Anchoring in Marketing
Anchoring describes our natural bias to put too much emphasis on an initial piece of information, even when that number is entirely arbitrary. Humans simply are bad at valuing goods, and thus rely on any information we can get to price them accordingly. Below I’ll be showing just how strong this effect can be, and then dive into examples of how anchoring has been used in business to shift consumer behavior.
In Predictably Irrational, Dan Ariely looks at a historic pricing structure for The Economist. His study looked at two alternative structures. In the actual pricing structure, one could choose between an internet subscription for $60, a print subscription for $120, or both for $135. In this scenario, the majority of people chose the deal of getting both, with essentially no one opting for the print only version. However, when the print subscription option was removed in the other scenario, the majority of people now chose the internet only option. Simply adding an irrelevant option, an option no one wants (print only subscription for $120) vastly changes what other option people choose. Why? Because we don’t have a naturally strong value meter that tells us the worth of goods, but rather we judge everything relatively. Adding anchors allows marketers and businesses to shape customers valuations, often without offering anything different.
Predictably Irrational explores another instance of our lack of internal value meters being influenced, this time in the restaurant industry. It turns out that high-priced menu items boost revenue for a restaurant even if people don’t order them. That’s because people often won’t order the most expensive entree but will get the second most expensive entree. Adding a less relevant item (i.e. super expensive choice) makes the previously expensive item a deal.
Daniel Kahneman points to another case of the anchoring effect in the nonprofit realm. His study asked how much people would donate to a cause. When people were simply asked this, and not given a suggestion, people gave $26 on average. However, if people were approached and asked, “would you be willing to pay $5. . .” then they gave an average of $20. But if they were approached and asked, “would you be willing to pay $400. . .” they gave an average of $143. This is a big difference in how much money could be raised simply by shifting expectations of the range that was expected.
The anchoring effect has been well tested in supermarkets. In one study, a supermarket offered Campbell’s soup at 10% off. However, they manipulated some wording around the promotion. Specifically, some days the sign added “no limit,” and when this was the case people purchased an average of 3.5 cans. However, when the sign read, “limit of 12 per person,” the average purchase size jumped to 7 cans. The anchor of 12 made a large purchase seem much more reasonable, while also creating a sense of scarcity.
Beyond these examples, there are countless ways marketers can employee anchoring, in the for-profit and non-profit realm. In fact, the less easy an item is to value, the stronger the effects of arbitrary anchoring will be. We see that with wine for example, people will bid drastically more or less after recalling the last 2 digits of their social security number based on whether it’s a high or low number. Given the research, there is good reason to believe that while anchoring should always be considered in marketing, it is especially powerful when pricing items such as online courses, subscriptions, or anything else with a seemingly arbitrary price.