Anchoring and price adjustments

How the first information received establishes a standard of judgment.

Anchoring is a cognitive bias where the first piece of information we receive about a product (the anchor) determines how we eva luate everything that follows.

If we have no prior experience with an item, the first price we see becomes our standard of "how much it should cost."

For example, if we walk into a technology store and see a new TV for €2,000, that price becomes the anchor.

If we then see another one for €1,200, it will seem cheap in comparison, even though objectively €1,200 is a considerable sum.

Our mind needs consistency and uses that starting point to judge the fairness of future prices within the same category.

Using reference prices to eva luate offers

Consumers rarely eva luate prices in absolute terms; they do so in relative terms by comparing them to a reference.

This reference price can be internal (what we are used to paying, such as 2 euros for a coffee) or external (the price suggested by the manufacturer).

If a brand launches an innovative and unique product, it has the opportunity to establish a high anchor, since the consumer has no previous references.

However, for common products, the comparison is made with previous purchase history.

If we move cities, it takes time to adjust our real estate pricing "anchors" to the new local market reality.

Crossed-out and comparative pricing strategies.

One tactical application of anchoring is the presentation of original prices alongside discounted prices.

By displaying an initial high price (e.g., €100) and crossing it out to show the sale price (€70), the retailer sets the anchor at 100.

This causes the consumer to perceive a gain or "transaction utility" by saving the difference, increasing purchase satisfaction.

Even if the initial anchor is arbitrary, our mind seeks consistency and adjusts the value perception of the final price based on that initial high figure.

Summary

Anchoring occurs when the first price information defines our subsequent eva luation. That first value seen becomes the mental standard for judging future offers.

Consumers eva luate prices relatively by comparing them to internal or external benchmarks. If there is no prior experience, a high initial price sets a favorable anchor.

Showing crossed-out prices uses the anchor to suggest great value. The high original price makes the final discount perceived as a satisfactory gain.