Anchoring
You need to buy a new pair of jeans, and you’re hoping you can find something “for a reasonable price.” You don’t have a specific dollar amount in mind, maybe it’s been a while since you’ve shopped for jeans.
As you start shopping, you see a pair of jeans on display in the designer section, the price tag says $500. “Wow, that's a LOT for a pair of jeans!” you think. As you look for your regular-people jeans, you end up gathering options to try on with price tags of $150, $200, and $250. Never in your life have you spent more than $80 for a pair of jeans, but now, for some reason, you’re ready to get out the credit card because $250 seems reasonable. That’s half of $500—a real bargain! That first pair of designer jeans is hanging out in your brain convincing you that jeans SHOULD cost close to $500, so $250 seems all the more reasonable.
The next day, you walk into a thrift store looking for a cute vintage skirt. You see one you like displayed by the front door for $5. It’s not your size, but you keep looking through the racks, and when you find something else you like for $25 in your size, you feel very disappointed. It’s SO EXPENSIVE! Now that $5 skirt has taken over your brain and everything else seems to be priced so outrageously.
This is the anchoring bias at work....
The anchoring bias is the tendency to rely very heavily on the first piece of information we get while in the process of making a decision. Everything else gets interpreted off of the “anchor.” We make all subsequent decisions in relation to this first piece of information and our adjustments away from the anchor are generally perceived as inadequate. Far more than we realize, that anchor has a strong pull on us. It doesn’t allow us to adjust away from it.
Amos Tversky and Daniel Kahneman ran a study where they asked high school students to guess the answers to mathematical equations. A group of students were given five seconds to estimate the answer to the equation:
8 x 7 x 6 x 5 x 4 x 3 x 2 x 1
Another group was given the same equation, with five seconds to answer, but in reverse:
1 x 2 x 3 x 4 x 5 x 6 x 7 x 8
The median estimate for the first equation was 2,250, while the median estimate for the second was 512. Now run it on your calculator. You’ll see that the correct answer is 40,320.
Here’s another even stranger study….
Dan Ariely, George Loewenstein, and Drazen Prelec set up an experiment with 55 MBA students in 2003. They presented several products (computer accessories, wine, chocolates, and books) and briefly described each. The average retail price for the items was $70, but that was not mentioned to the students.
Each student was then asked if they would buy the products for the dollar value of the last two digits of their social security number. After that, they were asked what would be the top price they would pay for the product. The students with higher social security numbers quoted a maximum that was significantly higher than the students with low social security numbers.
Students who had the highest social security numbers were willing to pay $56 on average for a wireless computer keyboard; students with the lowest social security numbers were willing to pay $16 on average.
Once you know about this bias and keep a watch out for it, you’ll see how it can influence your everyday life. It’s pretty shocking.
As fundraisers, we can use it for good, and sway philanthropists and donors to think bigger and reach for levels of support that can have a significant impact on nonprofits and their missions. It’s a useful concept to understand when thinking about goal-setting and campaign planning.
But first let’s take a look at some classic ways anchoring is deployed in marketing and sales.
Marketing Examples
Retail Product Position: Have you ever noticed how the sale racks are often in the back of the store? You often encounter high-end merchandise near the entrance. Often, those items are displayed in an eye-catching way and are highly sought after. The lower priced items can be found farther along on your journey. The first items you see—those high-end, high-margin, full-priced items set an anchor for you as you walk into the store.
Monthly vs. Annual plans: Slack’s pricing plan is just one of the many examples of how monthly and annual payment plans are communicated to consumers. The Pro Plan totals $80 per person when billed yearly, but they never state that price. The pricing is presented as $6.67 per person, per month, when billed yearly. You have to do the math to learn that you would need to pay $800 upfront to sign up your 10-person team. But you can pay $8 per person, per month, when billed monthly. That’s a first payment of $80 to get started, allowing for more flexibility and less upfront cost. All things being equal, Slack would like to lock you into a year-long contract and get your money up front. So they anchor you with the $6.67 price tag and entice you into the year-long commitment. If they told you that two options were $800 or $80, you might be more likely to opt into the monthly fee, even though it is slightly more expensive.
Original Price vs. Discount: How often do you see something on sale with the original price on display, but crossed out? Or a percentage discount prominently displayed: 50% off! The retailer is trying to anchor you to the original price, which often is believed to represent the actual value of the item. The current discount price is then weighed against the original price, and your brain is telling you you’re about to save a lot of money!
Now let’s look at some ways we can use anchoring in our solicitation and goal-setting strategies as fundraisers.
Fundraising Examples
Donation Forms: Consider ordering the levels in a high to low sequence. If the target group's range of anticipated giving is $1,000 to $10,000, list the levels at $10,000, $5,000, $2,500 and $1,000 is that order. People tend to settle toward the middle, and the $10,000 anchor will help some of them consider the $2,500 or $5,000 giving levels more seriously.
Major Gifts / Campaign Gift Solicitations: Are you asking someone for a one-time gift of $1 million? Maybe this is something they’ve never done before—for your organization or elsewhere—and it will be a stretch? After you’ve explained the transformative results the gift will have, if possible, offer that the gift can be paid out over multiple years. Four years at $250,000 sound much more palpable after anchoring the conversation with $1 million.
And after the payment period is over, and the pledge is paid, consider an annual gift solicitation of an amount just above the annual payment. Consider soliciting the donor for a $300,000 gift if the payment was $250,000. It’s possible that anchor might help them turn their campaign payment into annual support now that it is a multi-year routine.
Telefund Caller Strategy: When telefunders solicit a gift, is it best to ask for a gift at the higher end of the range that you suspect the potential donors might be willing to give. A number that is higher than you expect might even anchor them closer to a stretch gift. Asking for $1,000 first and working your way down to $500 is a lot easier than asking for $50 first and working your way up to $500.
Campaign Goal-Setting: When setting your campaign goals, be realistic with a splash of audacity. That goal’s anchor will push the fundraising team, your volunteers, and your board harder to work together to achieve more.
Goals that are too high may dishearten your team, and could even push solicitors to unethical behavior or a desire to fudge the numbers. I like to set a realistic goal, with a stretch goal. Roll out the stretch goal to the wider group of fundraisers and organizational leadership at the point when you feel it’s attainable with a little more elbow grease. Keep it to yourself if it seems unlikely. Put everything you have into achieving the stretch goal, but if you don’t make it you can still declare victory with the original goal. And if you do make the stretch goal, the win is even sweeter, since you’ve already signaled that the stretch goal is going to take every effort to get there.
Capital Campaign Estimates: Your nonprofit estimates the project cost at the outset of a capital campaign, engaging in months and maybe years of scrutiny, questioning, expert advice, and strategic planning. Finally, after every question is asked and most are answered, the Board votes to move forward with the new project. Campaign counsel and staff are hired, a feasibility study is conducted, and the fundraising campaign begins in earnest.
Board members and lead donors make their commitments. Meanwhile, the world marches on outside your thoroughly planned project, and lo and behold, the cost of the project begins to rise above the original estimate.
The donor who gave the lead gift to cover 25% of the campaign goal now only covers 10% of it, the timeline extends, the costs grow, and what was once a reasonable goal is increased by 30% or more. This scenario is all too common.
To minimize this issue, pack a generous contingency number into the goal, but also don’t forget to round up and raise money for general operations, ongoing maintenance, and staffing costs for once the project is complete. Perhaps this all-in number requires extending the timeline of the campaign. It may take more work and planning to get a Board comfortable with a realistic number at the beginning of the process, but also trying to encourage a Board to move up from their anchor number (the original campaign goal) once you are well on your way can be quite an emotional toll, often fraught with disappointment and blame.
My Story
Donorly has held offices at WeWork since we were a two-person staff. The opportunity to pay on a month-to-month basis and scale our contract up and down depending on the number of consultants in the New York area has given us a lot of flexibility and helped our bottom line.
Now, let me take you back to July of 2019…. I was in the process of renewing my paperwork with WeWork, the world was looking rosy, our current consulting engagements were solid, and I felt more than ever that we were on an upward trajectory. Justin, our client relationship manager, gave me the unsurprising news that the monthly fee would increase in the next month, but suggested that I could sign on for a year-long lease with our current office at a 20% discount. We’d be locked in for the year, but the savings were significant. I felt confident at the time and that 20% saving (against the anchor of the increased monthly fee) seemed like a deal that was too good to pass up.
Well, we all know the outcome of this story. I was locked in to a lease for an office we rarely used at all for several months during the pandemic. Sticking with the month-to-month lease would have saved us from a significant expense at a time when everything was unpredictable. I made what I thought was a good bet at the time, but, as we all know all too well, predicting the future is a very tricky thing.
