One of the Sentient Applied Choice Architecture principles is anchoring and adjustment –defined as the influence of an arbitrary number on subsequent judgments of quantity or value (Chapman & Johnson, 2002). In this principle, the value (or “anchor”) serves as a reference point for consumers, and they form their subsequent judgments on value based on this anchor.
For example, research from Ariely, Loewenstein, and Prelec (2003) showed that participants who were asked to recall the last two digits of their social security number whose digits were high (e.g., 76) were willing to pay more for a bottle of wine than participants who recalled the last two digits of their social security number whose digits were low (e.g., 12).
Examples of the use of anchoring and adjustment abound in the shopper aisle (i.e., the $800 TV in the aisle may seem overpriced or a good deal depending on whether shoppers saw the similar TV at the end of the aisle was priced at $600 or $1200). However, anchoring and adjustment occurs at other moments in our lives outside of the aisle.
In Dr. Reid’s recent blog post, “Zillion Dollar Lobster Frittata and the Power of Price Point Anchoring,” Norma’s, a restaurant in NYC, uses an absurdly priced menu item (the Lobster Frittata with a 10 oz. serving of caviar for $1,000) as an anchor point on their menu. While this price seems ridiculous to most patrons, it does serve the effect as a subconscious point of reference for evaluating prices of other menu items at Norma’s. Now, the $32 plate of Foie Gras French Toast seems reasonably priced in comparison.
In last Monday’s (September 12th) episode of Hell’s Kitchen, there was an interesting example of the use of anchors (or reference points) to affect a subsequent value judgment. The chef contestants were asked to cook a salmon dish for three judges; three general managers of some of the top restaurants in the country, Mr. Chow, Provenance and Nobu.
These judges were asked to taste each dish and determine the price they would pay in a restaurant for the dish. This is where the anchoring and adjustment principle comes into play. The first judge proclaimed the price he would pay for the dish and the second and third judges then said their price. Look at the price points that were given for three of the dishes:
- Dish #1 – $30, $28, $28
- Dish #2 -$26, $25, $25
- Dish #3 – $29, $29, $27
In each of these cases, the second and third judges’ prices were within $2 or less of the first judge’s price.
Imagine this scenario; the second judge is thinking to himself, “I love this dish, I would pay a lot of money for it.” After hearing the first judge’s price of $25, the second judge would use this price as a reference point for his judgment – coming in maybe just above $25 (since he loved the dish so much).
However, imagine the scenario if the first judge had used $40 as his price point, the second judge would most likely give a higher price point to the dish than he would have in the first scenario, even though it’s the same dish he loved. Just think about how much power the first judge has over the contestants’ score!
If Hell’s Kitchen wanted to include sound experimental design in their judging procedure, they could include two separate groups of judges. In the first group of judges, the first judge would always anchor his or her prices high, say, $45 or $50. Then in the second group of judges, judging the same dishes, the first judge would always use lower price points, perhaps, $15 or $20.
Hell’s Kitchen could then see how the subsequent pricing by the judges was influenced by these higher or lower anchors – for the exact same dish – and then come to a more reasonable conclusion on the expected price for the dish.
This example of anchoring and adjustment on Hell’s Kitchen translates easily into consumer behavior and shows how important it is for brand managers to understand the value reference points, for both conscious and subconscious, consumers are using when determining the value of the product or service.
And if this is understood, how the principle of anchoring and adjustment works, you can anchor brands according to your own strategic reference points of value to influence consumer choice on your terms rather than allowing competitors to influence consumers’ reference points across your brand line.
To learn more about Sentient Applied Choice Architecture and understand how companies can use behavioral science principles to influence consumer choice go to our website.