We’ve all seen it before… the concept of displaying an item with a much higher price next to a target product in order to increase sales. But does this tactic actually work?
Last week I was talking with some business owners about the psychology behind sales, and the concept of “Anchoring” came up.
What is Anchoring?
Anchoring is the cognitive bias where we unconsciously rely on the first information we receive regarding a topic to influence our decisions. This can have a significant impact on how much we pay for products and services – even when we are aware of what is going on! Now I’m not saying to use this to charge extortionate prices for your products or services, but if your price is an objection point in your sales process, using this to help people move on to the purchase is a very useful tool.
A simple example of how an initial number influences our decision making processes was documented in an experiment conducted by Daniel Kahneman in 1974. Daniel found that a simple arbitrary number spun from a wheel with 1-100 on it would influence the estimate participants would give to the question “how many African countries are in the UN?”. Those who spun a high number had a significantly higher estimate than those who spun a low number. For more information, read Daniel Kahneman’s book “Thinking Fast and Slow”.
Another example I recently experienced was that of a bride planning for her wedding. In determining what budget she should have, she read that the average wedding price was in the order of $50k. She then went ahead planning for a wedding worth $30k thinking she was saving a lot of money. The question I have is “who identified this average price and was the sample set a comprehensive representation?” Her decisions were inadvertently influenced by this original figure.
How to improve sales
In the same way, if you have identified that leads are not converting due to the price of your service, you could influence your customers’ decision by simply creating a premium product or service that is significantly higher in price. Present this to people first and have them think ‘that is too expensive’. When you present your target product without the premium price tag of the first, your price will seem far more palatable and the decision to buy that product will be much easier to make.
This concept is simple, we see it all around us, and there have been numerous experiments conducted that prove this simple act will have a profound influence on how we make decisions.
Help Developing Systems
For more information and advice on how you could improve the performance of your business’s sales through the implementation of some simple systems, please contact me, ‘The Systems Guy’ on the contact details below for a cost and obligation free discussion. I look forward to meeting with you.