As a rule, faced with two similar options and one dissimilar option, behavioral economics says that most people will discard the dissimilar option and choose between the similar options based on our hardwired need to compare two like things. Furthermore, behavioral economics shows us that by contemplating a number, which in fact can be quite arbitrary, we can create an anchor point to set our price reference point as consumers. This is known as imprinting or arbitrary coherence in behavioral economics.
By way of example, consider the task of buying a new mattress. You see two pillow topper mattresses, one for $519 and the other for $540, and one memory foam mattress for $685. You have no idea what it will be like to sleep on any of the mattresses for a full night, so you must use other means to make your decision.
Enter the role of behavioral economics. The hardwired section of your brain that needs to compare options kicks in. You automatically discount the memory foam option, since you can’t readily compare it to a similar memory foam product. However, its higher price sets your anchor point. You need to compare makes you focus your attention on the two pillow toppers. With little difference in the feel of the mattress you struggle with your decision, but finally, choose the $540 mattresses. Your choice of the $540 mattress is highly predictable based on several behavioral economic principles.
First off, buyers tend to choose the median priced option if presented with several prices. The high priced memory foam mattress served simply as an anchor decoy to drive up the price window. Next, you need to compare similar items forced you to focus on the two pillow toppers. You ultimately chose the higher priced option, in spite of the lack of a definitive difference in feel, based on your hardwired propensity towards products priced in the middle of the pack.
Next time you are out for dinner at a nice restaurant look over a menu. See if you can find that high priced decoy item and recognize how it makes the rest of the overall higher priced menu items look pretty cheap by comparison.
Knowing that buyers can be anchored by a high priced decoy and have an irrational need to choose between two similar products or services, how can you design your companies’ offerings to take advantage of these behaviors and drive sales to specific products or services you want to move for higher margins?
