When making decisions, we excessively depend on a single piece of information, which serves as our anchor.
Frequently, the initial piece of information provided automatically serves as the reference point for subsequent evaluations. Nothing possesses inherent cheapness or expensiveness; rather, its relative affordability is contingent upon comparison to something else. Reflect on how you can create a positive comparison that solidifies the value or quality of your product or service more effectively than your competitors. Reflect upon the anchors that you are consciously or unconsciously offering.
Example: Retailers like J.Crew use anchoring by displaying the original price of an item next to the sale price, making the discount appear more significant and encouraging purchases.
Take action!
Anchoring bias has inspired several innovative marketing campaigns and business strategies. This bias occurs when individuals rely too heavily on an initial piece of information (the "anchor") to make subsequent judgments. Here are some notable examples:
- Williams-Sonoma Bread Maker: When Williams-Sonoma introduced a bread maker priced at $275, sales were sluggish. However, after introducing a more advanced bread maker at $429, the original model's sales increased significantly. The higher price of the new model served as an anchor, making the original seem more affordable in comparison.
- Apple's iPad Pricing: In 2010, Apple utilized anchoring bias for the iPad's launch. Before the launch, there were rumors about the iPad costing around $999. However, Steve Jobs announced a price of $499, which, compared to the anticipated $999, seemed incredibly reasonable. This strategy of setting a high anchor made the actual price appear as a great deal.
- The Economist Subscription Options: The Economist demonstrated anchoring bias in an experiment described by Dan Ariely. They offered three subscription options: an online subscription at $59, a print subscription at $125, and a combined print and online subscription also at $125. The presence of the print-only option at the same price as the combined option made the latter seem like a better deal, significantly affecting customer choice.
- 'Charm Pricing' in Retail: Retailers often use pricing strategies like $4.99 instead of $5.00, tapping into anchoring bias. This 'charm pricing' makes the item appear cheaper due to the left-digit effect, where the first digit has a stronger influence on perception than the following digits. Such pricing strategies lead to increased sales as consumers perceive these items as being closer in price to $4 rather than $5.
- KFC's "Just 4 Packs per Customer!" Campaign: KFC used anchoring bias in a campaign to boost sales of their French fries. By advertising "Just 4 packs per customer!", they created a perception of scarcity and value, influencing customers to buy more than they initially planned. This campaign led to a 56% increase in sales of their “1-dollar chips”.
- SaaS Price Anchoring: Many Software as a Service (SaaS) companies use anchoring on their pricing pages. They often display the most expensive plan first, followed by cheaper options. The high price of the first plan serves as an anchor, making the subsequent options seem more affordable.
These examples illustrate how anchoring bias can be effectively used in marketing and business to influence consumer perception and decision-making.
