You walk into a store. A jacket catches your eye. The tag reads: "Was $200, now $80." Your brain immediately thinks: "That is a $120 saving. What a deal."
But here is the question nobody stops to ask: was that jacket ever actually worth $200?
In many cases, the answer is no. The "original price" was never the real price. It was an anchor -- a psychological reference point designed to make the sale price look irresistible. And it works spectacularly well because of a cognitive bias so powerful that even knowing about it barely reduces its effect.
Welcome to anchoring bias, the most profitable trick in retail pricing.
What Is Anchoring Bias?
Anchoring bias is a cognitive bias first described by psychologists Amos Tversky and Daniel Kahneman in 1974. It describes our tendency to rely heavily on the first piece of information we encounter (the "anchor") when making decisions.
In their classic experiment, Tversky and Kahneman spun a wheel that landed on either 10 or 65, then asked participants to estimate the percentage of African countries in the United Nations. Participants who saw the number 10 guessed around 25%. Those who saw 65 guessed around 45%.
The random number on the wheel -- which had absolutely nothing to do with African nations -- influenced their estimates by a factor of nearly two. That is how powerful anchoring is. Even completely irrelevant numbers shape our judgments.
Now imagine what happens when the anchor is deliberately set by someone who wants your money.
How Retailers Use Anchoring
Retailers have turned anchoring into a science. Here are the most common techniques:
The Inflated Original Price
This is the most straightforward application. Retailers set a "recommended retail price" or "original price" that is deliberately inflated so that the actual selling price looks like a bargain.
A 2017 investigation by the UK's Advertising Standards Authority found that some retailers displayed "was" prices that the product had never been sold at, or had only been sold at for a very brief period to establish the reference point.
In the US, the Federal Trade Commission has guidelines about deceptive pricing, but enforcement is inconsistent and many retailers push the boundaries.
The jacket "was $200, now $80" might have been listed at $200 for exactly three days in a single store location, just long enough to legally claim the original price was real.
The Three-Tier Strategy
Walk into any electronics store and you will see products arranged in three tiers: a budget option, a mid-range option, and a premium option.
The premium option is often the anchor. Its purpose is not necessarily to sell. Its purpose is to make the mid-range option look reasonable by comparison.
A coffee maker lineup might look like this:
- Basic: $30
- Mid-range: $80
- Premium: $250
Without the $250 anchor, the $80 machine feels expensive. With the anchor, it feels like sensible middle ground. Research shows that the mere presence of a high-priced option increases sales of the mid-range option by 30% to 50%.
The Decoy Effect
Related to anchoring, the decoy effect introduces an option that exists solely to make another option look better.
Consider a subscription service:
- Digital only: $9/month
- Print only: $15/month
- Digital + Print: $15/month
Nobody chooses print only when digital + print costs the same. But without the print-only option, many people would choose digital only at $9. The "print only" option is a decoy that anchors the perceived value of the bundle and pushes customers toward the $15 option.
The Economist famously used this exact pricing structure, and behavioral economist Dan Ariely demonstrated that removing the decoy option dramatically changed purchasing behavior.
The Starting-High Negotiation
Car dealerships, real estate agents, and contractors all understand anchoring intuitively. They start with a high number because the first number mentioned becomes the anchor for the entire negotiation.
A car listed at $35,000 that sells for $30,000 feels like you "won" $5,000. But if the car was listed at $28,000 and you negotiated to $27,000, you would feel like you barely got a discount -- even though you paid $3,000 less.
Anchoring in Online Shopping
Online retailers have taken anchoring to another level with techniques that are harder to spot.
Crossed-Out Prices
Every major ecommerce platform displays a crossed-out "original" price next to the current price. Amazon, in particular, shows "List Price" or "Was" prices that create an instant anchor. Studies show that even when shoppers know these prices might be inflated, the anchor still affects their willingness to pay.
Percentage-Off Framing
"70% off" creates a stronger anchor than displaying the actual savings amount. Hearing "70% off" makes you think of the full price -- the anchor -- and feel the magnitude of the discount. A $30 item at 70% off ($9) feels like a better deal than the same item simply priced at $9.
Price Comparison Widgets
"Compare at $120" or "Similar items retail for $150" -- these comparison widgets create anchors using competitor pricing that may or may not be accurate.
Bundle Anchoring
"Buy individually: $45. Bundle price: $29." The individual price creates the anchor, and the bundle feels like a steal. But you may not have needed all the items in the bundle, making the "savings" illusory.
Why Anchoring Is Almost Impossible to Resist
Here is the unsettling truth about anchoring: knowing about it barely helps. Studies have shown that even when participants are explicitly warned about anchoring bias, their estimates are still significantly influenced by the anchor.
This is because anchoring operates at a level below conscious reasoning. Your brain processes the anchor automatically, before your rational mind has a chance to evaluate it. By the time you think "I should ignore the original price," the anchor has already shaped your perception of value.
This is why you can read this entire article, walk into a store, see "Was $300, now $120," and still feel a thrill of excitement. You know it is a trick. Your brain responds to it anyway.
How to Defend Yourself Against Anchoring
You cannot eliminate anchoring bias, but you can develop strategies to reduce its impact.
1. Cover the Anchor
When evaluating a sale item, physically or mentally block out the "original" price. Look only at the current price. Then ask: "Would I pay this amount for this item if there were no sale?" If the answer is no, the anchor was doing the work, not the value.
2. Set Your Own Anchor First
Before shopping, research what items in the category typically cost. If you know that a good quality winter coat ranges from $80 to $150, a "was $400, now $150" tag loses its power. Your research-based anchor replaces the store's manufactured one.
3. Calculate Cost Per Use
Cost per use cuts through anchoring because it evaluates the price against your actual usage, not against an artificial reference point.
A jacket at $80 that you will wear twice a week for three years has a cost per use of $0.26. That is excellent value regardless of whether it was "originally" $200 or $85. The anchor becomes irrelevant when you have a real metric.
Similarly, a jacket at $80 that you will wear twice and forget about has a cost per use of $40. The "original price" of $200 does not make $80 a good deal if you will barely use it.
4. Wait and Reset
Anchoring effects weaken over time. If you see an "incredible deal," leave the store and come back the next day. Without the anchor fresh in your mind, you will evaluate the price more rationally.
5. Compare Across Stores
If the same item costs $80 at three different stores, the "was $200" tag at one store is meaningless. Cross-referencing prices across retailers provides real anchors based on market pricing rather than manufactured reference points.
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The Biggest Anchoring Tricks by Industry
Fashion Retail
The fashion industry is arguably the most aggressive user of anchoring. Many fashion brands use a practice called "keystone pricing," where they set the initial price at a significant markup specifically so they can offer frequent "sales."
Some brands are essentially always on sale. If every item is always 40% to 60% off, the "original" price is not the real price -- the sale price is. The permanent discount is the actual margin the brand needs to operate.
Electronics
Electronics retailers often anchor with the manufacturer's suggested retail price (MSRP), which is typically set above the expected selling price. The MSRP exists specifically to create an anchor. Few consumers pay MSRP for electronics, but its presence makes the selling price feel like a bargain.
Real Estate
Property listings are anchors. The asking price shapes every subsequent offer and counteroffer. Real estate agents know that listing a property at $450,000 and receiving an offer of $420,000 feels like a loss. But listing at $400,000 and receiving an offer of $420,000 feels like a win. Same final price, completely different psychological experience.
Restaurants
The most expensive item on a menu is often the anchor. A $60 steak makes the $30 pasta feel reasonable. Without the steak, the $30 pasta might feel overpriced. Smart restaurants place high-priced items at the top of the menu for exactly this reason.
Software and SaaS
"Enterprise: $299/month. Professional: $99/month. Basic: $29/month." The enterprise tier is the anchor. Most companies expect the majority of customers to choose the professional tier, and the enterprise price exists primarily to make it look like good value.
The Ethical Question
Not all anchoring is deceptive. A genuine sale -- where a product was sold at a higher price for a significant period and is temporarily reduced -- is legitimate anchoring. The original price reflects real market value, and the discount represents real savings.
The problem arises when anchors are manufactured: when "original" prices are set artificially high, when products are never sold at the listed "was" price, or when comparison prices are fabricated.
As a consumer, you cannot always tell the difference. That is why relying on external metrics like cost per use is so much more reliable than relying on the prices a store chooses to show you.
The next time you see a sale tag with a crossed-out price, smile. You know what it is. It is not information -- it is influence. And the best defense is not willpower. It is a calculator, a realistic estimate of how often you will use the item, and the discipline to judge value by what something gives you, not by what it was supposedly worth before.