Rob Dial (5:01)

And even though the past six months.

Capital One Representative (5:03)

This person has just been showing themselves to be a good person and nothing wrong with them, your friend still anchors to the first impression. And they talk about why they don't like them. It's because of the anchoring effect. So the question that then pops into my head whenever I'm thinking about this type of stuff is like, why does our brain anchor to that first bit of information? And so it's thought to occur because our brains are wired to seek out patterns. And that's why. Not really why. That's how we make sense of the world. And so we encounter new information, we instinctively compare it to information that we already have, and then we determine its meaning and its importance from there. And so in the case of the anchoring effect, the piece of information that we receive acts as the first piece of information, acts as a reference point or anchor for all upcoming judgments or decisions. Therefore, the anchoring effect can be. The anchor itself can be the most important piece of information that someone receives when communicating effectively. And so one of the key impacts of the anchoring effect is that it can lead to systematic biases in your decision making. And this is why, for instance, clothing companies will raise the prices on their tags to then put a discounted price on that tag because it makes it seem like the clothing is worth more. For instance, I bought a TV for whatever it was, Black Friday, and the TV, it said it was normally $3,000 marked down to $1,500. And I was like, there's no way that this thing is half off. And so I bought it because I wanted the TV in the first place, and it was cheaper than anywhere else. So I bought the TV for $1,500, and I checked back a couple weeks later. Do you think it was $3,000 a couple weeks later? No, of course it wasn't.

Rob Dial (6:57)

It was 2,400.

Capital One Representative (6:59)

So I still got a good deal, but it wasn't as good of a deal as they made it seem because they wanted to anchor the 3,000 of like, oh, my God, that's an amazing deal because I'm getting it for half off. Yes, I must buy before this deal disappears. You know, another example would be like, if you walk into a store and it's a thousand dollar jacket and it's crossed off, the thousand is crossed off and it says 600 in your mind.

Rob Dial (7:21)

You'Re getting $400 off.

Capital One Representative (7:23)

That's 40% off. Oh, my God, that's an amazing deal. They were planning on selling for $600 anyways. You realize that, right? Like, when I go over to Italy, one of my favorite things is that there's stores that we saw, you know, back in 2017 when my wife and I lived over there, that said 40% off, limited time. And then we went back in 2018 and the same signs were there. We went back in 2019 and the same signs were there. And then we went back in 2021, same signs, 22, 23, same signs. It's always 40% off. But they want these passerbys who are just these tourists that are going by to go, oh, my God, there's a really good deal. It's happening right now because those people are probably never going to walk by that street again. So it's like, we've got to go in there because this is a really good deal. And then everything in the entire store is, quote, unquote, 40% off. That is how the anchoring effect is used to make it seem like, hey, really good deal. Another example is when you're looking for, looking at the price of a product, and it says, like, everything's 20% off. So you walk into a store and it says everything's 20% off. And there's a lot of stores like that. And then you walk into that store after it says outside on the front of it, everything 20% off. And you see something that's 50% off. Once again, you're like, oh, my God, I'm getting an amazing deal. This is twice as good as everything else in here. But if you looked at the tags of all the products, you'd see that a lot of them are 50% off. And so you're expecting 25% off. The anchor. You walk in, you found 50% off. Oh, my God, I'm getting an even better deal than I was expecting. I better buy this Black Friday. When Black Friday does come around, there are studies that was done that, that found that, that companies tend to raise the price 23% on average before Black Friday. How shady is that?

Rob Dial (9:15)

Now, I'm not saying you need to do this.

Capital One Representative (9:16)

I'm going to teach you how to use the anchoring effect in your own life. But that's pretty shady if you think about it. Companies will raise their prices 23% the month before Black Friday. So you're not really buying a discounted price. A lot of times you're buying the price they originally wanted it to sell for. But Retailers can get away with it as long as it looks like the products were up for sale for a quote, unquote, full price for a reasonably substantial period of time versus being like, oh, we raised it 23% for a day. It's like, no, they raised 23% for an entire month. And then they're like, well, now we can say that it's 20% off or whatever it might be. There was a presentation that was in 2012 where the CEO of JC Penney gave a presentation about the company's sales at the time, and he showed that customers were receiving on average a discount of 60%, which was up from 38% a decade earlier. The twist is that they weren't saving anymore. The average price that was paid by the customer stayed about the same over that period of time with inflation. So they thought they were getting 60% off because that's what. Oh my gosh, the CEO is saying that they're giving 60% off the majority of things. It used to be 38%, but then when you look at it, it's like people are playing pretty much the same that they always have been.

Rob Dial (10:33)

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Capital One Representative (11:59)

What does the future hold for business?

Rob Dial (12:01)

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Capital One Representative (12:51)

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Rob Dial (12:52)

Netsuite.Com dial that is netsuite.com dial and.

Capital One Representative (12:58)

Now back to the show.

Rob Dial (12:59)

So let's say that you've been researching.

Capital One Representative (13:01)

Cars and you want to persuade your spouse into the car that you like. How could you use the anchoring effect? Well, you show all of the cars that you want to your spouse that are way more expensive than the one that you really, really want. So say there's like five cars that you like, but there's one that you really want. Okay, we'll show the more expensive ones first so they can see, oh my gosh, that's a nice one. But it's $60,000. I don't know if we can buy that. Now. That one's a nice one too, but it's $55,000. I don't know if we could buy that. That one's a nice one too, but it's $45,000. I don't know if we can buy that. And then you see the car that you really want, which you've been researching, and it's 37,000. Your spouse is going to be like, oh my God, that's an amazing deal. We should go for that one. Right? That's how you use the anchoring effect. The anchoring effect is also really, really good in negotiations. And so what you want is when you're in Negotiation, you always want your initial offer to be significantly higher than. Than what it is that you want.

Rob Dial (13:58)

So if you're going in and you're.

Capital One Representative (13:59)

Going to be asking for a raise, what you want to do is you want to just say all of the reasons why you think you deserve a raise, all of that information, and then what you want to do is ask for way more. So let's say you want a $5,000 raise. Well, then go in and ask for a $20,000 raise, and then maybe your employer will come in at $10,000 raise. And so the anchoring effect is really big on negotiations as well. And so anytime that you're thinking to yourself, like, okay, how can I make somebody see this thing that I want as not a whole lot, not as much, not as much as everything else. Well, what I could do is I could try to find a way that there's other products that are closer to this, and I could show them how expensive they are, and then I could show them mine. If I want my spouse to like the car that I like, well, I can show the most expensive ones, and I can show the one that I really like as well, the one that I hope that he says yes to. And so research has shown that negotiators who make the first offer often have the advantage because of the anchoring effect. This first offer is the anchor that happens. And so if you're in negotiation some sort of way, you don't want someone else to make the offer first. You want to make the offer first so that you can set the anchor in that situation, because that anchor influences each of the parties subsequent behavior after that. And so if you're in any negotiations for anything, you want to be the first to make an offer, and you want the offer to be way more. So if you're trying to sell something, ask for way more than you actually want for it. Because then when you start to negotiate, you'll fall and fall and fall, and you'll eventually end up where you want to be. So, you know, if you want to raise, ask for 10% more than you think you should have gotten. See what they say from there, and then what happens from there is usually you'll start to go a little bit lower, you'll negotiate, and sometimes you'll end up exactly where it is that you want to be. So as a consumer, this is really important to understand so that you can know, okay, when I'm seeing a really good sale, like, if you guys ever. I get stuff in the mail all the time from express. Express is 50% off, like, almost all of the time. It's almost all of the time because people see and don't know Express very well. They're like, oh, my God, it's 50% off. I might as well buy as many things as I can. And then when it's not 50% off, it's like, buy one, get one free, which is basically 50% off. And so as a consumer, it's really important for us to know so that we go in and we don't get our emotions hijacked whenever we're looking at different products and go, oh, my God, I'm getting a really good deal. You can actually know. You're probably not getting a really good deal. You can know around Black Friday, there's a pretty good chance that, you know, prices were raised the month before, up to 23% on average. So it's really good to know as a consumer how the anchoring effect works so that we can be in charge of our emotions and make the most important decisions. It's really important for us to know in business as well, where if we're in business, then we want to figure out how to show that our product is worth way more than we're selling our product for. And we need to anchor the mind of the person who is buying our product to it being twice the price of it actually being that it actually is. Then when they see the price, they get more excited about the price. When you're in negotiations, you always want.

Rob Dial (17:12)

To know about the anchoring effect and.

Capital One Representative (17:13)

Use the anchoring effect. Ask for more than you think that you're supposed to be getting, number one. Number two, be the person who makes the first offer so that both of your minds in this situation anchor to that. And in relationships, even when you're meeting people for the very first time, like, actually try your best to show up the best that you possibly can. Because if it's somebody who you're meeting and you're having, like, you know, your best friend comes over and he's got his. His new fiance, and you know she's going to be in your life for a really long time, and you had, like, a crap day at work and you don't really feel like hanging out with anybody, but they're coming over anyways, can you get yourself together for a couple hours to make a really good first impression, knowing that she's probably going to. Not even her own fault, it's just the way her brain works, going to think about you and anchor every single one of the times that you guys hang out after this first meeting to the very first time she meets you. And so it's just thinking about that, like, how can I make sure that my first impression is the best they could possibly be? So it's in your relationships, it's in business, it's in negotiations, in sales, and it's also in you being a consumer as well. Your brain will anchor to the first number and everybody else's brains will anchor to the first number that you do bring up to them. So how can you use that anchoring effect to make all of the business deals, all of the negotiations, all of.

Rob Dial (18:39)

The sales, all of the relationships?

Capital One Representative (18:40)

How can you make the anchoring effect seem like, hey, holy crap, this anchor is really big, this banker is a lot. So that therefore everything that happens after that makes them feel like I'm getting a really good deal, they're getting a really good deal. It's a win win situation. So that is a psychological effect that you can use in your life to be more persuasive.

Rob Dial (19:00)

So that's it for today's episode.

Capital One Representative (19:01)

If you love this episode, please do me a favor, share it on your Instagram stories.

Rob Dial (19:04)

Tag me in at robdial Junior R.

Capital One Representative (19:05)

O B D I A L J.

Rob Dial (19:07)

R the only way this podcast grows.

Capital One Representative (19:08)

Is from you guys sharing it. So if you would share it, I would greatly, greatly appreciate it so we can impact more people's lives. And with that, I'm going to leave the same way leave you every single episode. Make it your mission to make someone else's day better. I appreciate you and I hope that you have an amazing day.

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