[Kwerks - #9] The first information your audience receive is very important
Know how the anchoring effect can affect even the smallest decisions
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Metrics Impacted: Customer Spending
Type: B2C | B2B
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How does it work?
Imagine you’re out shopping for a gift. You find a ring for ₹7000, but it is way more expensive than your budget. Now you go to another shop and find a necklace for ₹4500 which might be still more than your budget. But hey! That’s cheaper than a ring!
People tend to rely too heavily on the first piece of information they come across. This is the anchoring effect. The first piece of information acts as the reference point, using which we take all further decisions.
Why does it happen?
A study asked people to write down the last two digits of their social security number (eg. 23). The researchers then showed them products like a bottle of wine, chocolates, etc., and asked if they were willing to pay the number written down(23). After that, the researchers asked them what amount they would be willing to pay for the same items.
Results showed that people whose digits were higher quoted a higher price for the items than those with a lower number.
Where does it happen?
Every day we depend on anchors to estimate how much time something will take or how much money it will cost. When there are many options to choose from or estimate the value, you need a standard number to compare and predict.
How much should you be paying for electricity next month? What is a good price for rent in this neighborhood? You need an anchor in most cases, and when someone is trying to sell you something, they are more than happy to provide one. The problem is, even when you know this, you can’t ignore it.
How To Implement this Effect
Think before setting a price for your product ranges or services. People tend to compare the prices using the anchor point whether you intend for them to do so or not.
Keep in mind your target audience. This effect gets weaker as the cognitive ability of the individual increases. So be careful when targeting people who have a lot of experience buying similar products.