Anchoring Bias – How the Brain Sees Prices
Do your customers know how much things cost? Does the brain perform calculations before deciding? Typically, the answer is no to both questions. The fast-thinking brain is lousy at calculating. It’s good, though, at storing numbers and comparing them to each other. The brain often sees the first number and uses it as a price anchor. When different prices appear, the brain makes a rough comparison that is influenced by the anchor.
In a 1999 Austrian study, researchers Strack and Mussweiler asked subjects to guess how old Mahatma Gandhi was when he died. Before asking that, though, they asked two groups different questions. They asked one group if he died before age 9, and another group if he died after the age of 140. The obvious answer to both was no. Then, the groups estimated his actual age of death (87). The first group’s average estimate was 50. The second group’s guess averaged 67. An anchoring bias created by the numbers in the first question influenced the estimates.
- How Are Price Anchors Established? – In marketing, the anchoring bias affects price decisions. Most shoppers already have estimated prices in mind for the products and services they need. They have researched costs, they remember what they paid in the past, or they ask others what they have paid. Sometimes, the number is just a rough guess. Then, when they encounter an actual price, the brain makes a quick comparison with that anchor price.All too often, though, the estimated price anchor is wrong.
- Neuromarketing Can Reset Price Anchors – Neuroscience research shows that anchor prices are relatively short-lived. The fast-thinking brain can only retain a few bits of new information. Presenting a new price associated with a product or service can reset the brain. Since the values already in place in the brain are often incorrect, the new number becomes the anchor.By using language carefully, you can ensure the switch. For example: “Most People Expect to Pay $900 or More for a New Washing Machine.” The new price anchor becomes $900.
- Everyone Is Looking for a Bargain – As everyone who sells products or services knows, one of the fastest ways to trigger a purchase is to offer the customer a lower than expected price. In fact, it’s essential in a competitive marketplace. National retailer, J. C. Penney, learned this lesson the hard way. New management decided to offer all products at a fixed, low price. Those prices became anchors. They dropped using coupons and having sales. Customers stayed away in droves. Without discounts, their brains couldn’t identify bargains.
- Use the Anchoring Bias to Trigger Decisions – Since the brain compares prices against established anchors, showing a lower price than the anchor price creates the perception of a bargain. However, when there is not a fixed anchor price, you can create an anchor. Using “You don’t need to pay $4,500! Our service starts at $2,885.” can trigger the anchoring bias. The bargain value is established, once the brain compares the two prices.
Price Anchors Affect Almost Every Transaction
No matter what services or products you offer, your customers will arrive with price expectations already in mind. Usually, those anchor estimates are inaccurate. Neuromarketing experts understand that resetting price anchors in people’s brains is an important first step, especially for high-value goods and services. Then, offering a strong value proposition is much easier. Specific neuroscience-based techniques are needed for each unique business. There’s no simple formula for success. Custom-tailored strategies and testing will produce results that boost sales revenues and leads.