Shortly after I wrote a book about money (pricing, actually) it occurred to me that I should look more like money and therefore I needed a new suit.

I figured out the cut, the color and the cloth I wanted and then I set a budget. It was by far more than I had previously spent on a suit, but not ostentatious.

I had planned to buy it on my next trip to London but before that trip I found myself walking past a high-end men’s clothing store in Vancouver. For some reason I could afford to shop at this place back when I made one tenth of what I was now making, but hadn’t shopped there in years because I thought it was too expensive.

I had time to kill though (my wife was buying something elsewhere in the mall) so I walked in and explained to the salesperson what I was looking for. Then I asked, “Can I get that suit for that price in this store?”

The salesperson smiled and said, “Follow me.”

Next, he did exactly what I expected him to do. He said, “Let’s start by trying this one on—just for sizing,” and he helped me into a beautiful Italian suit jacket. It fit perfectly. I looked in the mirror and thought, “Damn.”

I mean, it’s hard to convey how good I looked in that suit. You’re going to have to take my word for it.

The salesperson then did the polite thing and disappeared for a moment so that I could be alone with the price tag. When he walked away I peeked. It was multiples of the budget I had given him. I could not take that jacket off fast enough.

If you know anything about price anchoring you know that this visceral reaction to an exorbitant price is no big deal. The salesperson knew I would recover. He wasn’t the slightest bit worried.

When he returned I handed him the suit jacket and said, “Nice try. I know what you’re doing. I wrote a book about this.”

Unfazed, he smiled and once again said, “Follow me.”

He picked out another nice suit and said, “This one’s more in line with your budget.” I tried on the jacket and looked in the mirror.

“Damn.” Not quite as handsome as I was in the first suit, but still looking good. I went to the dressing room, tried on the pants (I couldn’t find a price tag) and returned to the salesperson.

“Damn. You look good.”

“Right? Okay, how much?”

It was only 1.8x my budget.

In my head I bought it right then. It seemed so affordable compared to the original anchor that was more than double this price—and quadruple my original budget.

Before I could commit to the salesperson he noted that I was wearing running shoes and asked, “Do you want to see it with a pair of dress shoes on?”

Yes, I did.

As he disappeared to find something in my size, my wife texted. “Where RU?”

“Buying a suit,” I replied. I told her the name of the store.

“BRT”

Uh oh. I needed to act fast. She wouldn’t understand that 80% over my budget was entirely logical. She wouldn’t appreciate how much money I was saving over the first suit, a suit I was completely justified in buying because I looked So. Damn. Good.

The salesperson returned with a pair of shoes. 

“Damn.”

They finished the suit beautifully. “How much for the shoes?” I asked.

“$1,100.”

I didn’t need new shoes. Plus, I don’t know what you spend on shoes but it had never occurred to me that at any point in my life I would consider paying four figures for footwear. To me, this is a stupid number for one pair of shoes.

But still…

I mean the shoes and the suit combined were still far less than the first suit. I was still saving a lot of money.

My phone buzzed.

“Don’t do anything til I get there!”

Now I moved from buyer to seller. I had to sell this suit to my wife, whom I could see hurrying in my direction. She relaxed a bit when she realized I hadn’t bought anything yet.

As she slowed to a normal walk, she got a look at me in the suit and shoes.

“Damn.”

“Right?”

“How much?” she asked.

Like the salesperson before me, I anchored high. I gave her the combined price of the suit and shoes.

She responded physically, somewhere between a wince and a gut punch. It was the same reaction I had when I looked at the price of the first suit that the salesperson anchored me with. That was thousands of dollars ago.

I knew she would recover.

The anchoring effect is the idea that the first piece of information on a subject skews the final decision on that subject. A price anchor is like the moon hanging in the sky, pulling toward it the tide that is the average settled price. The job of the price tag on the first suit the salesperson put on me “for sizing” was to reframe the purchase and have me adjust the price away from the anchor, instead of adjusting away from my budget.

Kahneman and Tversky, who coined the term “the anchoring effect” often referred to it as “anchoring and adjusting” for this reason. It’s a form of bounded rationality that sees us limit the cognitive load in our decision making. We quickly select a starting point for the decision (or it’s selected for us in the form of an anchor) then we reason our way away from that point.

But reasoning is a lot of work. Most of us don’t spend the calories to do full and proper reasoning, so we remain biased by the starting point.

I was now doing the same thing with my wife.

After I let her sit with the combined price for a moment, I said, “I love the shoes but they’re too expensive. I’ll just take the suit.”

I told her the price. She exhaled and agreed it was the sensible thing to do. We walked out of that store with all three of us—my wife, the salesperson and me—happy with the outcome of me exceeding my budget by 80%.

The anchoring effect is so powerful that it’s difficult to counter it even when you know it’s being done to you. If you don’t anchor high, your clients will anchor low.

I’ve been thrilled with my suit and even a little grateful that the salesperson moved me off of my budget. There was never a rational basis for my budget in the first place, it was just a number I somewhat randomly decided I was willing to spend.

I still think about those shoes.

Anchoring Resources

Anchoring is one of a small number of tactics that you can easily employ to quickly raise your closing ratio and average proposal value at the same time. Here are some resources to help drive these new levels of revenue and profit.

The pricing book I referenced is Pricing Creativity: A Guide to Profit Beyond the Billable Hour. Available in three formats, Pricing Creativity is a deep dive into the subject of pricing with a lot of specific how-to guidance. Anchor High is one of the six rules in the book.

My most recent book, The Four Conversations: A New Model for Selling Expertise is a less expensive and wider ranging book on selling that also contains some pricing guidance including a small section on anchoring.

The Win Without Pitching workshop is our training program on the selling and pricing model described in The Four Conversations. In the workshop or private training engagement you’ll practice constructing multi-option proposals and anchoring high in a negotiation. The next workshop runs from April 7th to 10th (3 hours a day, via Zoom). Grab your seat here.