What Is the Anchoring Effect? How to Use It in Business

In business, the anchoring effect is one of the strategies sellers cannot do without. Many people probably still do not know what the anchoring effect is or its nature and use in business. Let's learn together Mona Media what the anchoring effect is in the article below.

What is the anchoring effect?

The anchoring effect is seen as a cognitive bias that describes a common human tendency. It is an over-reliance on the first piece of information given. In decision-making, anchoring happens when you use initial information to make later judgments. Once the anchor is set, judgments are made efficiently. This works by adjusting how you interpret information around that anchor.

A typical example is the starting price given for a newly released computer, followed by another, used computer. The first price becomes the standard for the discussion. When the second price comes up, it has to seem reasonable compared with the first, even when it is higher than the real value of the used computer.

The nature of the anchoring effect

The nature of using the anchoring effect is to draw customers' attention when a product first appears. Customers are then pulled along by that information. At the same time, they automatically form a view and decide whether to buy.

You are probably very familiar with buying and haggling when shopping. When the seller names a price of 50 thousand VND, you bargain down to 40 or 45 thousand VND. But you forget the other factors around that price, such as product quality, market prices, your basic spending limit,… The 50 thousand price is the anchor that makes consumers judge and get pulled along by it, even though in reality the amount may be worth more than the item.

Here is another example: motorbike A is a new product and B is a used motorbike. The seller needs to know the general price of bike A and wants the customer to guess the price of bike B. Because of the anchoring effect, the customer relies on the price of bike A to calculate and predict. The result is a number around the value of bike A, but not necessarily right for bike B.

The main purpose of using the anchoring effect

In practice, the anchoring effect can be applied to many different goals, such as business negotiation, buying and selling, or boosting work productivity. One thing to remember is that, from any angle and whatever the purpose, you must always pay attention to the influence of the anchor.

Boost sales results

When you take the active position of creating anchors, you will see countless benefits, whether you are the buyer or the seller. When selling, instead of just putting up an ordinary fixed price tag, attach a larger number in front, while still showing customers that it has been replaced by a lower price than the original. That way, customers may be drawn in by the first price and accept the second price easily.

As a buyer, you “drop the anchor” by offering a price lower than the amount you actually have. This way, the seller's plan is influenced by the number you suggested.

The anchoring effect from negotiation also often happens when setting goals, where it affects the final result. Research by business experts shows that when goals are more challenging, people always do better than those who set lower or unclear goals. Even if the goals are not fully met, work performance still improves significantly.

However, this approach still has some hidden limits. If you set goals that are too ambitious and beyond your ability, even if your result is still good or even exceeds your plan, your satisfaction will be affected somewhat. It can even lead to negative thoughts that hurt your willpower and cause wrong judgments about your own abilities.

How to avoid other anchors

When you are not the one in control, you need ways to avoid being influenced by the anchoring effect. This certainly takes a steady mindset and firm reasoning. Combined with your own experience and knowledge, you can then escape the “anchors” set by whoever gives the first piece of information.

Before any deal or trade, you should decide on the specific type of product you need. Then research the market information about it and the price you expect. For pre-set “anchors”, you just need to focus on your original estimates. You can quietly ignore it or choose to counter by “dropping an anchor” the other way.

Using the anchoring effect effectively in business

Because it is simple to carry out, the anchoring effect is widely used, especially in business. Its influence helps businesses grow and earn more profit than expected. The most common ways to apply the anchoring effect today are:

Judging by unrelated information

The first pieces of information customers receive have a big influence on their decisions, without them realizing it. So businesses should drop an “anchor” here with unrelated information. The goal is to attract customers before talking directly about each product's price.

Change the price unit of the product

With a price that has four digits, customers tend to be “anchored” to that price and guess amounts in the thousands. Conversely, a company can offer a more attractive figure such as 299k. The unit that “anchors” the customer's judgment adjusts to make them feel they are getting a reasonable product. It must not affect the business's revenue quality either.

Emphasize the total order price

This method is commonly used in the promotions of products. For example, an order with a total price of 300,000 VND drops to just 240,000 VND after a voucher. If your order costs 80,000 VND plus a delivery fee of 90,000 VND. You should also weave in promotions to make the business even more effective.

Compare against a weaker product

Some people think they must make a great first impression, but you can still drop an “anchor” with a weaker product. Then introduce other products with better deals or higher quality. Based on the initial “anchor”, the following products are always judged more favorably in customers' eyes.

Change how products are arranged

Business owners can easily see the benefit of adding the anchoring effect at supermarket shelves, shopping sites, cafes,… Instead of the traditional arrangement from low to high or the reverse, sellers usually drop an “anchor” by putting high-priced products on top. When customers look down to lower prices, they feel this is a reasonable price and decide to buy.

Factors that influence anchoring

For the anchoring method to work at its best before consumers decide on a product, businesses should consider these factors that affect the result:

• Pay attention to your customer's mood: Research shows mood has a big influence on customer decisions. But to judge it, you need experience in reading psychology accurately.
• Confidence when dropping the anchor: Not everyone who meets an “anchor” will necessarily get pulled in. So you need to hold back to avoid overconfidence.
• Customer experience: In practice, people with experience or social skills tend not to be affected by this effect. Still, you should use that experience as an “anchor” that shakes their decision.
• Personality: People with friendlier, more open personalities, according to experts, tend to “hold on to the anchor” more.
• Other objective factors: Factors such as price, features and quality of the product compared with competitors and the market. Also how popular the product is and each customer's budget.

With the information above, you now have solid knowledge about what the anchoring effect is? Its nature and proper use in business. You should apply it at the right moment and time to bring high economic results.

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