Anchoring Bias

Say you are in Canada for a meeting, and you stop for poutine. It costs you $7.50 and it's everything you imagine poutine would be. That is now your anchor. When you go back next year and it's $15, you would be like HOLD THE GRAVY!!

Your brain is anchored to the initial price, and that is how much value to see in it. You might want the $15 poutine, but if there are better options that are not (in your mind) doubled in price, you might forgo this option and eat whatever else those Canuks eat.

Vice versa, if you have some fancy schmancy $20 poutine on your first trip, then you'd be pleasantly surprised if it was only $15.

How we value a thing is completely subjective, and it changes over time, but that anchor will still hold fast.

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This goes beyond pricing too. Researchers have found that in people judge their relationships based on how it was in the beginning. If it was fireworks from day one, you will hold on to that feeling even if the sparks fade later.

There can be a bit more dire consequences in relationships than with poutine. Researchers also found that people tend to stay in toxic relationships much longer if the beginning was good... this goes for partners, friendships, and even in your workplace.

Anchoring isn't good or bad, it's just that the initial "price tag" (value) we stamp on a thing is going to stay in mind for a long time... and it will influence decisions down the road.

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The reason pricing is so hard is because it is both subjective and objective at the same time. Most items are priced based on cost of goods, materials, time, or skills involved, but some items are jacked up astronomically because of perceived value (luxury to show status), while shit on Temu is drastically underpriced in order to attract new customers (to steal and sell your data).

It gets pretty dicey trying to price something in the right way. It’s a balancing act between a lot of intertwining factors.

One factor that adds to our collective headache is the anchoring bias… which is entirely in the head of the customer and can vary from person to person.

In our little cartoon above, we can see that the price of beer is in question. Most pubs charge around $7 for a pint. So if you have 4, the bill would be $28. Not crazy, and if that were your bill, you wouldn’t complain. You’d actually add around 20% for a tip. 

But that same 4-pack is probably $12.99 at the supermarket. 

The point is that in the mind of the customer, there is an anchor associated with the price that affects their perception of value… or of what is a “good” or “fair” price.

Same as the difference between a hot dog at Costco vs a hot dog at Wrigley Field. You know that frank is gonna be cheap at Costco because its always been cheap. You also know that a hot dog is going to be $15 at the ball game.