How do you feel about jackalopes?
Last year, as I was driving across the open roads of Wyoming, I came across several structures paying tribute to this legendary animal.
Killer bunnies with pointed antlers are understandably fashionable around those parts.
I mean, who wouldn’t want a “warrior rabbit” that could gallop at speeds of up to 90 miles per hour?
The real question is:how much would you be willing to pay to own one of these glorious creatures?
An average pet rabbit can range in price from 5 to 25 dollars – but a jackalope is hardly what you would call “typical.” It’s difficult to put a price on this mythical animal because we don’t really have a point of reference. We have nothing to compare it to.
So how do we arrive at a dollar value for specific products?
This cognitive bias is usually determined by the first piece of information that we receive.
Our beliefs about a variety of things, including fair pricing, are heavily influenced by the anchoring effect. During the decision-making process, we tend to rely on cues to help us evaluate the type of deal we are getting.
The following is an example of the anchoring effect in action:
In a TED talk by Dan Ariely, a behavioral economist and the author of Predictably Irrational, a specific ad format is examined. This ad was promoted in The Economist and offered three choices:
1)An online subscription for the price of 59 dollars.
2)A Print subscription for 125 dollars
3)Or the option to buy both the online and print subscription for 125 dollars.
When Ariely saw this ad he decided to call up The Economist to inquire about the motivation behind this ad. When he was unable to get a straight answer he chose to conduct an experiment of his own.
He took a similar ad and gave it to 100 MIT students and asked them to choose one of the offers. The majority of them wanted the combo deal – Ariely took this to mean that they could read.
He then printed another version of the ad that removed the middle option that no one wanted. He gave it to another group of 100 students and the results were reversed. The popular, more expensive combo deal became the least popular and the single, less expensive offer became the most popular.
Even though no one had wanted the middle option when it was offered in the first ad, it had a significant impact on the final purchase decision. When the print subscription for $125 was placed above the combo online/print subscription for $125 it enhanced the appeal of the combo deal.
The way that these options were presented to their audience had a massive hand in the choices that were made.
The anchoring effect will obviously be influenced by the prior knowledge and experiences of the individual in question. However, in the right circumstances, this bias is used to direct consumers toward making a particular purchase.
One of the most common ways that this practice is executed is through product markdowns and discounts. When shoppers see that a pair of jeans is now being offered for $50 with an original price of $85 it enhances the perceived value of the item.
Pricing pages that display the highest price first, anchor viewers who are then likely to better appreciate the lower prices that follow.
Offering more value for the same price can also create this effect, which was demonstrated by Ariely’s example above.
Applying the anchoring effect when marketing products and services takes advantage of the human mind’s tendency to make decisions based on comparative value. Rather than considering the fundamental value of an item, we lean toward making these decisions according to the circumstances surrounding the product.
So after reading this blog post, how would you go about setting a sale price for a jackalope?