Anchoring Effect : Marketing Psychology (What Makes Black Pearls So Expensive?)

Anchoring effect refers to the fact that people are inclined to rely on the first piece of information they received in the past, such as price or reputation, for a certain product or a service, to judge the value of the product in the future.

That piece of information can be considered as an anchor, or a point of reference. Once that anchor is set, any subsequent decisions, negotiations and estimates might be based on it.

In marketing, the merchants can intentionally set up a anchor point for a certain product, and thus create an initial value for this product in people's mind. Let's take the example of black pearl. The black pearl, also called as Tahitian pearl, is formed from a certain type of black lip oyster.

When it was cultivated in the 60s, nobody knows what it is and thus it didn't have the success in jewellery industry. Black pearl began to get attention from people after a famous jeweller display it along with other expensive gemstones in his Fifth Avenue store. Then its value in people's mind are anchored with other expensive gemstones.

Sometimes, the anchoring bias in our mind can affect us to make a sound decision. Before making a decision for a purchase, we usually like to do some comparison in a bunch of similar products and find the best option.

For that option, if we are able to find a lower price for the same product, we will usually consider it as valuable and would like to buy the product as quick as possible on that bargain price.

For example, we are about to buy a certain mobile phone. Through the comparison of the prices from a few sellers, we found that 1000 dollars is the best price we can get for now. One day, if you find a price for 950 dollars for the same product, you may think it is a great bargain and want to buy it from the sellers as early as possible.

On the other day, if you find another seller who can offer you a price 850 dollars for this product, you may blame yourself for making the decision too quickly. In this case, the price via the research, 1000 dollars, has been an anchor and become an important factor for subsequent decision-making.

So, you may consider the first offer, 950 dollars, as a great bargain and ignore the other possibilities that other sellers may offer you an even lower price.

The anchoring effect has been widely used in different marketing strategies to boost sales. For example, in E-commerce website, it is a common practice to cross out the original price and put a reduced price beside it.

The original price is working as an anchor which can tell customers how much it cost in the past. A discount from the original price make it like a good deal, and thus there is a higher possibility that customer will buy this product.

The anchoring effect is more apparent in the price of luxury goods. Is a Louis Vuitton purse able to do more things than a common purse from the supermarket? The answer is no. However, people have an anchor for high price for the brand of Louis Vuitton, and thus the price of an expensive Louis Vuitton purse is usually considered as reasonable.

Attribution: