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Chapter 10: Problem 14

Shawn Van Dyke, a construction industry consultant, wrote on a home building site: Brains do some pretty funny things when making a buying decision. If you understand your customers' brain activities, then you can use this knowledge to help increase your sales and deliver on value. \(\ldots\) There's an old question in advertising. "How do you sell a \(\$ 2,000\) watch? Put it next to a \(\$ 10,000\) watch." This is an example of price anchoring. a. What is price anchoring? b. Explain why Van Dyke cited the "old advertising question" as an example of price anchoring.

Short Answer

Expert verified
Price anchoring is a tactic where the first price a consumer sees influences their perception of subsequent prices. Van Dyke's example talks about how, by placing a \$2,000 watch next to a \$10,000 one, the first serves as an 'anchor' that makes the second one seem cheaper and thus more attractive to prospective buyers.

Step by step solution

01

Definition of Price Anchoring

Price anchoring is a psychological phenomenon in sales where the first price a consumer sees sets an expectation of price in their mind, also known as the 'anchor'. This anchor price then influences their perception of subsequent prices. When a consumer sees a high-priced item first, and then encounters a similar but cheaper item, the second item appears more attractive due to the initial anchor price.
02

Explanation of the Example

Van Dyke used the question 'How do you sell a \$2,000 watch? Put it next to a \$10,000 watch.' as an example of price anchoring because the high price of the \$10,000 watch serves as an anchor that makes the \$2,000 watch seem much more affordable in comparison. A customer who might balk at spending \$2,000 on a watch might reconsider when they see the price in relation to the \$10,000 watch. So, even though \$2,000 is itself a high price for a watch, appearing less expensive relative to a far more expensive option makes the buyer perceive it as better value.

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Most popular questions from this chapter

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