The Why #8: Why is there a $140 option at my local car wash?

By Dan Monheit, 6.11.20

Question submitted by Dustin, Fairfield

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Ah yes, the $140 Platinum Wash. Definitely the car cleaning package of choice for the hitmen, fishmongers and professional septic tank cleaners among us.

But what about everyone else? At $140 a pop, it’s hard to believe there would be enough people choosing this option to even justify the questionably painted, chipboard sign promoting it.

Same goes for those $6,000 barbecues, $950 wine list topping Sauv Blancs and the entire category of first class flights. Who on earth is buying this stuff, and why?

Perhaps nobody. And it doesn’t really matter.

Anchoring

Enter ‘anchoring’ — our tendency to depend too heavily on the first piece of information we receive when making a decision. Any subsequent information is weighed up against this first piece, which now serves as an ‘anchor’.

Essentially, the early bird sets the terms.

In 1974, Kahneman and Tversky set out to test the power and pervasiveness of the Anchoring bias, by seeing if an anchor set in one field could ‘stretch’ into another, seemingly unrelated one.

The experiment they designed used a specially built roulette wheel, rigged to only land on the numbers 10 and 65. Participants would give the wheel a spin, and after seeing which number it landed on, were asked to guess the percentage of African countries in the United Nations (common knowledge for most, really).

For people who saw the wheel land on number 10, the average estimate was 25%. For those who saw the wheel land on number 65, the average estimate was almost double (45%). Without realising it, participants had been ‘anchored’ by the number they’d spun up and made their high or low guesses accordingly.

Like many biases, anchoring is especially prevalent when we’re making the types of decisions that are infrequent, under pressure and in areas that we know little about. Car washing meets all three criteria pretty well.

In the four seconds we have to reply to the attendant asking which wash we’d like, it’s easy to be anchored by the $140 Platinum Wash, and feel that the $60 Silver Wash is actually a pretty good option. If $60 was the most expensive wash, it’s far less likely we’d choose it.

In short, the $140 Platinum Wash isn’t there to sell Platinum washes, but instead to make us feel better about buying the $60 ones. The same goes for those $6,000 barbecues and the $950 bottles of wine.

When it comes to pricing, the key takeout for brands is to be cognisant of the competitive set that customers place us in, and the anchors that are already there. Once identified, the choice is either deciding how to price relative to the existing anchors, or stepping out into a new category and dropping an anchor of our own (a la Red Bull, Grilld or Netflix).

If the stars do align and we’re carving out a new space, don’t be afraid to aim high, knowing that the first price we set will dictate the terms for whatever comes next.

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Behaviourally Yours,

Dan Monheit

PS If you missed last week’s, you can still find out why people pay $7 for toast at a cafe here.

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Bad Decisions Podcast
Learn more about Anchoring and how brands can use it on episode 7 of the Bad Decisions Podcast.

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Got a question?
Is there something you’ve always wondered about?
Send it through to AskDan@hardhat.com.au

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Want more?
Check out Dan’s short write up in Carsales on why you need to win the consideration phase.

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