Wouldn’t it be great to have a magic wand that could make buyers want to pay more? I’d love to have customers who want to throw more cash my way … offers to buy the company come in higher.
Well, there’s a psychological trick that can help you do that, but please use it for good, not evil.
It’s called ANCHORING. How do you use it?
[This is #2 in my weekly series Monday Mindhacks: use psychology to create demand from customers, investors, and acquirors]
When people don’t have a frame of reference of what price should be, something really interesting happens.
They use any number that’s introduced and judge other numbers relative to the first one.
One form of this you see is fake “sales” where prices are artificially discounted … BUT the fascinating thing is…
It even works if the number is IRRELEVANT.
SO before your price discussion, you can start discussing bigger numbers – that aren’t a price – and it can have a subtle effect. You could talk about the height of Mt. Everest, and it will influence how they perceive every number that they hear after that.
Cool (and evil), eh?
So … what irrelevant number will you use for your magic wand?
Raj: Hi, and welcome to another episode of Monday mind hacks in which we go through psychology. That’ll be useful for you, whether you are marketing, whether you’re selling, getting investment for your business, we’re trying to get your business acquired. And today’s psychology principle is called anchoring. It’s one of my favorite ones. Anchoring is the process by which if you say a number of any sort, all of a sudden people start to take that number as a frame of reference. It’s incredibly useful in sales and marketing. And actually also, if you’re trying to sell your company and to give people an idea of the frame of reference, you just can say a number. And the interesting thing is the number can be irrelevant. You could say a number like 50 million when really the goal number in your discussion is 5 million. Now that’s not to say give me 50 million for my company when you’re trying to sell for 5 million.
But you could give some other examples of other companies. Not saying that your company is worth that and you’re selling your company. You say, “Oh, well, this company was sold for 50. This was sold for 45. This one was sold for 80.” And then you get back to your discussions and you’re really trying to sell your company 4 or 5, 10 million. All that is doing is priming the other side to think in terms of numbers that are of that size. It works in sales as well. If you do a comparison with other products or other solutions, and say, for instance, you’re selling a software product and you’re saying, “Well, you could do this and implement services to do it.” You can have it custom designed. It’s going to cost you 2.5 million bucks, but of course, we’ve got our solution here, It’s only $250,000 a year.
So what have you done there? You’ve anchored a really high number and their brain starts to think that high number. All of a sudden in comparison, your number looks a lot smaller. And again, the really interesting thing about this is that these numbers don’t even have to be relevant. As long as you’re mentioning a number first, the brain is going to be primed to think about that number. And then of course you can put in your real number or your real negotiation number afterward. It’s a really interesting psychological principle, with lots of applications. I’ll just encourage you to use it for good and not for evil, because this is one of those sneaky little things that you might start to notice sometimes, especially in harder core sales pitches where they’re actually anchoring you on higher numbers or building up a value stack of a large number of and saying, “Oh, but it’s only this much.” It’s something that really works well. Maybe you can deploy that in your sales, in your marketing, in your negotiations. Have fun with this one, and I’ll see you on the next Monday mindhacks.