Anchoring should be a mainstay of pricing research | Research Live

Understanding the core principles of anchoring can not only shed light on how consumers perceive price, but aid researchers in conducting pricing research, says Shamvir Singh.

A core part of behavioural economics is the ‘anchoring principle’. Anchoring occurs when consumers use an initial piece of information to make subsequent judgments. Once an anchor is set, other judgements are made by adjusting away from that anchor, resulting in a bias toward interpreting other information around the anchor. As humans, we are all wired to draw references. It is a part of how we make sense of our surroundings.

Consequently, anchoring plays a significant role in how consumers view price. This means that researchers need to understand the core anchoring principles in this critical area of marketing where strategy meets the consumer and what this means for pricing research.

First impressions

Studies show that being first exposed to high or low values, even if it is irrelevant to the product at hand, affects consumers’ price perceptions and thus their willingness to pay. A study conducted by Gregory Northcraft and Margaret Neale investigated this effect by exposing several expert property realtors to the same information about a property whilst varying the asking price, and then asking them what they expected people would be willing to pay for the property.

As the initial asking price increased, so too did the estimates from the experts. Northcraft and Neale also tested this among the public using the exact same method and found that it had an even larger affect.

When asked if “price influenced their estimates on what they thought other people would be willing to pay”, 81% of professional realtors and 63% of laypeople said it didn’t affect their decision, suggesting a lack of consumer acknowledgement of the effect anchoring has.

Positioning value

The same approach can be used to communicate initial product value. Steve Jobs used anchoring during the launch of the Apple iPad to such effect. At one of his famed launch presentations, he introduced the “rumoured cost” that was speculated to be $999. This information anchored the press to the notion this was a high-priced product. However, when Jobs later in the event revealed the iPad to be priced at $499, this “anchoring and reveal” tactic created a notion of value for money.

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Anchoring should be a mainstay of pricing research | Opinion | Research Live.