A regular review of interesting cultural shifts & marketing developments as viewed through the collective lens of the Stancombe Research + Planning Team

Monday, December 20, 2010

Is 'Anchoring' to blame for low retail spend?


Anchoring is a behavioural economic principle that explains how we can be influenced by seemingly useless information. Retailers have been using anchoring since the dawn of time, e.g. was $179 now only $99 (note: $179 is the anchor).

A study conducted by Dan Ariely (Behavioural Economist Guru) with college students found anchoring also works on a subliminal level. Students were asked to write down the last 2 digits of their social security number before bidding on items in a silent auction. Those with higher social security numbers placed consistently higher bids than those students with lower social security numbers.

With online purchases only making up a fraction of Australian retail spend, it's hard to believe the story retailers are telling the media about the unfair trading conditions in regards to GST not applying to online stores.

Taking anchoring effects into account, it would be a fair to say "...the real damage the internet is doing to some local retailers: it’s not the spend, it’s the knowledge it gives them on pricing."
Source (www.smh.com.au / Retailers stung by new thrift)

It seems more likely that the average consumer is now simply more aware of how much things costs and will walk out of your store if your price doesn't match expectations, rather than an explosion of consumers shopping online to avoid paying GST.

With consumers now more price aware and frugal, retailers will need to start getting more innovative to keep their margins or simply lower their prices

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