I couldn't help but love Chris Yeh's Outline of Predictably Irrational: The Hidden Forces that Shape Our Decisions. It's a fascinating look into the surprisingly predictable psychology that powers human actions and reactions, and I think there are some definitive lessons we can take away from the piece and apply to web marketing. Let's run through the list:
I: The Truth About Relativity
When Williams-Sonoma introduced bread machines, sales were slow. When they added a "deluxe" version that was 50% more expensive, they started flying off the shelves; the first bread machine now appeared to be a bargain
When contemplating the purchase of a $25 pen, the majority of subjects would drive to another store 15 minutes away to save $7. When contemplating the purchase of a $455 suit, the majority of subjects would not drive to another store 15 minutes away to save $7. The amount saved and time involved are the same, but people make very different choices. Watch out for relative thinking; it comes naturally to all of us.
Lessons to Apply to Web Marketing:
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Offer a premium version of your product/service and make it easy to compare
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Charging more has the added benefit of reducing the "bargain shopper" mentality
II: The Fallacy of Supply & Demand
Savador Assael, the Pearl King, single-handedly created the market for black pearls, which were unknown in the industry before 1973. His first attempt to market the pearls was an utter failure; he didn't sell a single pearl. So he went to his friend, Harry Winston, and had Winston put them in the window of his 5th Avenue store with an outrageous price tag attached. Then he ran full page ads in glossy magazines with black pearls next to diamonds, rubies, and emeralds. Soon, black pearls were considered precious.
Simonsohn and Loewenstein found that people who move to a new city remain anchored to the prices they paid in their previous city. People who move from Lubbock to Pittsburgh squeeze their families into smaller houses to pay the same amount. People who move from LA to Pittsburgh don't save money, they just move into mansions.
Lessons to Apply to Web Marketing:
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Want to be a premium product and charge a premium price? Set yourself against "premium" competitors in premium markets. Positioning is critical to the perception of value.
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Anchoring happens - plan for it in your sales models and be prepared that old customers will be resistant to new pricing, even when the circumstances are very different.
III: The Cost of Zero Cost
In the real world, this effect was demonstrated by Amazon's free shipping. After Super Saver shipping was introduced, Amazon saw sales increases everywhere except for France. It turned out that the French division offered 1 franc ($0.20) pricing instead of free pricing. When this was changed to free, France saw the same sales increases as elsewhere. Another real-world example: People will wait in line for absurdly long times to get something for free. Free is one of the most powerful ways to trigger behavior.
Lessons to Apply to Web Marketing:
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Offer free stuff, but make sure you get ROI from it (traffic/ad views/email addresses/etc)
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Be prepared for the fact that people will ENJOY free stuff more than normal, simply because it is free. Use this to your advantage and give away to those whose love & affection you need (reporters, bloggers, pundits, haters, etc.)
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Making people work to get something for free is a great way to trigger behaviors that might otherwise cost a fortune (think web surveys, information classification, data entry, etc.)
IV: The Cost of Social Norms
Vohs, Mead, and Goode: Participants were asked to unscramble sentences that were either neutral ("It's cold outside") or related to money ("High-paying salary"). Then they were asked to solve a puzzle. The experimenter left the room, and the subjects were allowed to go to him for help.
- "Salary" participants waited 5.5 minutes to ask for help; "neutral" participants waited only 3 minutes
- Thinking about money made people more self-reliant and less willing to ask for help.
- On the other hand, they were less willing to help others.
- The conclusion is that thinking about money puts one in a market frame of mind. Subjects were:
- More selfish and self-reliant
- Wanted to spend more time alone
- Were more likely to select individual tasks rather than those that required teamwork
- Chose to sit farther away from others
A real-life example: The AARP asked lawyers to participate in a program where they would offer their services to needy employees for a discounted price of $30/hour. No dice. When the program manager instead asked if they'd offer their services for free, the lawyers overwhelmingly said they would participate.
Conclusion: Market norms drive out social norms.
Lessons to Apply to Web Marketing:
- Those who freely contribute to your site/business with recommendations, referrals, content (think blog comments or UGC articles), etc. might not be willing to do so if paid. Think twice before paying for what you might be able to get for free.
- The mindset of volunteers vs. employees is very different - consider which behavior set you want before deciding on the type of labor to attract.
V: The Influence of Arousal
Ariely and Loewenstein conducted an experiment on Berkeley undergrads (Ariely tried to do this at MIT, but couldn't get the necessary permissions). They asked them a series of questions. Then they had the undergraduates stimulate themselves to a state of sexual arousal, and asked them to answer the same set of questions. The results show that people simply don't realize how different their decision-making is during a state of arousal.
Implications - Someone may promise to just say no, but that promise is less likely to hold up during a state of arousal.
Lessons to Apply to Web Marketing
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There's a reason why AdultFriendFinder made an IPO last week, despite terrible economic conditions
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Arouse your audience and their behavior changes drastically (note: this is probably not universally applicable)
VI: The Problem of Procrastination and Self Control
Ariely conducted an experiment on his class. Students were required to write three papers. Ariely asked the first group to commit to dates by which they would turn in each paper. Late papers would be penalized 1% per day. There was no penalty for turning papers in early. The logical response is to commit to turning all three papers in on the last day of class. The second group was given no deadlines; all three papers were due in the last day of class. The third group was directed to turn their papers in on the 4th, 8th, and 12th weeks.
The results? Group 3 (imposed deadlines) got the best grades. Group 2 (no deadlines) got the worst grades, and Group 1 (self-selected deadlines) finished in the middle. Allowing students to pre-commit to deadlines improved performance. Students who spaced out their commitments did well; students who did the logical thing and gave no commitments did badly.
"These results suggest that although almost everyone has problems with procrastination, those who recognize and admit their weakness are in a better position to utilize available tools for precommitment and by doing so, help themselves overcome it."
Lessons to Apply to Web Marketing:
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Procrastination is an extremely common human behavior - plan for it in your business and take advantage of it where it can help (trial offers that turn into paid services, for example).
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By setting up early controls and making people recognize this weakness, we can reduce its negative impact. You can apply this to contractors, employees, vendors, etc.
VII: The High Price of Ownership
The "endowment effect" means that when we own something, we begin to value it more than other people do.
Ariely and Carmon conducted an experiment on Duke students, who sleep out for weeks to get basketball tickets; even those who sleep out are still subjected to a lottery at the end. Some students get tickets, some don't. The students who didn't get tickets told Ariely that they'd be willing to pay up to $170 for tickets. The students who did get the tickets told Ariely that they wouldn't accept less than $2,400 for their tickets.
There are three fundamental quirks of human nature. We fall in love with what we already have. We focus on what we might lose, rather than what we might gain. We assume that other people will see the transaction from the same perspective as we do.
Lessons to Apply to Web Marketing:
- In contrast to the recommendations for offering something for free, be aware that users who get your product/service for "free" will place less value on it than those who've worked for it or bought it themselves.
- It's easier to get more money from your existing customers than it is to attract new ones (this marketing wisdom has been around forever, but applies particularly well given this psychology).
VIII: Keeping Doors Open
In 210 BC, Xiang Yu led an army against the Ch'in Dynasty. While his troops slept, he burned his ships and smashed all the cooking pots. He explained to his troops that they had to either fight their way to victory or die. His troops won 9 consecutive battles. Eliminating options improved the focus of his troops.
We feel compelled to preserve options, even at great expense, even when it doesn't make sense.
Lessons to Apply to Web Marketing:
- Narrow your customers' choices and they'll be more likely to commit.
- Narrow navigation options to the most important/desired behaviors - it may seem counter-intuitive, but if you want users to click, reducing pathways may actually increase interaction (page views, sales, etc).
IX: The Effect of Expectations
Ariely, Lee, and Frederick conducted yet another experiment on MIT students. They let students taste two different beers, and then choose to get a free pint of one of the brews. Brew A was Budweiser. Brew B was Budweiser, plus 2 drops of balsamic vinegar per ounce.
When students were not told about the nature of the beers, they overwhelmingly chose the balsamic beer. When students were told about the true nature of the beers, they overwhelmingly chose the Budweiser. If you tell people up front that something might be distasteful, the odds are good they'll end up agreeing with you--because of their expectations.
Not only do we react differently based on stereotypes of others, we react differently based on stereotypes about ourselves. Shin, Pittinsky, and Ambady conducted an experiment on Asian-American women. A first group was asked questions related to their gender, then given a math test. A second group was asked questions related to their race, then given a math test.
The second group did better on the math test than the first. "Blind" presentation of the facts (presenting the facts, but not revealing which party took which actions) might help people better recognize the truth.
Lessons to Apply to Web Marketing:
- Take advantage of expectations - if you're selling a product or service and can enhance the perception of value/enjoyment, your market is likely to follow along and actually get more value/enjoyment.
- Branding is a powerfully ally in value creation - position your brand so that users expect great things, and they'll get them.
X: The Power of Price
Ariely, Waber, Shiv, and Carmon made up a fake painkiller, Veladone-Rx. An attractive woman in a business suit (with a faint Russian accent) told subjects that 92% of patients receiving VR reported significant pain relief in 10 minutes, with relief lasting up to 8 hours.
When told that the drug cost $2.50 per dose, nearly all of the subjects reported pain relief. When told that the drug cost $0.10 per dose, only half of the subjects reported pain relief. The more pain a person experienced, the more pronounced the effect. A similar study at U Iowa showed that students who paid list price for cold medications reported better medical outcomes than those who bought discount (but clinically identical) drugs.
Lessons to Apply to Web Marketing:
- Higher pricing means higher expectations, but also more fulfillment, even if the product isn't actually more fulfilling! Raise your consulting prices, people.
- The Placebo effect is strong - don't abuse it, but leverage this knowledge to be smart about your own purchases and investments and as a potentially valuable tool to use in comparisons with competitive products/services/companies.
Your turn - go read the full piece and see if there are any terrific snippets of advice/knowledge that you'd apply to marketing online. I've only covered the surface level, so I suspect there's a great deal more value to be gleaned.
p.s. Posting will remain light through January 5th, but YOUmoz is more active - and at its highest readership levels yet!
I always love how the perception of value works.
Early in my marketing career the business owner was tired of having salesman complain that the competition was cheaper. He believed very much that clients thought the more expensive product was better.
He purchased a painting from a local unknown artist and put in in the window with a $30.00 price tag. Each Monday morning he raised the price $5.00. When the price got to $70.00 it sold. The man that bought it said he really liked it and saw it every day when he walked by on the way to his office. He said he figured it better go ahead and buy it before it went up too high for him to afford. The boss paid $15.00 for the painting.
I taught my first sales team to always offer the client 3 proposals. The one they wanted the customer to take, a high priced one, and a low ball one. 75% of the time the client picked the one in the middle, the one we wanted them to buy in the first place.
Finally do the math. If you double your prices and loose half your customers your making the same amount of money and doing half the work. If you are making $10 profit on a $100.00 sale and you raise your price 10%, your profit increases 100%. So what if you loose a couple of sales.
Brilliant!
An awesome post that codified some very important ideas in easily digestable bites of information.
People's decision-making changes when they are aroused? Who woulda thunk it? :.)
Great post Rand! I was already contemplating reducing my offerings to give my clients less choice (and less hum-and-hawing) to improve revenue. This seals the deal!
Other books I'd recommend:
Made to Stick by Chip and Dan Heath. Biggest lesson learned: Give your clients concrete examples they can understand. Don't tell them you expect conversions to increase to 20% (this is abstract) tell them that 1 out of 5 visitors to their website will buy. Yes it is the same thing but the 2nd example makes a world of difference (I've been successful with it many, many times.)
The Tipping Point by Malcolm Gladwell. Biggest lesson learned: Build strategic partnerships with the right people, not willing people. Some people will naturally know more people or will be trusted by more people. These are the ones on whom to hitch your wagon.
The Leadership Challenge by Kouzes and Posner. Biggest lesson learned: The E-Myth is full of crap -- yes, a process is important and essential but the Leadership Challenge tells you that having the right people in place and engaging with them the right way is the key to long-term success.
Really like this post. A couple of these drive current decisions for us on our website and really seem to work.
Good review, thanks. I know this will help my site when i implement them.
This was a really good post. I had stumbled onto this book and I wasn't sure if it was worth a read but now I know it is. Thanks for the tips. Sadly raising your price tag higher than what it should be might still scare away some customers. But it's worth a shot. Thanks for the post~
Well, this is an interesting post. But I did feel a bit troubled about a few of the stated principles.
The problem is that some of these principles not only apply to the customer, but to the seller as well. So it's worthwhile keeping an eye on their influence on our pricing, product and strategy decisions.
For example the High price of ownership rule is a tricky trap one can fall into (and even more when compounded with the last one, the Power of Price). While we may think our services are worth $2,400, (and perhaps we multiply X by a factor of say 1.2 just to respect the Power of Price rule) the customer may be simply thinking they'll only pay up to $170.
At any rate, I think I might test the Influence of Arousal with a few choice self-comissioned designs in my portfolio and I'll let you know if my conversion ratio goes up :)
Kick ass post, Rand.
I'm always intrigued by studies like these and their results. It's important to be aware (and self-aware) of tendencies to these irrational behaviors, both as marketers and as consumers ourselves.
Predictably Irrational just jumped to the top of my reading list.
Great post!!! Consumer Behavior and psychology has always been a major focus for me in my marketing. I will try to implement some of these lessons and see what happens.
*Insert Rand comment here* Buyer behavior studies are always interesting. I haven't seen some of this stuff since University; I guess its time to revisit.
Chaldini's Influence had an example of the price effect where a product wasn't selling until it was marked at twice the price, increasing both the perceived value and sell-thru. Now all I need is somewhere to apply this in what I do.
Wow...great post. I just got done reading that book the other day after my Econ Prof recommended it! The book has such great value not only in internet marketing and business, but in life as well. Good work!
Bookmarked and enjoyed, Rand.
The comparison of people's spending habits when moving to new cities may be slightly flawed based on my observations. I don't think it nullifies the point of spending stability competely, but worth pointing out...I suppose I should read the book to get the context... and plan to.
Just a couple of thoughts....
If you move from a more expensive city to a less expensive city, at least until fairly recently, you may be subject to captial gains taxes in the first 2 years in the US that can be avoided by folding your profits into the house / property. When I moved from the SF Bay area to KY, I could either buy a big fancy house (I did, downsizing later), or pay thousands to Uncle Sam that I'd never see again on the profits of buying a compatible house to what I had in Santa Clara. I realize that capital gains laws have changed - but since I don't know the source of your quote, I'm not sure if this counterargument applies.
If you move to a more expensive city, you incur a number of expenses (time and material) to settle into that city which can affect your habits for years. Double income people may have one spouse who quits their job to "follow" the other person and this disruption of income can be quite difficult. In my experience, people adjust their budgeting to absorb this change in life. You have less disposable income and therefore set your sights lower on housing.
I plan to share this excellent post with others, and thank Marty for pointing it out.
Brilliant post.
Eliminating Options really brings focus and true may help to take focused action.
Why then did Microsoft, who know a lot about marketing and psychology, why did they introduce such a vast array of options for Vista?
My guess is that their customer already knew they were going to buy Vista just not the particular package. Faced with that array and little knowledge most, I wager, would go for the top one as it must logically have everything they'll need.
I've found this effect with web hosting, most clients will go for a package that is vastly "bigger" (more bandwidth, disk space, ...) than they need simply because they don't know what they need. They never ask what they'll need either.
So in summary, it depends!
WRT the offering of lower cost or free services - lower cost means the client pays less to have you serve them; free means you choose to serve them. One puts the client in control, the other has you in control. Also lower price means "I'm worth less" whilst giving away means "I'm generous".
Jane, you will be missed at the Moz. But I can't wait to see you at SMX London because YAY! I will have somewhere to stay now! :P We all wish you the best. And wish Rob and his crew the best, they are inheriting a handful <P STYLE="margin-bottom: 0in; widows: 2; orphans: 2"><A href="https://www.tnsee.com/">.</A></P>P Kidding Kidding. Best of luck. You do have to be IN the country on Jan 20th though. Come on, I didn't get you an "I Voted" sticker for nothing!
All ten are applicable. Having said that, one has to really understand one's markeplace to try to implement these. There also is a time relation in most cases because with the passage of time, relevance and necessity start changing in relative importance and the decision making becomes based on different factors.
To start of with “Great Post" Rand. I am now a proud owner of Chris Yeh's "Outline of Predictably Irrational".
It is both insightful and worth the time. It is heartening to know how mainstream marketing ideas is making its way in Online Marketing. A few years ago Online Marketing was considered different to traditional marketing.
More and more we see evidence that mainstream marketing ideas work equally well when applied online. Online marketing, as it evolves, will embrace more and more of it. Marketers who fail to do so will certainly be left behind or wiped out of existence.
Randy one of the best posts... I have read this post twice and taken a print out of this for my marketing team.
"Narrow your customers' choices and they'll be more likely to commit"
I ran an eCommerce site for 5 years and I can't stress how important this rule is. Especially when you're selling a lot of similar products, people get overwhelmed with choices. It seems counter-intuitive because you would think it would be best to offer people EVERYTHING as the chances they will at least like one thing are high. It actually worked the opposite. People become paralyzed by indecision. As a Salesperson, I quickly learned to say "here are two options that fit your needs, which do you want?" Your website should be structured in a similar fashion.
enjoyed this post , Effective marketing !!!
I think many points are still missing "services after sale", maintenance, warranty, availability, better existing values/services, more added values/services, fidelity ...etc
a lot of things can happen to convince customer to sell him a product/service.
we should always distinguish between existing customers and attracting new ones... differnet strategies and I think in everyting... I swear
"By setting up early controls and making people recognize this weakness, we can reduce its negative impact. You can apply this to contractors, employees, vendors, etc."
I don't really get what your trying to say here?
Are you suggesting to keep the trial->paid method but warn them along the way?
Consumer behaviour is essentially about understanding the approaches different personality types have to buying.
Some buyers are very expedient and willing to buy whatever it takes to succeed in a given task or role. Whilst others are all about peer group recognition and being early adopters. Many, and indeed the majority can be very suspicious and slow to make decisions which make recommendations, testimonials and affiliate marketing extremely powerful in crossing this barrier. People of the remaining personal type will be very sceptical and analytical in highlighting every flaw and imperfection in your product or service.
The trick is to first understand the person/ group you are selling to, and their motivating factors.
Thanks for the post Rand, I love these ideas. Effective marketing is the result of applied psychology.
This post is incredible, these tips are so good. I know this will help my site when I implement them. Good jobs guys!
EDIT FROM RAND: Removed Link
Good post Rand.Marketing and sales is more emotional and logical.:D. sometimes (but often) people really don't care about the price, they care about value and satisfaction.
This is just another reason why SEO is moving more into the marketing aspect everyday.
The more guys out there with marketing skills, along with an understanding of web technologies, the more reputable our industry becomes.
There's so much to be gleaned in this post. These concepts should be standard training materials for anyone wanting to be in business.
Success comes to those who step outside the box of codependent thinking (lowering fees because you "feel bad" that a prospective client can't afford your rates) and into the realm of abundance mentality (offering an entry level solution that covers the essentials for those who can't afford premium solutions, and a premium service for those who can)...
When I first started as an independent I offered my services at $50 an hour. Soon enough I realized I wasn't appreciated or respected by clients.
So I changed "independent consultant" status to "boutique marketing firm", brought in a part time assistant and have arrangements with two other independent specialists.
With this change, I switched the majority of my services to a fixed rate service without attaching hours to it, but instead based on specific deliverables. Those prospective clients who understand the value have no problem with our fees.
And it works out to $150 - $200 an hour.
We're now redesigning our web presence and creating high end marketing materials. As soon as they're in place, our rate will go up again.
I'd love to know how this is working out for you. I have found reactions all over the map and yet to see a predictable "best" model for pricing freelance marketing services. The retainer model is the best one so far, but clients still want to know lots of detail about the hours spent (making it pretty much an hourly agreement)
Cheers Rand.
A great refresher on (common sense) consumer behaviours' impact on marketing. all web marketers should give this a read before heading into the new year!
One of the best posts I've read here!
Question:
Given you use the advice above, you reduce the amount of choices for yoru client to help their decision making, and have a regular and premium package. Without knowing their budget you're at risk of digging a hole for yourself if you make the premium one sound worth doing but if they can't afford it the regular solution will no longer sound as attractive.
What do you do now? Surely you cannot give out the premium solution for the price of a regular one - that would make a dangerous precendant and would ruin your client's expectations and "fixate" them into the price block that is virtually unchangeable.
Great post Rand! I also suggest reading anything by Robert Cialdini.
I think that's more to do with having close to half a billion dollars in debt.
Christ, have you spent all Christmas writing this?!
This article has really gotten my creative juices flowing. I am rethinking how to structure the reimbursement of expenses for my business which has been a sticking point for a number of prospects.
Tremendous post Rand I was especially interested by the results of the cold medications, I used to buy the cheap stuff :)... hmmm but now that I know, will the list price medications work better?
Fantastic article, and very useful.
I recently raised the freelance prices on my website by 25% to reduce demand, because I simply couldn't deal with the amount of work that was coming in. The intention was to cut the number of orders and give me a bit of breathing space while I figure out how to grow.
The effect? The number of work requests increased significantly, to the extent that I've had to take on a couple of freelance helpers.
Like Rand says, raise those consulting fees, people!
Great Post Rand..
Web Marketing is depends on the Psychology such as consumer psychology and color psychology...and country wise there is different psychology of consumer..... and consumer behaviors is always changing on the basis of situation...
When I started to learn SEO at that time I suggested this idea of “The Cost of Zero Cost ” to my boss. And we started to provide free domain with the project of web designing and web development. That was really very beneficial for our business...
and second time I was doing optimization for medicine website and that medicine is so costly... so most of the people left the website due to high price of medicine...and I suggested to place small pack of medicine with low price.... and that increased the sales of medicine...
So understanding of consumer behavior is very important thing in Web Marketing.. If we can understand the consumer behavior then we can increase the sales of our websites...
Great post!
it's amazing how physcological marketing can be!
It's good to know!
thanks for the post!
David King
Thank you so much for sharing. I think I might actually buy this book. Indeed these tips are helpful in the sense that they can assist with web marketing. Most of the tips read like miniature life lessons. Very good read.
Great post. I love all these psychological test and their application. I'm getting more and more inpisred for the New Year. In spite of the recession I think this is a great time for switched on people to really make a difference.
Excellent post!!
Another good one is that though humans want maximum control over their destiny, when a decision can be reversed, people are less satisfied than if a decision feels final (think modern divorce rates).
I captured this and a few others here:
5 lessons about consumer behavior
Great post that helps us understand web marketing better!