Price Anchoring
As the saying goes, the best way to sell a $2,000 watch is to put it right next to a $10,000 watch. But why? The culprit is a common cognitive bias called anchoring. Anchoring refers to the tendency to heavily rely on the first piece of information offered when making decisions.
In a study evaluating the effects of price anchors, researchers asked subjects to estimate the worth of a sample home. They provided pamphlets that included information about the surrounding houses; some had normal prices and others had artificially inflated prices. Both a group of undergraduate students and a selection of real-estate experts were swayed by the pamphlets with the higher prices. Anchoring even influenced the professionals!
Placing premium products and services near standard options may help create a clearer sense of value for potential customers, who will view the less expensive options as a bargain in comparison.