Quick Definition: Anchoring Bias says our decisions are influenced by the first information we see.
Have you ever bought something just because it was on sale? Your rational mind knows that the sale price is never the real price. But you were persuaded by the deal.
“It’s 50% off,” you say to yourself, “I’ve saved so much money!”. Seeing the regular price and then the sale price influenced you. It made you feel like you were getting an unmissable deal.
So why are sales such a powerful persuasion tool? It’s all down to a behavioral science principle known as Anchoring Bias (also called the Anchoring Effect).
In reality, the business will still make money off the reduced price. And having a “sale” triggered a purchase that they wouldn’t have gotten otherwise. So why are sales such a powerful persuasion tool? It’s all down to a behavioral science principle known as Anchoring Bias.
What is Anchoring Bias?
Discovered by researchers Tversky and Kahneman, Anchoring Bias says that our decisions are influenced by the first information we see. We anchor to this information without being consciously aware of its effects.
A type of cognitive bias - a common error in the way our brains think and process information - this principle has been rigorously researched, in situations as varied as house prices, legal judgments, and purchasing decisions.
Anchoring Bias in Action
In 2006, researcher Dan Ariely led an experiment at MIT. He held an auction with a twist. He showed students in his class random objects, like a bottle of wine or a textbook.
Ariely then asked students to write down a fake price for the item using the last two digits of their Social Security number as if it was the price (so if my Social was 123–45–6789, the price of a bottle of wine would be $89, for example).
After students wrote down the fake price of each item, they bid on it in an auction.
The results? Students who had high Social Security numbers paid up to 346% more than those with low numbers, for the same items.
Why? Because the first number students saw — even though it was completely unrelated — acted as a reference point and unconsciously influenced how much bid.
The higher the Social Security number, the higher the bid.
As Dan Ariely put it in his book “Predictably Irrational”:
“Social security numbers were the anchor in this experiment only because we requested them.
We could have just as well asked for the current temperature or the manufacturer’s suggested retail price.
Any question, in fact, would have created the anchor. Does that seem rational? Of course not.”
Real World Examples of Anchoring Bias
1. How Amazon Applies the Anchoring Bias
As seen in the example below, Amazon shows a high starting price, also called the “List Price” to anchor customers.
The New York Times article “Some Online Bargains May Only Look Like One”, describes the strategy this way:
“List price is a largely fictitious concept, promoted by the brand or manufacturer and adopted by the retailer to compel the customer into pushing the buy button.”
Check out this example from Amazon above. A cat litter box, which was “listed” at over $2,000, is now being sold at the bargain price of $27.67.
Customers anchor to the list price, and in comparison, it looks like they’re getting a fantastic deal.
And as we know from Ariely’s Social Security example, an unrelated number will still influence later decisions. It doesn’t matter that the list price is outrageously high. It just matters that customers see it.
2. How Walgreens Applies Anchoring Bias
In this example, from Walgreens’ weekly ad, we can see them employing the "multiple-unit pricing" strategy. You've probably seen this in the real world, and weren't sure what it was called, but basically it's any promo that includes multiple units of a product, like “Get 2 for $5.”
In their paper, “Multiple unit price promotions and their effects on quantity purchase intentions,” researchers Manning and Sprott explain that people are more likely to buy if the quantity of purchase is higher. In other words, a 10 for $10 deal is more convincing than a 5 for $5.
Because customers anchor on the first number they see, they begin to rationalize why they need ten bottles of dish soap instead of one. They might only buy five, but that’s four more than they intended to buy when they came into the store.
How to Apply Anchoring Bias
The Anchoring Bias can be applied in several different ways, but it’s commonly used when pricing products. To apply Anchoring Bias, try strategies like these:
1. Add premium-priced anchor products, like J. Crew
Add a premium product with a much higher price point than the rest of your catalog. This product’s job isn’t to sell, but to make everything else seem like a good deal.
J.Crew uses this strategy on their website. Below you’ll find a few examples of high-priced “anchor products” that are much higher than the average customer would expect to see in a J.Crew store.
Even on sale, a $700 cashmere blazer is much more than J.Crew’s core customers are willing to pay.
The image below includes products indicative of an “average” priced J.Crew item. These coats now look like great deals in comparison to the $1500 anchor coat above.
2. Add high initial “anchor prices”
By showing customers the “normal” price and the sale price, you give them something to anchor against when deciding if they’re getting a deal.
This strategy does carry some risk, however. As in the earlier Amazon example, if you set the “anchor price” too high, you risk treading in an ethical grey area. You’ll also run the risk of training customers to only buy on steep discounts, which can damage your brand in the long-term.
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Anchoring Bias: The Bottom Line
Anchoring Bias means we need to be mindful of what we show customers, especially in the early stages of digital experiences.
Make sure to weigh the pros and cons of tinkering with Anchoring Bias. It can be a tricky, but very effective, behavioral science effect to experiment with.
Ask yourself, is the upside of applying Anchoring Bias worth the potential risk for our brand?