Current or original price. What resonates with you when considering a purchase?
A blog called You Are Not So Smart argues that even the savviest bargain hunters, like you and me, are swayed by the original price, called the anchoring effect. I’d never heard of the term anchoring effect until reading this post, but the concept is very familiar. You Are Not So Smart shares this scenario:
You walk into a clothing store and see what is probably the most bad ass leather jacket you’ve ever seen.
You try it on, look in the mirror and decide you must have it. While wearing this item, you imagine onlookers will clutch their chests and gasp every time you walk into a room or cross a street. You lift the sleeve to check the price — $1,000.
Well, that’s that, you think. You start to head back to the hanger when a salesperson stops you.
“You like it?”
“I love it, but it’s just too much.”
“No, that jacket is on sale right now for $400.”
It’s expensive, and you don’t need it really, but $600 off the price seems like a great deal for a coat which will increase your cool by a factor of 11.
You put it on the card, unaware you’ve been tricked by the oldest retail con in the business.
The con being the anchoring effect, also called, you mean I can get a $1,000 leather jacket for $400? The number that sticks in your head is $600, not $400. So the jacket seems like a deal, because you are getting it for less than half of what it’s worth. Except that it’s not worth anything because you don’t really need it.
The problem is that we unconsciously use the original price as a guideline.
The anchoring effect comes up often in our lives – not just when we are shopping.
Think about the last time you negotiated a salary or raise. Your entire discussion with your boss or manager references the first number or range stated. At a garage sale, when you haggle on an item, the negotiations are based on the starting price set by the seller.
Here’s another example from You Are Not So Smart of the anchoring effect:
In a 1975 study by Catalan, Lewis, Vincent and Wheeler, researchers asked a group of students to volunteer as camp counselors two hours per week for two years.
They all said no.
The researchers followed up by asking if they would volunteer to supervise a single two-hour trip.
Half said yes.
Without first asking for the two-year commitment, only 17 percent agreed.
What about the last time you negotiated a chore with your spouse or partner or boyfriend?
I’ve noticed that if I come right out and ask my husband for what I want, say, for him to make a dish for tonight’s dinner, he’ll counter with a lesser contribution, like setting the table. But if you ask him to make the entire dinner, then a compromise to make part of it doesn’t seem so bad. Use this strategy sparingly or it will backfire!
Let’s go back to the shopping scenario. A true bargain is based on an item’s value, not the actual price. I would pay more for a high quality pair of shoes, even though I could find a lower price (for lower quality) elsewhere. Plenty of people would disagree, as evidenced by Walmart becoming the world’s biggest retailer.
When we see sales signs, which are everywhere these days, we get skewed by those big percentages off. Discounts above 50% are no longer a dream, but quite common. Stores that roll out a constant stream of sales are playing into the power of the anchoring effect by wowing us with a massive difference between the price tag and what we’ll pay at the register.
So what’s a bargain hunter to do? As GI Joe said, knowing is half the battle. Being aware of the anchoring effect will give you pause at the store. Maybe, just maybe you could wait a day before deciding. Sleep on it and you’ll often find the next day you’ve completely forgotten about that leather jacket.