Don’t fall for the anchor effect scam warns Limerick financial planner

I’M going to tell you about how the anchor effect nearly suckered myself and my wife into a scam that could have cost us thousands of euros.
I’m exaggerating, it could have cost us about €100. I just wanted to get your attention by saying thousands.
It all started when my wife came across a website that was selling jewellery at a massive discount.
And the jewellery looked really nice and was being sold at a discount because the owners of this jewellery shop were retiring and they were selling off the last of their stock.
And one bracelet was being sold for €18 down from the original price of €250.
That was a discount of 93% and that little percentage in red was at the corner of the picture of the bracelet.
My wife scrolled on and put a ring, a necklace and another ring for one of our daughters into the shopping cart, ready for checkout.

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I think the total cost was something like €95 for everything. The website told us that cumulatively the cost of the items if they weren’t on sale was about €750 so all told the discount was about 87%.
Donald Trump wouldn’t be able to get discounts this high and my wife couldn’t get to the check out fast enough.
But luckily our daughter, Emily, was there because she brought us back from the brink.
Because she said that old saying to us, if it sounds too good to be true it probably is.
And she was right, but surely these lovely elderly looking people on the website wouldn’t scam anyone, would they? They were retiring after all.
We showed Emily the website and the video of this couple in it.
And immediately she said without hesitation, that’s AI. And Emily asked why was the video of this couple whose story was being told being narrated by someone with a heavy cockney English accent?
Maybe the accent doesn’t matter but it got us thinking, nonetheless. We didn’t think an English couple selling their business for example in the east end of London would be using the voice of someone like Daniel O’Donnell to tell their story.
We, I mean Emily, dug a little deeper and visited a website called scam adviser who had a very big danger X sign on their screen when we inputted the name of the online jewellery website we were looking at. They said the website had a very low trust score and was only recently created and they were using a service to hide their identity.
In summary they said the website had a very low trust score which indicated that there was a strong likelihood the website was a scam and people should stay away from it.
And we were seconds away from sending them money and all the danger signs were there for us to see, but we got blinded by the huge discounts we were seeing and what an unbelievable deal we were getting especially when the sale price was alongside the real price.
We were stupid and we’re not stupid and we couldn’t believe how we nearly fell for this.
But in our defence and there is no defence, we got caught out by the anchor effect. Which suckers people into spending money on things whether they are part of a scam or not.
And I should have explained what the anchor effect is earlier and it’s basically a marketing ploy which is used to manipulate people into buying things they don’t need, which is the trap we nearly fell into.
And it’s happened to all of us particularly when things are on sale.
Whenever we are thinking of buying something we first look at the sale price and then we look at the original price and we think what a deal, I’d better buy it quickly so I don’t lose out on that incredible sale price.
And we feel great that we got such a discount and that’s whether we buy things online or physically in a shop.
We were looking at the original price of the bracelet, which was €250 and now alongside that number was reduced to €18 and as I said already we couldn’t click go to checkout fast enough had it not been for Emily.
So, I’d say beware of the anchor effect and how it tricks us into spending money that perhaps we don’t need to.
And in the United States, the retailer JC Penney knows all about anchoring and how having one price i.e. the original and a second i.e. the sale price will influence the buying behaviour of the public. Because, astonishingly at one stage for them less than 1% of their revenue came from items bought at the full price.
But get this, nearly 75% of their revenue came from items that were sold and discounted by at least 50%.
So, if an item was being sold at the original price, then great if people bought it they’d make a massive profit but if it wasn’t being sold they could discount the item by a large amount which appeared to the general public as a fantastic deal and then the item would fly off the rails and they’d still make a huge profit.
An example of this would be a T-shirt priced at €20 and if someone bought it then great, but if no one is biting, offer a 50% discount and put it on sale for €8, now watch T-shirt sales rocket.

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And I’m laughing to myself as I write this because I just remembered what happened to me only yesterday.
I stopped at a petrol station to get a coffee. And when I was paying for it, at the till there was a packet of crisps in a basket with a sticker that said 50% off. So, what did I do? I bought them. And I didn’t even want them. And the cashier told me that she can’t keep the basket stocked because they were being sold that quickly.
We were all falling for the 50% off trick and we just buy things without giving them a thought, we just think we are saving money.
But if I didn’t buy them I would have saved even more, I’d have gotten 100% off.
Before I finish I want to tell you about another anchor, known as the anchor decoy.
This is a very clever trick where a retailer has a particular product that they don’t intend selling in big numbers, but they’ll use it to make other products look attractive by comparison and it’s those lower priced products that they want to sell lots of.
An example of this is wine.
When you go out for a meal have you ever noticed if you look at the wine list how the cheapest bottles are the ones always at the top of the list and as you go down the bottles become more expensive. This is deliberate because they want to create a sense of value for the lower priced wines when compared against the more expensive ones.
The bottle costing €70 is the decoy for the one costing €30, because you end up buying the €30 bottle that probably cost them wholesale a fiver.
Okay, let me leave you with this.
If you are buying something online and the discounts being offered are big, take your time with the purchase and make sure you check out the website and don’t rush into buying anything until you are satisfied that its legit no matter how big the discount is, or, if they tell you the discount is only on offer for a few more hours.
And before you buy anything online and it seems too good to be true, I’d say ask the Emily in your house to see what she or he thinks.

Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at liam@harmonics.ie or www.harmonics.ie