Heuristics: Anchoring Pt.2

In the previous article, we covered the basics of the anchoring heuristic, as well as an experiment I carried out to try and prove its existence. Now, we will look at corporate uses of anchoring – how companies can use this heuristic to increase profits and sales.

Although we have only explored the use of anchoring in experiments so far, it can also be applied in real-world situations, often with unethical intentions. One such case study of anchors being used immorally was in a supermarket in Sioux City, Iowa[1]. Shoppers at the supermarket would find a sales promotion for Campbell’s soup, providing a discount of around 10% from the regular cost. On certain days, the sign on the shelf displayed ‘Limit of 12 per person’, whereas, on other days, it simply stated ‘No limit per person’. Surprisingly, the evidence showed that on occasions where the limit was in place, shoppers purchased an average of 7 cans – twice as many as was purchased when the limit was removed. Anchoring is not the only reason for this, however, as rationing, which we will explore later in the discussion, also comes into play – the need for a limit suggests to consumers that the cans of Campbell’s soup are selling out rapidly or are low in stock, and so they feel an urgency to buy extra to store as spares in case they do go out of stock. However, this purchase limit of 12, as we have already discussed, would act as an anchor even if it were random and influence the shoppers to buy more cans. This can be considered abuse of the power of anchors as it is causing consumers to purchase additional units of the good that they may not need and therefore may cause them to waste their money. Although, in this case, the stakes were very low, it provides an obvious example of how greedy firms can employ anchoring to cause consumers to unconsciously spend more of their money which could have been spent elsewhere.

This image could also be portrayed with iPhones as well. If an iPhone were initially listed at £1000 but then shortly afterwards encountered a massive price reduction to £800, they would see an enormous surge in sales. This is because although £800 is still very expensive for a phone, in comparison to the anchor of £1000, it seems to be a massive bargain, and so consumers are more likely to purchase the iPhone. This would seemingly cause losses in profit for Apple, as although they have sold more iPhones, each one is being sold for 20% less than the original price of £1000. However, this perspective changes drastically when you ask a simple question – what if the intrinsic or inherent value of the iPhone was £800, to begin with? Overall, this would mean that Apple did not, in fact, lose any potential profits, but due to the massive increase in sales, it has instead raised the profit margin by a substantial factor. Many people may have bought the iPhone without needing it simply because they believed they were getting a discounted price when in reality, the consumers were being manipulated into spending the same amount of money per iPhone that they would usually have, except, in this case, they bought much larger quantities. Ultimately, this would reduce the marginal utility gained by consumers for the sake of greater profits for firms and is another method of outlining how large and profit-hungry corporations can use human heuristics and biases to maximise their own profits at the cost of consumers, even if they do not know they are being fooled. This is, in fact, a strategy often employed by Apple, tracing all the way back to its founder Steve Jobs. Before the product is announced in the Apple Keynote, there are often predictions of the price for the good, sometimes made by Apple themselves. Then, in the keynote, they would show this predicted price and then display the actual, much cheaper price.[2] Although this was the original price the entire time, people still felt as if they were getting a good bargain, and demand skyrocketed. This is part of the reason why Apple has managed to price its goods so highly and still outperform its competitors.

[1] ‘Thinking, Fast and Slow’, Pages 126 – Daniel Kahneman, 2011

[2] https://www.cultofmac.com/631180/apple-prices-anchoring-effect/


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