4 February 2010
Successful Intentions Newsletter
Hi ,
Do you know a bargain when you see one?
You might think so, but you'd be wrong!
In a recent field experiment students and real estate agents were asked to estimate the value of certain properties for sale in Tucson, Arizona. They were given a packet of information on each of the houses including recent sale prices in the area, the listing price of the house to be visited, and a detailed property description. The participants were then taken to each house and were free to look around. Then they were asked to determine each property's selling price.
As it turned out the estimates of both groups were pretty close to each other. But despite all the information they had, both groups tended to peg their guesses to just one figure: the listing price they were given. Why?
Because we tend to process information in the order in which it is presented and the first number we are presented with becomes an anchor.
For example, when you see baked beans advertised at your supermarket as "4 for $2" instead of "1 for 50 cents" you're more likely to pick up 4 cans. The number 4 acts as an anchor. One field study found that this type of pricing resulted in a 32% increase in sales. And when you see "Limit 12 per customer" the number 12 acts as an anchor. The higher the anchor, the higher the sales.
The key to this is the first number. Being listed first on the voting sheet can add up to 3% to the results obtained by major party campaigners. And simply making the first offer in a negotiation delivers a significant advantage. That's because the first offer serves as an anchor for future discussions. Researchers have found that whichever party - buyer or seller - made the first offer in a negotiation got the better deal.
So how do you overcome these psychological manipulations? Here are some tips:
- Try reframing. For example, if you're in the market for a new house try reframing the negotiations not in terms of the price for the whole house but in terms of the price per square meter (say, "I'll offer you $150 a square meter").
- Be first. This may not always be possible, but try to be the first to make an offer. That way your offer becomes the number around which future negotiations revolve.
- Be wary of "sales" items. This is often an anchoring device designed to get you to focus on the price the seller wants you to focus on. Calculate the unit price, and track prices for similar items in other locations. You might find the prices of other items not on sale will tend to cancel out the savings from the "sale" item.
And check out on my "Wisdom Circle" blog for musings, research, and applications of practical wisdom!
Keep your intentions clear,
Peter Webb
If you like this newsletter, please forward it to a friend (subscribe here).
Home |
Blog |
Manage subscription (Unsubscribe, change e-mail, text only)
