Question Page

Can you explain what anchoring is and how product marketers can use it in their work?

Alex Chahin
Titan VP of Marketing | Formerly Lyft, Hims & Hers, American ExpressMay 19

Picture this: You’re working on the merchandising team at Williams-Sonoma, a home goods store that sells things like upscale kitchen appliances, utensils, and cooking supplies. Your boss has just asked you to figure out how to sell more breadmakers, which are appliances that mix the ingredients, form the dough, and bake it all in one. Many people enjoy fresh-baked bread, but not many people have the time or patience to make it, so the convenience of it makes it interesting for the brand to push in store.

Okay, you might first think about running a promotion. Adding a discount would surely drive more breadmaker sales. But it also could be a pretty expensive way to get those sales. And the impact probably doesn’t last forever. Revenue probably reverts right back down to where it was once you stop running the promotion.

You might consider setting up a demonstration stand in the store so people can see this unfamiliar appliance in action, hear about it from in-store experts, and — most importantly — smell and taste that fresh-baked bread for themselves. Yum.

This tactic could be pretty effective…but it’s probably a logistical headache. You’d have to figure out if you can free up real estate in the store for this new station, and is it worth the revenue you might lose from whatever was in that space before? It would take some work to figure out how staffing the station would work, how often bread needs to be made, and how to clean everything up at the end of the day.

Here’s what Williams-Sonoma actually did instead. They put a $429 breadmaker on the shelf. I know, that’s a lot of dough just to make some dough! Did they sell very many of the $429 appliances? Not at all. But breadmakers started flying off the shelf nonetheless because that $429 one was next to a $279 model. When they added the expensive model next to the $279, sales of the cheaper one doubled.

In consumer psychology, this is what we call anchoring. Anchoring is the tendency to use the first piece of information we process to inform our decision. That piece of information acts as a reference point in the equation. Generally speaking, this means that when we encounter a higher number first, the next numbers we see feel smaller than they would if we saw them in isolation. Conversely, when we encounter lower numbers first, the next numbers we see feel even higher than they otherwise would have felt.

In this breadmaker example, if we walk into the store and see just the $279 price tag on an appliance we know virtually nothing about, we feel like we have no idea how to evaluate whether or not that’s a good deal. Is that price just right for the value? Are they overcharging me? Is this a rare find? We get stuck on this and it impacts our chance of converting.

But when that exact same breadmaker is placed next to the expensive one, now we no longer feel unsure. That $429 price acts as an anchor that puts the other one in perspective, and $279 feels like a fairer deal.

You’ve probably seen this tactic at play in your own life. A lot of us shop on Amazon, and you’ve probably seen products often have a strikethrough price that’s more expensive above it. That acts as an anchor to make the actual price more appealing. The placement of that number is intentional. It’s not below or to the right where you’d see it second. It’s on top, where you would see it before and get anchored. Now, of course, this strikethrough price has to be truthful, but it doesn’t always have to be a promotion. It could just be something like the manufacturer’s suggested retail price, or MSRP, to provide that reference point.

As a marketer, keep in mind how you can use surrounding numbers to make what you really want customers to buy more appealing.

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