Anchoring in Negotiations and the Price of Lager in Dubai

As regular readers will know, I was in Dubai last week (with a half day in Abu Dhabi) running Real World Procurement workshops for Tejari, the BravoSolution jv in the region. Regular readers will also know that at Spend Matters we are fans of behavioural psychology and the work of Dr Daniel Kahneman (and others). Concepts such as priming and anchoring featured in our previous workshops and in a paper "New Approaches to Procurement Negotiation," that we produced as part of the Real World Procurement series.

So in thinking about value (the topic of one of last week’s workshops) it struck me that the concept of "Anchoring", described in Kahneman’s seminal book, Thinking Fast and Slow, applies very well to the price of beer in Dubai bars. I suspect there are also some interesting dynamics going on around cartels and price-fixing in that particular market, but we will leave that for another day.

Anyway, we had a drink in the very fancy five-star hotel on the Atlantis development after our session last week. The cheapest beer was a pint of Fosters (ugh) at a mere 52 Dirhams. Well, at least it was cold, and to be fair, you are sitting in a beautiful bar, with a very good live singer warbling away and free crisps and nuts provided. That is £10.90 by the way at current exchange rates, more like £11.30 at tourist rates.

When I got back to my 4-star hotel in Dubai, I went to my room - then was tempted down to the sports bar by the prospect of multi-tasking with Leicester versus Chelsea on one screen and Liverpool versus Derby on the other. (The TVs are on mute and there was also a really good indie play-list going on at the same time actually – they do have good bars in Dubai). So in this case, a pint of Amstel, a step up from Fosters, was “just” 46 Dirhams. That's not too bad, I thought.

Then I realised my mistake. I had been primed and anchored by the 52 Dirhams, and suddenly 46 looked quite reasonable. Of course, 46 Dirhams with the weakened pound is actually almost exactly £10. For a pint of just about adequate lager.

If someone had tried to change me that in London (let alone Sunderland), violence would ensue. But we get conditioned very quickly. So just remember that in your negotiations, and watch out for conditioning / anchoring / priming or whatever you call it when you go into action. You should question the basics behind the pricing, and not just accept that it seems to be "in line with the market" - like my beer.

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