Why does everyone say you should never pay sticker price? Why does clothing in some stores always seem marked down? It has to do with the anchoring effect, and it's explained in detail by a former leather-jacket salesman.
Photo by bradleygee.
Actually, David McRaney runs the excellent You Are Not So Smart blog, but in earlier days, he sold leather coats that, while seemingly priced at around $US1000, he'd offer "on sale" for $US400 and quickly move out the door. That's the anchoring effect — someone suggests a number, then gives you another number to consider and you can't help but base your opinion of the second number on the first. McRaney explains how anchoring works in leather jackets, population estimates, African political analysis and the biggest mystery of all to some people, car sales:
When shopping for a car, you know it isn't a completely honest transaction. The real price is probably lower than what they are asking for on the window sticker, yet the anchor price is still going to affect your decision.
As you look over the vehicle, you don't consider how many factories the company owns, how many employees they pay. You don't pore over engineering diagrams or profit reports. You don't consider the price of iron or the expensive investments the manufacturer is making into safety testing.
... Even if you've done some research online, you don't know for sure exactly what the car is worth, or what the dealer paid for it. The focus instead is the manufacturer's suggested retail price, and no matter how unrealistic it is, you can't help but be tethered to it. When you haggle over the price, you are pulling away from the anchor, and both you and the dealer know this.
McRaney's post is definitely worth the longer read, if only to give yourself more mental ammunition against that new gadget you'd be "stupid not to buy".
Anchoring Effect [You Are Not So Smart]