Of course! Here’s the updated transcript with new chapter headers, corrected speaker labels, and formatting as requested.
Understanding the Psychology of Why People Buy
Melina Palmer: Welcome to episode eleven of The Brainy Business, understanding the psychology of why people buy.
Announcer: You are listening to The Brainy Business podcast, where we dig into the psychology of why people buy and help you incorporate behavioral economics into your business, making it more brain friendly. Now here’s your host, Melina Palmer.
Melina Palmer: Hello, hello, hello everyone. My name is Melina Palmer and I want to welcome you to The Brainy Business podcast.
Exciting Podcast Growth
Melina Palmer: Before we jump right into the episode, I want to talk about some of the exciting things that have been happening recently. First, the podcast is continuing to grow in its reach. The first ten episodes have already gotten nearly 2300 downloads, and I’m pretty confident we’ll be over 2500 by the time this airs, which is just super exciting. There are now listeners in 41 countries, including Aruba, Norway, Luxembourg, and Saudi Arabia, so that’s pretty awesome. The states tuning in have also increased. We’re now up to 44 states, plus the District of Columbia. So if you know someone in Nevada, North or South Dakota, Wyoming, Kansas, or Rhode Island who should be listening, share the link with them. That way there will be listeners of The Brainy Business podcast in all 50 states. And you know, quite frankly, if you know anyone who you think would benefit from or enjoy the information, please consider sharing a link with them. It’s super easy to do. You can copy the link from the podcast app you’re listening in, or simply send them the link for this episode, which is thebrainybusiness.com eleven, because this is episode eleven.
Listener Reviews and Social Media Engagement
Melina Palmer: Speaking of the podcast app, more five star ratings and reviews have come in for The Brainy Business. Thank you so much to everyone who has already taken the time to rate and review. It helps the podcast reach new people. And personally, I love to read the comments myself, so it’s a little bit selfish, but I love to see what you guys have to say and get your feedback. I appreciate all the emails, comments on the website and shares through social media. Increased likes and followers on Facebook, Twitter and Instagram, where you can always find me as the brainy biz. That’s B I Z everywhere on social media, where it’s The Brainy Business for email and the website. So please come join the family and the conversation, if you’re not already part of the group, would love to have you there and engage with you.
Melina Palmer: Like I said, I love getting reviews and I want to share these new ones with you. There were two new reviews that came in over the last week or since last recording, so I wanted to share those and say thank you. First from Selling with Soul podcast, which just launched recently from my new friend Meredith Messenger and you should check it out. I’ve listened to her podcast. It’s great. The review is titled “Listen to this podcast” and she reads, or it reads there: “If you’re in business, you need to subscribe to this show. Awesome content structured in an interesting and usable way. One of my new go to resources.” That’s awesome. Thank you so much to Meredith and the Selling with Soul podcast. I put a link in the show notes if you want to go check out her podcast and send her some love as well. I mentioned the show notes there, which I will not do every time throughout the episode that there’s something linked to the show notes because I do it a lot and I want to avoid being repetitive since I know all your time is valuable. The show notes can be found in the podcast app or on the page for this episode, which, as I said, is thebrainybusiness.com eleven. If you hear me mention a study or an article or anything that makes you think I should look into that, check the show notes first because I probably already have a link for you there.
Melina Palmer: The other new review is from Ginger Army with the title “The New Cialdini,” which is just so incredibly flattering. If you remember back in episode three, “Do Lead Magnets Work and Do You Need One?” I talked about reciprocity and a study with mints at the table and how the tips increased when the gift of a mint was given. That’s work by Cialdini, who’s a bestselling author and speaker with amazing clients like Coca Cola and Google. It’s incredibly flattering to be compared positively to him. So thank you very much.
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Melina Palmer: That review goes on to say, “Now I don’t have to kick myself for not thoroughly reading the Cialdini books on my shelf because I get to listen to this engaging and informative podcast about influence and persuasion. Great addition to my listening library. Already looking forward to each new episode.” Wow. Thank you so much for the kind words, Ginger Army. I’m really glad to have you here with us. Welcome to the podcast for everyone who has left a rating or review, thank you so much. And to you listening. If you’re considering leaving a rating or review, thank you in advance. I appreciate you all and I appreciate you just being here listening with me. So thanks so much.
The Popularity of Foundational Episodes
Melina Palmer: Now onto the topic at hand. This is the second behavioral economics foundations episode. The first one, episode nine, was about loss aversion and wow, was it popular. I must admit I was a little worried people would be turned off by foundational episodes and not give them a shot. You know, worried they would. People would assume they would be academic or boring. But you all went bananas for the episode, which is awesome. It skyrocketed through the download charts. If you’ve been listening for a while, you know I love checking my charts, and even though it’s only been out for a little over a week at the time of this recording, it has already become the fourth most downloaded episode. In case you’re curious, episode one, “Unlocking the Secrets of the Brain,” is the most popular, followed by episode two, “The Top Five Wording Mistakes Businesses Make.” And then in a very close third is episode five, “The Truth About Pricing,” which is the beginning of the “It’s Not About the Cookie” series, but loss aversion foundations, is only a few downloads behind and it has had a lot less time on the shelf, so to speak. So it seems as though everyone likes the format, which is awesome, and I’m excited to keep that going for you.
Introduction to Anchoring and Adjustment
Melina Palmer: Hopefully you will all have a similar reaction to this week’s episode, behavioral economics, foundations, anchoring and adjustment. If you listen to episode nine on, loss aversion, you’ve experienced the format, but I’ll briefly explain for anyone who hasn’t listened to it yet, and as a quick reminder, since it’s still pretty new, most importantly, this will not feel like a lecture, I promise. As with every episode of the podcast, or anytime I’m out speaking at an event or working with clients, I like to keep it light, fun, and quickly applicable for everyone. Pertinent studies will be linked in the show notes, but I will not get into things like standard deviation, variance, or statistical significance here. Instead, I will introduce the concept in a way that allows you to understand the basics of what it is. Then I’ll give a whole bunch of examples from varying industries, business types, or job roles to help you really understand how this can apply for you and your business. And as with all foundational episodes, there’s a free worksheet available for you to download on the website at thebrainybusiness.com eleven. You can follow along with that as you listen to the episode or use it after. Either way, it’s really helpful for you to understand the concept and then actually apply it in your business, which is really the whole point. If you’re already subscribed to The Brainy Business email list, you do not need to sign up again. There’s a direct link in your weekly email from me, which comes on Fridays the same day the new episodes are released. So you can go there if you prefer. If you’re not yet on the list and would like to be, there are two ways to get there. When you download any freebie from the website, including the worksheet for this episode, you get added into the master list for all the weekly emails. That also works if you download your copy of my free ebook, “The Ten Behavioral Economics Concepts You Need to Know and How to Apply Them,” which you can do on the homepage of the website at thebrainybusiness.com or through the Facebook page at the Brainy Biz. And as many of you are listening on your phones, there’s also a text option to get that free ebook emailed to you, and then you will be added automatically to the list. Simply text the word brainy to 345 345 and you’ll be added to the list. So again, if you text the word brainy to 345345, you’ll get your copy of my free ebook, as well as being added onto that weekly email list.
Anchoring and Adjustment in Action
Melina Palmer: Okay, now
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Melina Palmer: that all that is out of the way, let’s talk about anchoring and adjustment. If you are an avid listener of the podcast or have heard me speak before, you know one of my all time favorite favorite studies features this concept of anchoring and adjustment. I have touched on it in a few episodes, including “The Top Five Wording Mistakes Businesses Make,” “The Truth About Pricing,” “How to Sell from the Stage,” and in last week’s on air strategy session with Marielle Court. Here, I will tell you a little more about the study that I like to reference as I get into the concept of anchoring and adjustment. Like loss aversion, this is one of the main concepts in my signature talk. “Consumers Are Weird,” but if you’ve already heard me give that presentation, don’t worry. There are a lot of extra things I’m bringing into this episode, things you haven’t heard before as a reminder about how our brains work. When your subconscious brain does not know the answer to something, it takes a guess. Some might call this an educated guess, but often it’s more working off rules of thumb, which is where all these concepts in behavioral economics come from. As your brain is processing your subconscious at 11 million bits per second, it’s using these judgment calls a lot to guide you through your day and life. When I introduce the concept of anchoring and adjustment, I always go with a little question and answer game to get things started while I can’t hear your responses, I’m going to go ahead and just ask you questions and know it should work the same. I’m trusting you not to google the answer. Just go with your gut to get a feel for how this works.
Melina Palmer: Okay, are you ready for the question? Are there more or less than 10,000 emperor penguins in Antarctica? And how many do you think there are? Do you have the number in your head? There are actually 595,000 emperor penguins in Antarctica. Was your number a lot less than that? Or say I was to ask you, are there more or less than 1000 countries in the world? How many do you think there are? There are 195 countries in the world. Was your number higher than that? What happened? Your subconscious took the number I threw out to you and assumed I must know something about emperor penguins or the number of countries in the world, which is why I gave you that first number. What if I had simply asked you how many emperor penguins are there in Antarctica without the preface of, is it more or less than 10,000? Would your number have been different? Or what if the anchor I gave was 1 million or 10 million or 100 million? Here’s the thing. Your brain is really lazy. It has a lot going on, but it’s all about shortcuts. It relies on them for basically everything when it can. And when I ask the question about countries, for example, your brain’s conversation with itself might have been something like, let’s see how many countries I can name. No, that’s going to take too long, and it’s a lot of work. If I hadn’t given an anchor, it might have used some other rule of thumb, like estimating, and you would have said, well, I know North America has three, and then there’s Australia, New Zealand out there. Let me think of a map. Maybe there’s an average of 20 countries on each other continent. Or how about I pad that a little because I’m probably forgetting a bunch. So let’s say 30. 30 per continent, means 120 plus the handful I named, so I’ll guess 125. You know, not too far off. And it’s still based on estimation. It’s easier than trying to list as many as you can. But because I gave you the high anchor of 1000, your brain skipped that whole estimating thing and went with the easiest possible path. I also, you knew you had a short answer period of time to answer, so it was quick to throw something out. And your brain thought, you know, she must know something about countries, which is why she gave me that number to start with seems pretty high, but I don’t know, a lot of countries. I’ll just go with 600 or wherever you ended up.
The Social Security Number Study
Melina Palmer: The really fascinating thing about this is it works with completely random numbers, ones that should have no impact on the question. About a year ago, I was giving a presentation to a group of female entrepreneurs, something I do a lot.
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Melina Palmer: For this particular group, I did something a little different than I do in most of my presentations. I asked everyone to think of the last two digits of their Social Security number. Then I asked them to look at my necklace. I don’t often wear really large pieces of jewelry, but this one was particularly blingy, so everyone in the room could see it clearly. I asked them to think about how much they thought that necklace was worth. And do you know what happened? People who had a higher last two digits of their Social Security number valued the necklace higher than those with a lower last two digits. As I explained to the audience, I said, you know, studies have shown someone with higher last two digits, like eight nine, will value the item higher than someone with a lower last two digits, like one two. One woman raised her hand and said, “The last two digits of my Social Security number actually are eight nine.” Side note, what are the odds of that? But she said, “Last two digits of my Social Security number actually are eight nine. And when you asked about the value, I thought, $89. And then I thought, no, that’s stupid. I’ll say 65.” And that is exactly how anchoring and adjustment works. For the record, the woman with the lowest last two digits in the room, hers were zero, zero, valued the necklace at $35. A full $30 less. This is based off a study Dan Ariely talks about in his book Predictably Irrational, which I reference often in the podcast. As he says there, “Don’t worry if the last two digits of your social are high. It doesn’t mean you’ve been overpaying for things your whole life.” This only worked because it was entered into your mind just before I asked the other question. That’s called priming, which will have its own foundational episode soon. The effects would wear off quickly, as our brains, as you know, are quickly churning through information.
The Snickers Bar Study
Melina Palmer: So my favorite study that I always reference when I talk about anchoring and adjustment was one involving Snickers. There are two grocery store end cap displays. They’re almost identical, with only one word different from one to the next. The first said, “Snickers bars, buy them for your freezer.” And the second said, “Snickers bars, buy 18 for your freezer.” I think we can all agree that 18 is a sort of ridiculous number of Snickers bars to buy at once. Not a common occurrence. Maybe if you’re buying for the soccer team or Halloween, but not every day. So as a marketer or someone creating a message, you would use logic to talk yourself out of putting this number on an ad. You might say, “Them is unlimited. Someone could get 100 if they wanted.” Or “People are going to ask how I came up with the number 18. I don’t want to have to justify an arbitrary number.”
The Impact of Anchoring on Sales
Melina Palmer: Couldn’t make that much of a difference anyway. But what actually happened? The truth is, it does make a difference. A huge one. The sales of Snickers bars increased by 38% when the number 18 was used instead of the word them. 38% for changing one word. Why? When you’re walking through the store and you see an ad with the word them, it likely doesn’t even register as a blip in your brain. If it does, you might think, sure, I’ll get two or three and drop them in the cart. But the number 18, that might stop your subconscious brain because it’s such a silly number. You might think, “18? That’s crazy. I’m way better than all those people who are buying 18 Snickers bars. I’ll just get six.” Did you see what happened? That’s anchoring and adjustment at work. We can be scared to throw out big numbers in our businesses, but it can make a huge difference in sales. That study with the Snickers bars, which is linked in the show notes, of course, also goes into detail for other grocery stores. Examples that are using those high anchors. For example, when an advertisement for yogurt or cans of soup, let’s say, is listed at ten for $10, you will buy more than if they’re listed at $1 each. And, what about limits? Another study within that same article looked at discounts on cans of soup. There were three conditions, all with the same ten cent discount. So nothing huge. In one variation, it was unlimited. People could get the ten cent discount on any number of cans purchased.
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Melina Palmer: Again, you could buy 100 if you wanted. The next group had a limit of four cans of soup that qualified for the ten cent discount, and the last group had a limit of twelve. What happened? Again, you might think those people who need to stock up on soup will stock up regardless, but that would be too logical. When the number was unlimited, the average was 3.3 cans of soup. With a limit of four, 3.5 cans. So it went up a little. What about with the limit of twelve? They doubled, an average of seven cans purchased. Crazy, but true.
Applying Anchoring to Back to School Shopping
Melina Palmer: Last week I was featured in an article on Hiya called “Seven Tips for Better Back to School Shopping.” And that Hiya is spelled H-I-G-H-Y-A. And there’s a link in the show notes if you want to check it out. The first tip in the article was watch out for the quantity discounts and discussed how anchoring and adjustment can come into plan shopping trips, applying that ten for $10 on things like pens. The article has some other really great tips from retail specialist Ivy Chow. So there is, like I said, a link in the show notes. If you want to check it out and read it again. It’s just another way that you can apply anchoring and adjustment. One other example I mentioned to the author that didn’t end up in the article was about back to school clothes. Let’s say you decided to do your shopping at Target or Walmart or Fred Meyer, whatever, because they have a little bit of everything, school supplies and clothes at affordable prices. On your way in, you see a kid’s t shirt at the door for $99. You might think, “Whoa, Target’s prices have gone way up. Not sure if I can afford to buy here this year.” And when you get to the clothes section, you’re pleased to see the shirts are on sale and around $40 a piece. So you stock up and get three, because that was just a little more than the price of one shirt regularly. But was it? Maybe they were $25 last year, and that anchor reset your brain to think $40 was a deal instead of a huge bump up. They don’t want you to buy the $99 shirt. I mean, they’d be happy if you did, I’m sure, but that isn’t its purpose. It set that high anchor for you on shirt prices. So when you see the other prices, they seem low and you buy more and feel better about it. Note, this has nothing to do with Target or Walmart or Fred Meyer, whatever. I have no idea how much their kids shirts are, but I use them as an example of a retailer with good value to help you get the image in your mind so that those prices made sense.
Anchoring in Jewelry Sales
Melina Palmer: Okay, now you might be thinking, what about all the other businesses out there? How can you apply anchoring and adjustment into your messaging? I thought you’d never ask. Now that you know what anchoring and adjustment is, I’ll spend the remainder of the episode sharing a lot of other examples and ways you could use this in your business or work life. I came up with a ton of examples for this one, including some for those working inside an organization for nonprofits, for car sales, real estate, and more.
Melina Palmer: First, let’s start with the jewelry store. In last week’s episode, I talked quite a bit about this with Marielle in her on air strategy session, so I’m not going to recap it all here. If you haven’t listened to that yet or want a refresher, check out episode ten after you finish this one. However, one thing Marielle was doing was when people called and asked her about pricing. She used too low of an anchor. Obviously, when her customers get more expensive jewelry, she makes a larger amount on the sale. So it’s in her best interest to get people looking at and buying more expensive pieces. When people would call on the phone, she would say that gold pieces started at $70 and go up from there. During our actual strategy session, she had let me know that she has pieces as high as $800. I’m not sure if that made it in the final cut of the episode, so I wanted to give you that context. The funny thing about anchoring and adjustment is when Marielle tells someone that gold earrings start at $70, that number of 70 becomes the anchor. And while it’s supposed to be $70 and up, our brains do a little flip, and that almost becomes the budget. When you go in, you’re thinking you don’t want to spend more than $70.
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Melina Palmer: Maybe you only bring $100 with you, and you’re in a state where you want to get in and out for less than $70, and the whole transaction is set up to fail. The customer might have had a bigger budget than that, and maybe they would have been happier with a more expensive piece, but it’s harder to get them there when you unintentionally set this low anchor. Here’s what I would recommend saying instead. Something like, “The most expensive earrings in the shop are around $800, but we have a wide range of pieces to meet almost any budget. The average person spends around 250, but there are many options that will have you out the door for under 100.” Now, what has happened? That person is coming in prepared to spend more and excited when they see something at $70, and that’s a bargain. Maybe they’ll find something they love at that price, or maybe at 99 or 150. They’re not limited by their brain’s silly rule of thumb, and the business has the benefit of more, more profitable pieces moving through the store. Win win. So, you know, for the bulk of the examples in the episode, I’m just going to assume you’re trying to navigate and negotiate for higher prices or dollar amounts. It’s usually pretty easy to convince people to pay less and save money, though. I will talk a little bit about low anchors in the episode, but I’m just not going to justify why we’re working on moving customers up to a higher price. In every example, I’m going to simply accept that you get it and you’re on board with this.
Anchoring in Real Estate and Retail
Melina Palmer: Okay, so on to real estate. With big ticket items like homes, you’re already working with an existing anchor. That is likely unrealistic and often too low. This is the budget of what someone wants to spend or what they spent on their last house, or if they multiply out what they’re paying in rent or in their current neighborhood, whatever. Yes, budgets matter, and I know you will be responsible, but sometimes you need the buyer to disconnect from that low anchor in their mind to be realistic about, the houses they’re going to be looking at, the homes that are available and what they’re actually wanting to get into with any sort of comparison shopping. You want to start with the most expensive house in the list. And while I will talk about this more in the relativity episode, you should have a decoy house that’s higher than the one you think is best for your buyers, that you show them first. If the house you think is best for them is at the top of their budget, you might want to show a more expensive house, something outside their budget to help set a high anchor with the neighborhood. Of course, do this with caution, based on your style and each set of clients. Some will really not appreciate being shown something outside their budget, I’m sure. In that case, I don’t know if many real estate agents drive their clients around to houses anymore. It used to be that you get in the car with the agent. They would take you to look at houses on a weekend or something. I’m guessing in our Google Maps world, that’s not as common. However, if you are driving them there, consider the path you take and what you say along the way. For example, if you drive through back roads and less expensive neighborhoods, their subconscious will notice. Instead, you could drive through the more expensive house, tour nothing they’re going inside to see so you aren’t neglecting their budget and mention prices along the way. For example, you could say, “This house is a little bigger than what you were in the market for, and it just sold for 950,000.” And then, “Oh, I remember working with a family who bought this home last year. It was 1.1 million and a real bargain given the size of the yard. Their family’s so happy there. I just checked in with them, last weekend, blah, blah, blah.” It seems like idle chit chat, but their subconscious will remember the numbers when you go and show them houses for, say, 750 or 600,000 and they will seem like a better deal. Similarly, if you work in a store of some kind, perhaps selling furniture or electronics, or as I said earlier, clothes, truly it doesn’t matter. You could use this same tactic if you are taking someone to see an item. I’m going to go with the furniture example because I know I have listeners from that space. If someone is in the market for a dining room table or a sofa or bed frame or anything else, be mindful of what you walk by on the path to what you’re going to show them, especially if the store you are in has prominent price tags. If you walk by the clearance and floor sample discount section, the items you take them to see will feel much more expensive in comparison. Instead, consider a path that walks past more expensive items along the way to help ensure the item you’re showing them is a lower and more reasonable price.
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Melina Palmer: In their mind, then it feels like a bargain instead of a stretch. If you work in the store, you have a pretty good idea. If you own the store, you could set things up in this way that you have higher prices near the front and lower prices toward the middle or inside. If you do interior design and you know you’re going to be taking someone to a range of stores, you know, do your homework, go check first and plot out your path to see if that can make a difference for you.
Anchoring with Bundled Options and MLM
Melina Palmer: Moving on now to selling anything with a lot of options or features and available add ons. I’m going to use an example from buying a car because we’re all likely very familiar with the process. There are two options to present a car to someone when they’re buying it. First, you, can say, “Here’s the baseline model and all the items you can add on to customize your car. Have fun. Make it your own.” Then you have this big long list in a checkbox or something. I remember going through that once when I was buying a car. The other option would be, “Here is the top of the line with all the features selected, or maybe 80% of them. Go ahead and remove or add anything. You know, remove anything you don’t want, add anything that you do.” Do you think people end up spending the same amount in both scenarios? Of course not. People will buy more expensive vehicles and packages when presented with the second option. It has everything and remove what you don’t want versus being asked to add things on. As a note, this incorporates some other concepts of behavioral economics, including defaults, perceived ownership, and loss aversion. But I will not dig into those concepts here as they will all have their own episodes. Obviously, loss aversion is already done. So the lesson if you have bundled options and lots of features, price it out and present the big option and let people take away what they don’t want, they’ll end up with more than if they’re picking a la carte. For those of you who work in multilevel marketing or MLM, which is also called network marketing or referral marketing, I know your prices are often already set, so you might think this doesn’t apply to you, but it does for anyone who’s unfamiliar with those terms. These would be all your friends who sell for Arbonne or CAbi or Scentsy or doTERRA. You know what I’m talking about. There are a lot of people selling the same products and the prices are often set by corporate. So what do you do when you do not control the price? For one, if there are multiple levels of an item, say two or three types of shampoo or warmers or sizes of oils or whatever, make sure you present the most expensive one first and work your way down. Secondly, you can also incorporate bundles, something like a fresh face starter package or a whole home package, which includes multiple items. Present them as a package with some explanation for why they go together and are right for the person you’re working with and give them the option to remove what they don’t want. They will likely buy more than if they’re presented with everything as one off items.
Success Stories: Anchoring in Service-Based Businesses
Melina Palmer: Speaking of bundles, I have a couple of super awesome examples from my next category, service based businesses. This is for all the coaches and consultants out there. If you like the Facebook page or follow me on social media, remember I am the brainy biz on everything social you have seen recently a couple of stories I shared of people implementing my advice on anchoring and adjustment and relativity. Within a span of about ten days, I had two different people in service style businesses let me know how they had implemented my advice and seen amazing impact. First, while at a networking event, I had a conversation with a woman named Dawn who I have not worked with directly, but she saw me speak about six months earlier. She let me know how my talk and the way I described anchoring and adjustment changed her business. She had a couple packages available, and she sells high price tag packages starting at $5,000. She had struggled with selling those and had almost no one getting her then highest package at $10,000. So what did she do? She looked at all of what she offered and created a bundle. Her packages are not tiers as in you get level a or b or c, but they’re things that could combine together. So she said to herself, if someone bought all three individually, it would be close to $25,000.
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Melina Palmer: I think it was 23 or something. I don’t know exactly. So she decided to do a $20,000 bundle price if someone was to go ahead and buy all three together. Notice this did not cost her anything. She just changed the way that they were presented and added this extra layer. What happened? $10,000 packages are now flying out the door. And so much easier for her to sell because the high anchor of the bundle price at $20,000 exists. So cool. Dawn was kind enough to do a live video with me at the event where we talked about this. You can go to the Brainy Biz page on Facebook to check it out. It’s really cool. The second example was from someone who emailed me recently to let me know she had implemented my advice of creating a high anchor package in a similar fashion to what Dawn had done. She had always had two packages and was a little skeptical about adding a third because she was thinking it was needing to be a lower package because it wouldn’t be worth her time. And for any of you out there listening, know that there’s the other side too, right? You can add the high package like Dawn did. So she realized that she could incorporate a higher price point instead. Unlike Dawn, this person has more tiered pricing, where you’re picking one option of support or coaching packages, things like that. And so she had a couple of options between five and $10,000. So she threw in a $20,000 package, which is more work for her, but totally worth it. When you, you do relationship based service work for any of you that do this, you know, having someone you’re checking in with more regularly, it’s just really a great experience when you can. The more that you’re doing with people, the more benefit they get. So this is great for her, great for the potential clients. If anybody chooses that she incorporated the offering and has already had someone take her up on that top package. How cool is that? I just love that these simple brain tricks. My advice have helped these female entrepreneurs, small business owners, to up their income and help more people without having to pay a bunch of money to build a program or write a class or a book or create a workshop. Those things take time. They, were able to implement some simple anchoring and adjustment and relativity, which will be the focus of the next episode. And they saw the benefits immediately. Awesome, awesome, awesome. I just had to share with you.
Anchoring in HR and Budgeting
Melina Palmer: This is also an HR beware statement for job seekers. So now let’s talk about all of you who work within a company of whatever size. One where you have an HR department, negotiate budgets each year. Or maybe you’re in the finance department. I know I have a lot of those people who are listening since I’ve spoken to some awesome CPA groups before. This applies to you, too. First, for the job seekers, this is also an HR beware statement. I heard a study once, and I’ve never been able to find it again, which makes me crazy. I think I heard it on the radio, but I’ve not found the source. So if you know what it is, when after I share it, please, please share it with me. Email me, or share it on Facebook. Anyway, the study had people go in and apply for jobs, and when HR asked how much they wanted to make, one group made an offhanded joke of $1 million. Ha ha ha. And they all laughed and started talking about realistic numbers. It doesn’t seem like this would or should impact that person’s salary, if anything. You know, I would think a joke like that would be off putting. But the people who made the joke actually got offered higher salaries than those who didn’t. Again, because I’ve not been able to find the study. I don’t know the exact numbers, but I’ve always found that to be fascinating. So beware of those big numbers when they get thrown out, because they can impact you.
Melina Palmer: Which brings me to the budget request. When I worked in the credit union, I oversaw the marketing budget and had to submit a request each year. I’m sure many of you have experience with that. And this can go both ways, both as the requester and the budget maker, and similar with any negotiation where they say the person who speaks first, the first person to put out a number, you know, you’re essentially setting the new terms right. So keep that in mind in this example. I’m going to use this for the finance folks on that side, since, like I said, I know there are some of you listening. So let’s say someone asks for a certain budget in the annual planning session. This is their anchor, but it also becomes yours if you’re not prepared. Let’s say if most departments get 100 to 200,000 and someone put down a request for 500,000,
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Melina Palmer: you might not think it would impact you, but in most cases, they’ll end up with a higher than average budget because your brain will adjust down from that high point in the reverse. If you’re trying to cut budget, don’t be afraid to suggest a low but realistic number. When asking for someone to create their budget request. They will likely use this number as an anchor and come in lower on their request, even though they’re going to adjust up. What about those travel or training requests? If you have to go to your boss and ask for budget for something, you can use this, too. Similar to my two personal anecdotes, the stories from, just a minute ago, I also had someone reach out to me after a presentation to let me know how they had been able to use anchoring and adjustment to help make a case for a conference, that she wanted to attend that was a little more expensive than usual, instead of doing the all too common sheepish request, which almost never works, you know the one, “I know this will be a little more expensive than we usually do. It might be out of budget, but I think it could be good. And it’s okay if you say no, but I think I would get value.” Whatever. Don’t do that. Take the tips from our friend here. She used the anchoring and adjustment approach. Say her perfect conference was $2,500. She found a similar conference that she could also attend, which was more expensive. Let’s say $4,000. In the meeting with her boss, she said something to the tune of, “I found a conference which covers all the learning. You’ve said you want me to gain next year. It’s $4,000. That seemed a little high to me. So I have another option. It will cover most of the same items, all the key ones for sure, and it’s only 2500.” What do you think happened? Well, she sent me a message letting me know it worked, and she was registered for the $2,500 conference she wanted to attend.
Cautions with Low Anchors
Melina Palmer: I had one low anchor example in there for you, if you remember, with those finance folks trying to decrease budget requests. Another low anchor example would be when you want to show how little time something could take. These would be all those ads like “learn Italian in just five minutes a day,” or “ten minute abs” or “15 minutes could save you 15% or more on car insurance.” These low anchors can be helpful, but you need to be absolutely sure the claim is true, and I mean all the time. Because if it isn’t, you’re at a huge risk of the bait and switch brain reaction where people get angry and boycott you and your product. Let me dig into one of these and show you what this looks like. As with most of you, I’m sure my experience with learning a language is mostly from classes in high school. And I think of it as a very labor intensive process, at least an hour at a time, because that’s how long classes were and very tedious. So my mental hurdle to overcome is around the hour mark. Anything less than that would be great. And if it was 15 minutes a day, I would probably be happy, assuming I’m in the market to learn the language. However, if you promise me five minutes and it takes ten, my brain will quickly revolt and rebel about how you lied to me and you do not want to be in that space. So be careful with the low anchors.
Anchoring in Fundraising and Donations
Melina Palmer: My final example is for the nonprofits or any fundraising efforts you might be going into. I’ve served on several boards in my time, so I’m no stranger to fundraising and auction events. I remember before one such event, the board was discussing the cards we were going to put on the tables at this fundraising event, and if we should include a suggested donation amount, and if so, what number to use. Sound familiar? This was before my extensive research work into behavioral economics, and if I was having that conversation now, I would know exactly what to say. Go high. But as with so many of these examples at the time, we felt the need to base that number on something. The average donation from the year before at the event, or how much we wanted to make in total, divided by the number of people at the event, we didn’t want to ask for too much. And you fear that making a suggestion that’s too high will turn people off, but that’s not what the studies show, unless you’re going extreme and ridiculous. So, in our case, I think the year before was the first time the organization had put a significant suggested donation out there, and it was for
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Melina Palmer: $25. So what happened? A lot of $25 donations. So we decided to up it to 50. What happened? A lot of $50 donations. What if we had suggested $100? This anchor can encourage people to bump up what they would have donated because they start at that higher number. But know, of course, that this varies with the group and organization. If you put out a crazy number, like 5000 in an event where most people give 50, it will likely not have the same impact. However. Have you ever been to an event with a live auction? I’ve been to a lot of these over the years, and recently people have started doing the auction for cash donations. Have you seen this? So it’s the sort of transition from instead of the cards on the table, you do these in the live auction. So let’s say there’s a live auction with only a few very expensive items up for auction. If you have 200 people in the room and ten items in the live auction, a lot of attendees will not have a chance to donate, and you could lose out, and that’s where you do those cards. However, if you do the live auction version of the suggested donation, it can encourage more donations at higher amounts because no one wants to be the only person in the room or at their table who doesn’t raise their card. This is an example of groupthink, a concept for another day as well. But to use anchoring, if you do this, make sure you start with the highest number and work your way down. And this is a good time to work with a high end donor to get them to commit in advance. For example, if you have someone who, you know, donates $10,000 each year, ask them if they’re willing to make that donation at the live auction. Then when you or whoever, your auctioneer, stands up and says, “If there’s anyone at the $10,000 level, raise your cards now,” and, you know, at least one person will, which will set a high anchor for everyone else and get them thinking about how much they can donate and when to jump in. Someone who might have done 2500 is now considering jumping in at the $5,000 level so they don’t look cheap compared to that other donation. And, you know, you work your way all the way down to the 25s or fifties or whatever your. Your minimum is, and those people can jump in as well. I was once at an event where the first number was something ridiculous, like $250,000, and they had somebody ready to go. It was one of those celebrity chef events where it was $2,500 a plate or something. It was so much, a much higher end event, but they used this method, and I’m sure it helped with the donations they received all the way along. It was really amazing to watch. So when in doubt, throw out those big numbers. Really, what have you got to lose?
Boosting Sales with Anchoring and Adjustment
Melina Palmer: All right, there you go. Anchoring and adjustment about a million ways. I think this is one I could go on and on with. There are so many ways to test this concept, and as you can see, it makes a huge difference. And it’s so easy. Don’t forget to get your free worksheet accompanying this episode to help you work through your own examples. It’s available for you at thebrainybusiness.com. dot slash eleven. And if you’re interested in working with me directly to find a way to help boost your offering by incorporating anchoring and adjustment like the real life examples I gave in this episode, let’s do a strategy session. Don’t forget they’re 10% off if you book by September 30, so you want to take advantage of that even if you aren’t doubling up your sales like Dawn and the other example I gave with the $20,000 packages, you will see the benefit. What if you could sell 38% more like the Snickers example? Convert more prospective clients easier and into bigger packages? Does that sound good to you? I would love to help you, just like I did for Marielle and countless others. So go to thebrainybusiness.com and click on work with me to schedule your free consult call. I can’t wait to work with you. I’m so excited. And if you have a story like one of the stories I shared in the episode today, how you’ve implemented these tips, or any of the other tips I’ve given throughout the episodes on the podcast, if you’ve seen results, please let me know. You can comment on a post or on social media or email melina@thebrainybusiness.com to share it with me. I just really love hearing about your success and I want to celebrate with you.
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Melina Palmer: It’s fun for me, so send any information if you have it. Oh, and one more thing, speaking of that 10% discount, don’t forget that also applies to the October 24 workshop in the greater Seattle area. There are a limited number of tickets available. As of this recording, we’re down to four remaining, so don’t wait. If you want to go, you can go to thebrainybusiness.com and click on work with me or access the link from the homepage to get to that. Or you can go via Facebook. Just remember to use the code brainy at checkout to get your 10% off if you book before the end of September.
Upcoming Speaking Engagements and Future Episodes
Melina Palmer: Last announcement. I have some trips coming up and I wanted to let you all know where I will be in case you want to take advantage and schedule an in person session without the burden of travel expenses. Expenses which can be really big savings for you. In September I will be in Little Rock, Arkansas, and in October I’m traveling to Portland, Maine, not the Portland that’s close to me. I do make it to Portland, Oregon all the time, so if anybody is there and wants to know, have me let you know when I’m going to be coming down. Let me let me know that. So, Portland, Maine in October, Little Rock, Arkansas and September, September for speaking engagements, if you’re in those areas or close enough to get there, send an email to melina@thebrainybusiness.com. And if you know someone in one of those areas who you think might be interested, feel free to share the information with them as well. I hope I’m able to meet some of you while I’m traveling the country.
Melina Palmer: All right, that officially wraps up this episode dedicated to anchoring and adjustment. I hope you liked it as much as I enjoyed creating it for you. As a note, I’m trying to represent as many industries and applications as I can on these behavioral economics foundations episodes, so please let me know if I missed something. If you’re in an industry or business type and you feel I’ve missed you, please let me know so I can start incorporating it. There are many, many more foundations episodes to come, and plenty of chances to include you, starting with next week, episode twelve, where I will dig into the foundations of relativity. Until then, thanks again for listening and learning with me, and remember to be thoughtful.
Announcer: Thank you for listening to The Brainy Business podcast. Melina offers virtual strategy sessions, workshops, and other services to help businesses be more brain friendly. For more free resources, visit thebrainybusiness.com.
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