The anchoring effect is a cognitive bias that occurs when people rely too heavily on the first piece of information they receive when making a decision. This can be used by small businesses to position themselves at the premium end of the spectrum by anchoring their prices higher than their competitors.

How does it work?

When people are presented with a high price point, it anchors their expectations and makes them more likely to be willing to pay a higher price for the product or service. For example, if you are shopping for a new car and the first car you see is priced at 500,000 INR, you are more likely to be willing to pay 400,000 INR for a similar car, even if the market price is actually 300,000 INR.

How can small businesses use it?

Small businesses can use the anchoring effect in a number of ways to position themselves at the premium end of the spectrum. Here are a few examples:

• Anchor your prices higher than your competitors. This is the most obvious way to use the anchoring effect. If you price your products or services higher than your competitors, people will be more likely to perceive them as being premium and high-quality. For example, if your competitors are selling coffee for 100 INR per cup, you could anchor your prices at 150 INR per cup.
• Use high-quality packaging. The way that your products are packaged can send a message about their value. Use high-quality materials and design to make your products look premium. For example, you could use a wooden box or a leather case to package your products.
• Place your products in high-traffic areas. Where you place your products can also influence how people perceive them. Place your products in areas where they will be seen by a lot of people, such as in high-end stores or on premium websites. For example, you could sell your products in a luxury mall or on a high-end e-commerce website.
• Use premium language. The language that you use to describe your products can also influence how people perceive them. Use words and phrases that suggest quality, exclusivity, and luxury. For example, you could describe your products as “handcrafted” or “made with the finest ingredients.”
• Create a premium experience. The overall experience that you provide to your customers can also influence how they perceive your business. Make sure that your customer service is top-notch and that your products are delivered in a timely and efficient manner. For example, you could offer free shipping or a money-back guarantee.

Action points for small business owners:

• Do your research. Before you start using the anchoring effect, it’s important to do your research and understand how it works. This will help you to use it effectively and avoid making any mistakes.
• Be consistent. Once you start using the anchoring effect, it’s important to be consistent. This means using it across all of your marketing materials and customer interactions.
• Be patient. It takes time for the anchoring effect to work. Don’t expect to see results overnight.

By following these tips, small businesses can use the anchoring effect to position themselves at the premium end of the spectrum and command higher prices for their products and services.

Saurabh Maheshwari

2023