There is a sailor in all of us!

August 30, 2010

It is amazing how the human brain works. Some of the findings from behavioral economics on our decision making abilities are both shocking and fascinating, to say the least. It’s like looking at an engine from the inside and seeing how everything works. As a planner understanding human behavior is always a cherished and critical part of my work. While reading about some of these concepts I could not help but realize how obviously we err when it comes to making a decision.

I have talked about Behavioral Economics in earlier posts as well. Here I would like to talk about the concept of anchoring. Let’s see how it works. What if I were to tell you that you have to guess the price of a premium chocolate bar and before doing so I make you write down the last two digits of your ID card. What would happen? You are most likely going to select a number that is close to your ‘anchor’ (in this case the last two digits of your ID card).

Don’t believe this. A number of experiments with students from MIT have been done with a similar setup. When the results were analyzed it was noted that all respondents chose a number that was close to their respective anchor*. This is known as ‘arbitrary coherence’. If we reflect on our lives we will find many occasions when our own anchors have influenced our decisions. Remember the price of the first Widescreen TV that you may have bought and then think about all future upgrades. The price you paid for the first TV will be your anchor for all future purchases.

What are the implications of “anchoring” on us at a personal level? For one not all our anchors may be in our best interest. Owing to some arbitrary coherence we may have anchored on values that are much higher than what they should be (at least from a rational perspective). Knowing how our brain works and our tendency to anchor so irrationally we can perhaps make better decisions.

So what’s the implication of this concept in marketing and branding? One brilliant example that comes to mind was the launch of a soft drink in the United Kingdom (I just can’t remember the name). In a highly competitive category with a limited budget this brand used anchoring to influence consumer behavior with great effect. What was the big idea? Outside the stadium before the end of a big game the company dumped hundreds of empty cans in and around all the trash bins filling them up to create the effect that this drink was consumed by hundreds of people from the audience. When the match finished fans leaving the stadium noticed these cans wondering why they did not see this drink anywhere. This creatively introduced the brand to thousands at the stadium for a minimal cost and triggered them to inquire retailers about the mystery beverage facilitating the soft drinks eventual arrival to the trade. This is a great example of how an anchor was used to cue popularity when launching a new product. Have you come across other examples of anchoring used in marketing?

*You can read more about this in Dan Ariely’s Predictably Irrational.

2 Comments. Leave new

Ali Zafar Shah
August 30, 2010 11:44 am

I think it was some cherry cola, maybe Coca Cola Cherry?

the one that flopped?

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