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Jul 18

How to use ‘anchoring’ in procurement

Understanding how 'anchoring' works

How you can use the anchoring effect in purchasing

We’re strange animals. But while we don’t always think logically, we can often be quite predictable.

One of these little quirks we have is called “anchoring” and it’s one of the most reliable and easily replicated phenomenons in psychology. Simply put, people are generally terrible with numbers. For example: what’s better – A 50% increase in quantity, or a 33% discount in price? Not only are they the same, but using the first tactic is used all the time on the high street as it demonstrably increases sales.

And this means when we are presented with a number, we tend to ‘anchor’ any following calculations around this first number. Simply mentioning a higher number sways our future estimations, and vice versa. It’s even been shown with telephone numbers. Ask someone for the last two digits of their telephone number, then ask them how much something is worth… the higher the digits they gave you, the higher their estimation will be!

Obviously, tricks like this are used to get us to spend more (though it can also be used to get people to donate more …) but an aspect of it can also be used in the early stages of negotiating.

This works best with deals that have multiple components. Let’s say you want 500 USB sticks, preloaded with your presentations, and branded, for a conference.

You start by saying you want 100, and ask about the costs of branding and preloading the data. You’ve anchored a low number in the sales persons head. Then ask about the costs of the data and branding.

Ask what they can do about the costs for each item, the USB sticks, the branding and the data upload for 200 sticks.

You should get a reduction. Quickly work out which unit cost is higher between the branding and data upload, and ask what volumes are required to negate the costs completely.

Let them tell you. Then wait. Pretend you’re scribbling something down, ask them to hold, just find some way of delaying.

In their mind a quick 100 unit sale has jumped up to at least 200, and they are now thinking about a potentially bigger sale. Given that they probably work on commission, probably do bigger deals regularly, and the branding /preloading cost them very little, having them anchored with the original low number encourages them to see any increase as a significant advantage to them.

Come back to them, and ask what they can do for if you order 500. Delay again.

If it looks good, take it.

Now, I’ll admit that these reductions might be a standard offer for increased volumes. But I’d also wager that very few sales people in the world would offer them if you didn’t ask! And by using this tactic you incentivise the seller to offer you every discount they have going in order to get those higher numbers!

Good luck!

 

Image courtesy of Freedigitalphotos.net