The theory of relativity in marketing - How to use it to your advantage

Relativity is everywhere. Even in the world of marketing.

Have you noticed how car salesmen quote a much higher asking price?

And then lower the asking price a bit because you’re an “old customer”?

And you end up taking it? Because you thought you got a good deal?

I got news for you. It’s not.

It’s a classic sales tactic used by salesmen to get you to pay more than the actual market price.

And in order to execute it, they like to use something known as an anchor.

In essence, an anchor is a piece of information you receive. Could be anything.

A $20 jar. A $27,456 boat. Whatever.

Without you even realising it, this number is etched into your subconscious and your bias kicks in.

What you will do is you will judge any number or piece of information that comes next relative to the anchor.

All of this happens in a matter of milliseconds.

Nobel prize winning economist Daniel Kahneman called it the anchoring effect.

It’s a pretty powerful bias. Wouldn’t you say?

You can use it to alter the perceived value of any product or service.

People will adjust towards the anchor.

For instance, imagine you are negotiating a sale of your product with a prospect.

You could shift the tide in your favor by simply setting a high first anchor value.

That way, this anchor value becomes the reference point.

The higher the number, the better.

In fact, you can do one better and be super specific in your valuation.

Rather than saying $400,000, say $423,543 and see the difference.

What this will do is your prospect will round off the $400,000 to 250,000 or 350,000 making the difference bigger.

If you are specific, here’s what will happen.

The other person will round down to $423,422 or $412,453 which is much closer to the original specific number.

The lesson?

Specific information has a lower adjustment difference relative to the anchor.

And the best thing?

You can use it anywhere you want.

In your negotiations, salary discussions, pricing page, discount offers. The list goes on.

I’ll leave you with something even more remarkable.

The anchoring bias will prevail despite our knowledge of it.

So even though I’m informing you of this bias, and I’m writing about it, you and I are just as likely to fall into this trap.

Pretty comical if you ask me.

But that’s what it is.

I hope you enjoyed today’s letter.

Take care and I’ll see you tomorrow.

Until then :)