Anchoring effect in marketing

In the decision-making landscape, our choices are often shaped by many factors, some of which operate beneath the surface of conscious awareness. Among these cognitive influences lies the anchoring effect, a psychological phenomenon explored extensively by Daniel Kahneman and Amos Tversky in their seminal work. The anchoring effect subtly guides our judgments and evaluations, profoundly impacting our decisions in various domains, from consumer behavior to negotiations and beyond. When exploring the anchoring effect, we delve into its mechanisms, manifestations in real-world scenarios, and implications for marketers and decision-makers alike. Through a series of illuminating studies and examples, we uncover the pervasive influence of anchors in shaping perceptions, preferences, and, ultimately, the choices we make. 

What is the anchoring effect?

According to Daniel Kahneman and Amos Tversky's (1974) study, people's decisions are strongly driven by a tendency to compare or relate things to something. When we compare something to our previous experiences, the status quo situation, or another product, the latter is an anchor. Setting such an anchor is entirely unconscious, but it guides people's decision-making once it is done. People interpret information about the products in relation to the anchor. The direction of this comparison affects our choices. This phenomenon is called an anchoring bias. Anchoring bias has been tested in several studies. For example:

Anchor bias test: African countries (Tversky & Kahneman, 1974)

People were asked to rate the number of African countries that are members of the UN. The answers varied depending on the wording of the question.

1. How many percent of African countries do you think are members of the UN? (Previous question: Are more or less 10% of African countries members of the UN?)

2. How many percent of African countries do you think are members of the UN? (previous question: Are more or less than 65 percent of African countries members of the UN?)?

When asked question one, people set the anchor unconsciously at 10% and, on average, answered that 25% of African countries are members of the UN. The anchor in question two is bigger, 65%, and the average answer increased to 45%.

Anchor bias test 2: Multiplication (Tversky & Kahneman, 1974)

People in the test groups were asked to calculate the following in five seconds. The first group was asked how much 1 x 2 x 3 x 4 x 5 x 6 x 7 x 8, and the second was asked how much 8 x 7 x 6 x 5 x 4 x 3 x 2 x 1. The multiplication task is the same in both. However, there is not enough time to calculate it. It is interesting how the answers varied according to the numbers' order. The first group estimates the result to be, on average, 512, and the second group arrived at 2250. The correct answer is 40320.

Anchorage Bias Test 3: Gandhi's Death Age (Starck & Mussweiler 1997)

Furthermore, the anchoring effect extends beyond mere numerical comparisons, as demonstrated by the test conducted by Starck and Mussweiler in 1997, where even knowingly false anchors significantly altered participants' judgments. So, even if the anchor is so misleading that people know it is untrue, it still affects the results. The researchers asked whether Mahatma Gandhi died before or after a) he was 9 years old or b) before or after he was 140 years old. After this, the respondents were asked what age Gandhi died. The age was evaluated at 50 years in the first group and 67 years in the second. 

How a marketer can benefit from the anchoring effect

Marketers can design what anchors they want to set into people's minds. For example, proper framing of information can profoundly impact purchasing decisions and brand perception. For example, underlining eco-friendliness at the beginning of advertising makes people evaluate a product from an eco-friendly perspective (people's thoughts are anchored in eco-friendliness). Anchoring as a strategy can play a huge role in pricing. Studies like those by Kristensen and Gärling (1997) reveal the enduring influence of initial price anchors in negotiation settings, underscoring the importance of setting an optimal starting point for discussions. For example, they have shown that the original price in the second-hand car trade is a starting point that is only slightly varied in the negotiations. 

Building upon this, the research by Janiszewski and Uy (2008) underscores the precision required in setting initial prices, as slight variations in the anchor can significantly sway consumers' subsequent price estimations. They tested a few different initial prices:

1. When the original price was $ 20, people estimated the correct price to be $ 19 or $ 21

2. When the original price was $ 19.85, people estimated the real price to be $ 19.75 or $ 19.95.

The more accurately the price is expressed the first time, the closer the final price is to the price initially expressed. 

By exploring the anchoring effect's multifaceted nature and its practical applications in marketing and decision-making, we gain valuable insights into the intricate workings of our cognitive processes and their impact on everyday choices.

References: 

Tversky, A., & Kahneman, D. (1974). Judgment under uncertainty: heuristics and biases. Science, 185, 1124–1131.

 

Starck, Fritz; Mussweiler, Thomas (1997). "Explaining the enigmatic anchoring effect: Mechanisms of selective accessibility.". Journal of Personality and Social Psychology 73 (3): 437–446.

 

Kristensen, Henrik; Gärling, Tommy (1997). "The Effects of Anchor Points and Reference Points on Negotiation Process and Outcome". Organizational Behavior and Human Decision Processes 71 (1): 85–94. 

 

Janiszewski, Chris; Uy, Dan (2008). "Precision of the Anchor Influences the Amount of Adjustment". Psychological Science 19 (2): 121–127. 

See also: 

Orr, D. & Guthrie, C. (2005). "Anchoring, information, expertise, and negotiation: New insights from meta-analysis". Ohio St. J. Disp. Resol., 597, 21.

 

Dietmeyer, Brian (2004). Strategic Negotiation: A Breakthrough Four-Step Process for Effective Business Negotiation. Kaplan Publishing.

 

Northcraft, Gregory B; Neale, Margaret A (1987). "Experts, amateurs, and real estate: An anchoring-and-adjustment perspective on property pricing decisions". Organizational Behavior and Human Decision Processes 39 (1): 84–97.

ps. Thanks for the photo Mister GC at freedigitalphotos.net