Guest Post: The Price Anchoring Effect within Affiliate Marketing

chris.johnson Feb 25, 2013

Brands and agencies do it, as do bars and restaurants, but do your affiliates take full advantage of the price anchoring effect when creating a contextual environment that upsells products on their websites?

In human psychology, the price anchoring effect is one of the strongest instincts in a person’s general behaviour. It’s a heuristic.

As stated in the Psychology Dictionary, “a heuristic is a mental shortcut that allows people to solve problems and make judgments quickly and efficiently. These rule-of-thumb strategies shorten decision-making time and allow people to function without constantly stopping to think about the next course of action. While heuristics are helpful in many situations, they can also lead to biases.”

The price anchoring effect as an entity of a heuristic forms part of the decision process when making a purchase. It’s linked with neuroscience where the brain’s pain center is activated when one is considering buying a product. Should the prices increase; so does the ‘buying pain’ associated with them.

How to Market a Product Deemed Priceless?

However, in order for this to resonate among consumers, there has to be a value assigned to a product / set of products so that the price anchoring effect is triggered. How can you determine value if the product is priceless? An example being buying a unicorn – nobody has ever bought one before so what do I pay for it?

Let’s look at a few examples of how the price anchoring effect influences purchase decisions.

Price Anchoring is Fundamental to Today’s Marketing Techniques

This is a fundamental part of marketing, and has been for years. The misconception is that you are rationally analyzing all the products you see, before making a final decision on which product to purchase, or which product you perceive as the best value. The truth, actually, is that you are being given a perceived value by a marketer, in order to create a contextual environment that activates your ‘buying pain’.

Back to the phrase ‘fundamental’ – what is the MSRP (Manufacturer Suggested Retail Price) or RRP (Recommended Retail Price) actually for? I think you’ll find it’s to trigger your price anchoring heuristic!

A keynote session on Behavioural Economics in Affiliate Marketing by Ogilvy UK Chairman Rory Sutherland talks about how the price anchoring effect lasts about 40 minutes.

One additional example, which is of the ‘comparative effect’ he shared included how a luxury holiday website were high sellers of televisions via banner adverts that appeared on the holiday website. Why? “There’s one really simple explanation If you’re a behavioural economist. If you spend 40 minutes looking at $3,000 holidays online, a $900 television actually seems ok in comparison.” He made a similar comparison to selling Rolls Royce cars. “You shouldn’t try and sell them at car shows, you should instead sell them at a show where you can buy lear jets and 40ft yachts.”

Other Heuristic References?

There’s plenty out there. A great case study to read is one on a simple website change that massively impacted sales, increasing revenue to $300 million. There’s also a book by Dan Ariely called Predictably Irrational that delves into human behaviors.

 

About Chris Johnson

Chris Johnson is Content Director & Conference Programmer for A4u’s first stateside Performance Marketing Insights conference to be held in New York City, March 12-13.

In addition to managing conference programming for events across the UK, Europe and US, Chris is a regular content contributor to the Performance Marketing Insight Portal A4u.

He gathers talent and performance marketing leaders from around the world, and delivers a global perspective in each of the conferences offered by A4u.

Topics: Affiliate Marketing

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