I recently saw a burger joint while shopping. On its menu, they very boldly stated “ Limit 5 burgers per customer.”
My first thought: That is absurd. Why are they decreasing their own sales. That too in festive season ( Huge Indian festival : Diwali).
My second thought: Which five am I going to get?
I didn’t realize how brilliant the restaurant owners were until I learned about anchoring. You see, normally I would just pick one or maybe when I feel exceptionally generous for myself,two burgers, but when I read “LIMIT FIVE BURGERS PER CUSTOMER. ” on the menu, my mind was anchored at a much higher number than usual.
Most people won’t order five burgers , but that anchor is enough to move the average up from one burger to two to three burgers. You walk in planning to get a normal meal. You walk out the joint spending five times more than required.
Anchoring is part of behavioral economics.
This effect has been replicated in a wide range of research studies and commercial environments. For example, business owners have found that if you say “Limit 12 per customer” then people will buy twice as much product compared to saying, “No limit.”
That’s the reason shopkeepers and online commerce sites use the “LIMITED SUPPLY” tool. Not because they have limited amount of product but because they exploit the mental errors that sway us from making good decisions.
The fear of missing out.
It’s natural to want to avoid losses. In fact, research shows that losses are twice as impactful on people, psychologically, as gains.
Perhaps the most prevalent place you hear about anchoring is with pricing. If the price tag on a new watch is $500, you might consider it too high for your budget. However, if you walk into a store and first see a watch for $5,000 at the front of the display, suddenly the $500 watch around the corner seems pretty reasonable. Many of the premium products that businesses sell are never expected to sell many units themselves, but they serve the very important role of anchoring your mindset and making mid-range products appear much cheaper than they would on their own.
So next time, you are going to make a big purchase, and considering that you want to save money, don’t even look at the high end items. So either of this is going to happen,
Option 1: Customers saw the fully loaded version of the car. Then when they said the price was too expensive, the dealer took away options in an effort to reduce the price.
Option 2: Customers saw the base price of the car. Then the dealer asked them to select which options they wanted, increasing the price incrementally.
Result: People spent more money, and were less satisfied, in the first condition. The psychological theory is that people experience FOMO and are reluctant to give up what they felt they already had.