44. What Gets Us Hooked? The Power of Anchors
Estimated Reading Time: 90 seconds
Anchoring is a cognitive bias that describes how we tend to rely too heavily on the first piece of information we get. If you had to understand how powerful anchoring can be, just watch Steve Jobs announcing the iPhone price.
A good anchor can make high prices justified and bad news palatable.
I have previously written about framing and you might wonder how is it different from anchoring? While anchoring emphasizes initial information (positive vs. negative, gain vs. loss), framing focuses on presentation of information (which sets a reference point for subsequent information).**
Saying “Save $50” rather than “Avoid a $50 charge” is an example framing.
Listing “Original price” with the “Discounted price” is an example of anchoring.
Some common examples of anchoring are -
Left digit or .99 effect for product pricing - consumers are more likely to perceive a price of x.99 as being significantly less than x+1, even though the actual difference is only 0.01
New product launches are priced higher as they are anchored against the old models. iPhones are good examples of this and the 0.99 effect
Anchoring the price on relative value of the product - Debeers’ “a diamond that lasts forver” vs 2-months salary (an arbitary figure); or Loreal’s “You are worth it” (anchoring the price on your sense of self worth)
You can find many other great marketing examples here.
Anchoring is very important in communications. I am sure you have heard this story - it’s quite an urban legend now. But it can even have life and death impact. Some people argue that if Covid was initially framed as a ‘ebola-like’ disease, and not ‘flu-like disease’, it might have improved the speed of social distancing, masking, or vaccine uptake.
In negotiations, it is said that the one who quotes the number first always loses. Always get the other person to anchor first. Whether you are negotiating salary, purchase of a used car, or any other sales situation, first one to quote a number gives away more information and leverage to the opposite party.
In fact one of the most surprisingly effects of anchoring it is possible to influence people’s decisions by even utterly irrelevant numbers. One study asked participants to name the last two digits of their social security number, then asked them to decide on the amount they would bid for a bottle of wine. The participants with the digits 00 to 19 (low anchor), on average stated they would bid $11.73 (low price) for the bottle of wine. The participants with the digits 80 to 99 (high anchor), on average stated they would bid $37.55 (high price). The mere act of bringing numbers to mind resulted in a such a significant difference in the bid price.
So next time you want to negotiate something, remember, either get the other party to quote first. Or if you have to go first, think carefully about how to anchor your quote that will lead to your desired outcome. There is always a Dilbert for inspiration ;)
