What is Anchoring Bias
Anchoring bias is the human tendency to rely very heavily on the first piece of information (the anchor) offered when making decisions. This occurs in all of our decision making including purchase decisions. Once the anchor is in place, buyers decisions are then made by adjusting the initial anchor number, regardless of the legitimacy of the actual anchor number.
For example, restaurant customers often order the second least-expensive bottle of wine to avoid feeling cheap. Knowing this, restaurants can offer a higher margin wine as the second least-expensive bottle of wine. By planning creative price contrasts, you can influence your customers’ purchasing decisions. Actually, you’re helping them make purchasing decisions.
Choices add stress to our brain. Purchasing decisions are complicated. Choosing between options is difficult with many barriers and points of resistance. By establishing a base line in price we help customers determine value.
How to Use Anchor Bias
Initial price setting is one way to use anchor bias. You start with a higher price, in the beginning of a negotiation and move downward (or add product or service). The initial price set for a product or service will become the anchor and the lower price (or higher value offer), regardless of legitimacy, will be more reasonable and more attractive.
Another way to use this psychology is to use multiple unit pricing. When an item is on sale, group them with a price. For example, 2 packs of soap for $5.00 rather than $2.50 each. 2 packs will become the anchor and studies have shown this to increase sales by 40% or more.
Purchase quantity limits is another common way to use anchor bias. For example, a limit of 12 soft drinks. I worked at a grocery store way back in my youth that used this technique consistently. Customers think it’s to protect the store from the shelves being cleared the first day of the sale. The real purpose is that the brain uses 12 as the anchor. While few people purchased the full allowable 12, they certainly purchased far more than they otherwise would have. This technique also uses scarcity. Make people feel like they can’t have something and they want it more.
Establishing a base with price helps us determine value, risk, and allows us to move forward in a transaction. Anchor bias also allows us to stimulate spending by presenting a better value.