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Leveraging the anchoring effect for pricing strategies.


Leveraging the anchoring effect for pricing strategies

The human mind naturally gravitates towards comparisons to assess value. This cognitive bias, called the "anchoring effect," implies that our initial exposure to a number (or 'anchor') influences subsequent decisions and evaluations. You can harness this effect to your advantage.


Imagine you're selling the latest Uniroyal tyres at £139 with a free fitting included. To set your "high anchor", you'd display a Michelin Pilot tyre priced at £199 next to the Uniroyal. This would make the subconscious brain think, "Wow, £199 is a lot for one tyre. But the one next to it is just as lovely, and it's only £139. And they'll fit it for free. That sounds like a great deal."


What's happening here? Placing your Uniroyal tyre next to a higher-priced one provides the brain with a reference point for comparison. Additionally, including the word "free" (fitting) is always a crowd-pleaser.


Creating an artificial anchor is another way to play with the brain's perception. Let's say I walk into your dealership looking for tyres. I noticed the Uniroyals, but there's no price displayed. I inquire about the cost, and you tell me they're £169 each, but then correct yourself and say, "Oops, my mistake. They're £139 each." Suddenly, I feel much better about the price. You haven't altered the price; you've made £139 seem like a steal compared to the initial mention of £169.


You might wonder why not simply display the recommended retail price and highlight a £30 discount. The reason is that people know that items are rarely sold at the recommended retail price, so they would just disregard it.


Placing your Uniroyal tyre between a Michelin Pilot 4 and a round-ish black object from China priced at £79 is also unlikely to yield significant results. While people tend to choose something in the middle when considering their budget, this strategy works better with a broader selection, such as ten French wines, rather than just three tyre options. In the case of tyres, customers might see through the ploy and resort to comparing prices on their smartphones. Try anchoring instead.

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