Suppose I’d asked you whether the average temperature in Antarctica is higher or lower than -50°C. Do you think this question would influence your estimation of the continent’s average temperature? What if I asked you how many people approximately celebrate their birthday on the same day like you? More or less than 9 million people? Would this affect your guess of the number of people celebrating their birthday on a particular day? You wouldn’t think so, but you would probably be wrong.
Due to a phenomenon that psychologists call “anchoring“, we are often unduly influenced by the initial figure we encounter when estimating the value of an item. Anchoring is the idea that people latch onto an initial thought or idea, and consequently use this as a reference point for future decisions. Marketers like you and me can and should make use of this to influence their customers.
How did it start – and how do companies make use of it now?
The anchoring effect was first demonstrated in an experiment in which people were asked to estimate various quantities to certain questions. Participants were e.g. asked to estimate the percentage of African countries in the United Nations. A number between 0 and 100 was shown to the participants by spinning a wheel of fortune. It turned out that these arbitrary numbers were significantly related to the quantities that were estimated by the participants. People who were exposed to a higher number estimated the quantity higher than those who were shown a lower one.
With the introduction of the iPad in 2013, Steve Jobs used the anchoring effect in a very smart and effective way. In his presentation, Jobs mentioned that they want to price the iPad below $1000 (setting the anchor). When Jobs revealed the actual price of the iPad, people felt surprised and relieved that it was only $499. Any price lower than the initial anchor seems more reasonable and the consumer will see it as a good deal, even if it is still higher than the actual worth of the product. Even if the number you are encountered with has nothing to do with an actual price, the effect works. The initial thoughts about the price may be totally random and irrelevant, and people might be even aware of this – anchoring still works in those situations.
How to deal with anchoring in your daily life?
How can you as a student or marketer use this smart anchoring technique in your daily life? For example, when you are selling something you can plant an anchor in people’s mind, so that any price lower than that will seem a good price. Or when you are negotiating about your salary or other agreements with your employer, you can mention a former (high) salary you earned with another job. Even children use it when they need approval from their parents about the time being home or the amount of pocket-money they’ll receive. Actually, anchoring can be used in any situation where you are encountered with numbers, but be careful with exaggerating the numbers, as this can have a backlash effect.
Everyone is daily confronted with anchoring and you are not even aware of it. Why do you need to think about buying an application for your mobile phone for only €0,99, but when buying a cup of coffee at Starbucks for €5,-, you don’t have any doubts to buy it. All of this has to do with anchoring again.
Concerning an app, you have the anchor in your mind of getting it for free. At Starbucks, you know already that you will pay at least €4, – for a cup of coffee, so €5, – sounds fair enough, right? Try to be aware of that mechanism and you’ll be surprised about how often people actually make fun of you!
Guest post by Nicoline Russel