It’s not the price of your product that determines how many people buy it… Rather it’s the price of the other products shoppers see before making their choice!
The perceived value of any product has a lot to do with a psychological principle called anchoring. With anchoring, the first number you see influences any number you see after it.
For example, if you see a bulk display of bourbon whiskey in the supermarket, with each bottle priced at £14.99, and a nearby bottle with a price of £29.99 – then the latter is considered very expensive. However, if the £29.99 bottle is seen in context with a £59.99 bottle then the same bottle of whiskey is seen as much better value.
Anchoring offers and incredible opportunity for brands and retailers. During standard decision-making, shoppers rely heavily on reference prices and other data as comparison points for future purchases.
This process plays an important role on how we understand and assess the price of products – both in brick and motor stores and online. Psychological anchoring is especially applicable to goods that we are either unfamiliar with or where price is less important as to the final purchasing decision.
Imagine that you are buying a new car for £30,000. Then paying a further £230 for a cup holder so you have somewhere to put your coffee while you drive – seems reasonable. But what if you went to your favourite coffee place and paid £2.60 for a skinny latte and they tried to sell you the same cup holder at the same £230 price? In one situation, the costs seem reasonable – in the other it’s incredibly expensive.
Psychological anchoring doesn’t only apply to cost – it can influence wide range of perceptions, including whether an item is good or bad quality or healthy or unhealthy. Anchoring can even dictate as to whether we buy a product at all given the circumstances. You wouldn’t pay £1.50 for a 330ml can of soft drink in a supermarket, but while at a rock concert – with it’s expected increased drink costs – the same price is a bargain. This latter example shows just how powerful a simple anchor can be in influencing our perception of value, and certainly undermines the notion that decision makers are perfectly rational beings.
When it comes to buying groceries, research suggests that we use similar goods as our anchor points. For example, when buying a jar of coffee, we tend to look at the prices of a selection of products to help us work out what price represent good or bad value.
Psychological anchoring causes a strange problem when it comes to the release of entirely new products. Consumers have no point of reference and so aren’t sure what an item is really worth. Brands can take advantage of this and can actually dictate the initial anchor price themselves – often by setting a high anchor price, so that subsequent discounts and special offers make the item appear more of a bargain.
Concepts like psychological anchoring highlight the importance of psychology and behavioural economics within retail. Ask yourself, are you considering engaging a psychologist or a behavioural economist?
When determining how much to charge for our products, we should let psychology and behavioural economics help us. Shoppers don’t see items on a spreadsheet, they see them in-store and online next to other similar products and brands. And it is there and then that they anchor themselves to a perceived value and reference price. With that in mind, how appealing do your products really look?
To find out more about what you can gain from behavioural and psychological shopper insights, talk to our experts on 01543 255 259 or email email@example.com.