Anchoring Bias – How the Brain Sees Prices
- Do your customers know how much things cost?
- Does the brain perform calculations before deciding?
In a 1999 study, researchers asked subjects to guess how old Mahatma Gandhi was when he died. However, the researchers first asked 2 groups of subjects 2 different questions. The question for the first group was whether he died before age 9. The question for the second group was whether he died after the age of 140. The obvious answer to both was no.
Then, the 2 groups estimated his actual age of death which is 87. The first group’s average estimate was 50. The second group’s guess averaged 67.
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 an anchor. That anchor can influence later decisions and judgments unconsciously.
- 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, JCPenney, learned this lesson the hard way. The new CEO decided to offer all products at a fixed, low price. Those prices became anchors. Coupons and sales were gone. Customers stayed away in droves. Without discounts, their brains couldn’t identify bargains.J. C. Penny made a serious mistake because the leadership team didn’t understand how the biased brain functions.
- 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 first number serves as the high anchor. It helps create the perception that the real price is a bargain.
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.