlighting one with a higher price or more features. This makes the other options seem more affordable or better value for money.
Limited-Time Offers: Time-limited offers, such as “24-Hour Sale” or “Flash Sale,” create a sense of urgency. The anchor is the regular price, and the limited-time lower price appears as a special opportunity.
Price Endings: Brands use specific price endings, such as “.99” or “.95,” to create anchors. For example, pricing a product at $9.99 rather than $10 makes it seem significantly cheaper.
Subscription Plans: Brands often offer subscription plans with multiple tiers, where the highest tier serves as an anchor. Customers may choose a mid-tier or basic plan, feeling like they are getting a better deal compared to the premium option.
Psychological Thresholds: Brands recognize psychological price thresholds. For example, products priced just below $100 or $1,000 may appear more affordable to consumers than those just above these thresholds.
Suggested Retail Prices (MSRP): Brands may display a manufacturer’s suggested retail price (MSRP) alongside the actual selling price. Even if consumers doubt the accuracy of the MSRP, it still serves as an anchor for price perception.
Scarcity and Limited Stock Claims: Brands may emphasize limited stock or scarcity to create a sense of urgency. Consumers, anchored to the idea that the product might run out, are more likely to make quick purchasing decisions.
Discount Coupons and Codes: Brands provide discount coupons or codes to shoppers. These codes anchor the price at a higher level, making consumers feel like they are getting a special deal when they apply the discount.
Package Sizes: Brands offer products in different package sizes or quantities. By showcasing larger sizes first, they anchor consumers to higher quantities and may encourage them to buy more.
Brands carefully craft their pricing, marketing, and sales strategies to make the most of anchoring bias. By setting initial anchors strategically, they influence how consumers perceive value and make purchasing decisions, ultimately driving sales and revenue.
A Few Examples
a) A small, family-owned coffee shop named “Aroma Haven” was struggling to compete with the large chain coffee stores that dominated the neighbourhood. Despite serving high-quality coffee and creating a cosy ambience, Aroma Haven’s customer base was dwindling.
The coffee shop’s owner, Sarah, was determined to turn things around. She knew that she needed a fresh approach to attract more customers and create a lasting impact.
One day, Sarah decided to revamp the menu of Aroma Haven. She meticulously designed a beautiful chalkboard menu, listing the prices of various coffee beverages and their unique features. However, she had a clever plan in mind to anchor the customers’ perception of value.
At the top of the menu, Sarah placed the “Aroma Haven Special” — a signature coffee blend with a rich, unique flavour profile. She set the price of this special brew higher than other coffee items on the menu. The aroma of the special blend wafted through the café, piquing customers’ curiosity.
As customers entered the coffee shop, their eyes were naturally drawn to the chalkboard menu, and many couldn’t resist trying the “Aroma Haven Special” out of intrigue. As they sipped the special brew, they noticed its exquisite taste and complex flavours, which instantly made them feel like they were experiencing something exclusive and exceptional.
Over time, customers started comparing other coffee items to the “Aroma Haven Special.” They perceived the other offerings as more reasonably priced in comparison, even though their original prices had not changed. The anchor of the special blend had influenced their judgment, making them more willing to try different beverages and explore the menu.
Word of mouth about the “Aroma Haven Special” spread like wildfire, and soon, the coffee shop gained a reputation for its unique and delightful coffee experience. Customers would excitedly recommend the café to their friends and family, highlighting the special blend as a must-try.
As Aroma Haven’s popularity soared, Sarah decided to expand the anchoring strategy to her branding. She designed eye-catching posters and banners featuring the “Aroma Haven Special” and its alluring aroma. The image of the coffee blend became synonymous with the café’s identity, creating a strong brand association.
With the anchoring bias working its magic, Aroma Haven saw a remarkable increase in foot traffic and customer loyalty. People no longer saw the coffee shop as just another local café but as a destination for a unique and memorable coffee experience.
b) As you step into the chic boutique “Fashion Palace,” your attention is immediately drawn to a striking leather jacket prominently displayed near the entrance. Priced at $299, it radiates luxury and style.
This is no random arrangement; it’s a shrewd use of anchoring bias in retail marketing. The $299 jacket becomes a pricing anchor, shaping your perception of the store’s overall cost.
As you browse further, you find dresses, jeans, and tops — all competitively priced, many under $100. However, your judgment is influenced by the $299 anchor, making these items seem even more budget-friendly.
The anchoring effect deepens when you stumble upon the clearance section. A dress, initially $120, is now $79, and jeans, previously $89, are on sale for $49. These discounts feel even more enticing when juxtaposed with the $299 anchor.
Unbeknownst to you, “Fashion Palace” cleverly wields anchoring bias, moulding your view of their pricing. The $299 leather jacket primes you to perceive other items as reasonable or even steal.
This technique impacts not just your shopping experience but also your choices. The anchor nudges you toward purchases that fit the perceived value from the initial anchor.
c) Entering “Discount Mart,” your eyes are drawn to a stack of top-notch brand-name headphones priced at a jaw-dropping $25. The irresistible offer sparks your interest with a thought: “What a steal!”
Unbeknownst to you, this is a prime example of “Discount Mart” capitalizing on anchoring bias in their marketing strategy. The $25 headphones serve as a potent anchor, influencing how you perceive the store’s pricing and overall value.
As you browse the store, you encounter various electronic gadgets, clothing, and home goods, all reasonably priced. Comparatively, “Discount Mart” seems to offer better deals than competitors, fostering a belief in consistently lower prices.
Unbeknownst to you, “Discount Mart” strategically placed the $25 headphones as a psychological anchor. Perhaps they procured these headphones with minimal profit, aiming to cultivate the perception of irresistible deals.
“Discount Mart” extends this anchoring bias to essentials like bread, milk, and eggs, offering them at prices rivalling or undercutting the competition. This fosters an anchor, leading you to perceive other products as equally pocket-friendly.
This technique not only colours your perception of “Discount Mart’s” prices but also shapes your shopping experience. You depart the store content, convinced that you’ve discovered a treasure trove of bargains.
The anchoring bias in “Discount Mart’s” marketing creates an illusion of consistently low prices across their inventory. This compels customers to return, confident that they’re snagging unparalleled deals compared to other retailers.
Apple’s “Get a Mac” Campaign
In the mid-2000s, Apple launched its iconic “Get a Mac” advertising campaign, which featured a series of TV commercials comparing Mac computers to PCs. The campaign’s primary objective was to establish Mac computers as a superior and more user-friendly alternative to PCs, ultimately encouraging consumers to choose Mac over Windows-based PCs.
In the “Get a Mac” campaign, Apple cleverly employed anchoring bias by personifying Mac and PC as distinct characters. Mac was portrayed by Justin Long, presenting him as a young, cool, and confident individual, while PC was depicted by John Hodgman, portraying him as an older, stuffy, and somewhat bumbling figure.
By presenting Mac and PC as characters with specific traits and personalities, Apple established a clear anchor in consumers’ minds. Mac’s persona as a modern and relatable individual anchored the perception of Mac computers as user-friendly, innovative, and superior to PCs. In contrast, the PC’s characterization as an older and less dynamic figure anchored the perception of traditional PCs as less appealing and less capable.
This use of anchoring bias was a powerful and effective marketing strategy. The distinct personalities of Mac and PC in the commercials allowed consumers to associate certain traits and qualities with each character. Consequently, this association influenced how consumers perceived Mac computers and PCs as products.
The anchoring bias, along with the witty and engaging dialogue in the commercials, made a lasting impact on consumers and contributed to the campaign’s success.
Steve Jobs and Anchoring Bias
During Steve Jobs’ first iPhone launch presentation in 2007, he skillfully employed anchoring bias in branding and marketing to build anticipation and establish the iPhone as a groundbreaking product.
Jobs began by stating, “Every once in a while, a revolutionary product comes along that changes everything.” This powerful statement immediately set the stage and created an anchor for the audience’s expectations, positioning the iPhone as a game-changing device that would be extraordinary and innovative.
Furthermore, Jobs subtly conveyed Apple’s legacy of innovation by using the phrase “comes along.” This suggested that Apple had a history of producing transformative products over the years, which was reinforced when he referenced the 1984 Macintosh and the iPod, two iconic devices that had already made a profound impact in the technology industry. By showcasing images of these devices, Jobs anchored the audience’s perception to Apple’s trailblazing reputation, positioning the company as a pioneer capable of delivering exceptional and revolutionary products.
The phrase “changes everything” further emphasized the magnitude of the iPhone’s impact. It implied that the iPhone would not be an incremental improvement but a complete game-changer that would revolutionize the way people interacted with technology. This anchoring effect prepared the audience to expect a product that would be nothing short of extraordinary.
To solidify the anchor and underscore Apple’s capacity for innovation, Jobs remarked, “One’s very fortunate if you get to work on just one of these in your career. Apple’s been very fortunate. It’s been able to introduce a few of these into the world.” By highlighting the rarity of such revolutionary products and the fact that Apple had introduced several of them, he further positioned the iPhone as the next significant addition to Apple’s roster of game-changing innovations.
Through carefully chosen words, references to past iconic products, and a sense of anticipation, Jobs effectively anchored the audience’s expectations and positioned the iPhone as a revolutionary and transformative device that would change the technology landscape. This strategic use of anchoring bias contributed to the immense success of the iPhone and solidified Apple’s position as a trailblazer in the tech industry.
Conclusion: In marketing, sales, and advertising, brands deftly utilize anchoring bias to shape customer perceptions. By strategically setting reference points and influencing initial judgments, brands can drive purchasing decisions, enhance perceived value, and create lasting impressions. Anchoring bias becomes a potent tool for guiding consumer behaviour, fostering loyalty, and establishing brand identity in the competitive landscape.