The more knowledge we have of the human psyche, the greater capacity we have to become better marketers.
In his book, Predictably Irrational: The Hidden Forces That Shape Our Decisions, behavioral economist, Dan Ariely, explores the irrationality behind human decision-making and sheds light on why people make the decisions that they do. The enlightening conclusions that he draws can teach us a great deal about lead generation, from capturing the attention of a buyer persona and bringing in leads to creating positive experiences for consumers.
So…are you ready to dive in?
Everything Is Relative
Human beings are wired to compare things; moreover, people tend to compare (and focus on) two things that can easily be compared.
Feeling lost? Let me explain. Ariely gives the example of an experience he once had with Economist.com. The publication offered him three different subscriptions: an Internet-only subscription for $59, a print-only subscription for $125 and a print-and-web subscription for $125.
When people were faced with those three options, the majority of people chose the third option (print-and-web). Not a single person went with the middle option (print-only) — why would they, after all?
However, when the print-only option was removed, the majority of people selected the Internet-only option instead. Why? They had nothing to compare the print-and-web subscription to, so it didn’t seem like such a great deal anymore. The print-only option thus acted purely as a decoy to trick people into thinking that the print-and-web option was a great deal; once the decoy was eliminated, people could evaluate their choices clearly and went with the cheaper option.
Here’s another example that the author provides: Williams Sonoma was having difficulty selling their breadmakers. So they introduced another, comparable breadmaker — one that was larger and priced 50% higher than the original. As a result, the cheaper one’s sales drastically increased, simply because people now had something else to compare it to.
What You Can Do
Ariely argues that, “most people don’t know what they want unless they see it in context” or unless they have something to compare it to. So take advantage of this, and provide your consumers with a little context.
Instead of offering two incomparable products or services, present two choices that can easily be compared, and allow one option to stand out as the clear winner.
People Establish Price Anchors
Several months ago, I went to a vegan café in the town I lived in at the time (Encinitas, California). I ordered a (normal-sized) cold brew coffee, and my jaw dropped when I was told the price: a whopping $7 (plus tax).
I had never paid that much for a coffee before (even the overpriced Starbucks was not that expensive). I almost was tempted to cancel my order (if nothing else than out of principle), but instead, I simply vowed never to buy such expensive coffee ever again.
Except, guess what? I ended up purchasing that coffee over and over again.
So what’s going on here?
Ariely discovered that human beings unknowingly establish price “anchors” in their mind. The first price that becomes anchored is arbitrary, but after that, people will compare all similar products or services to that initial price.
Originally, I expected a coffee to cost somewhere in the range of $5 (at a nice café); this is the price I had always paid in the past, or in other words, my price anchor. That’s why a $7 coffee seemed so unreasonable to me.
But here’s the thing: we can establish new price anchors, if we are able to find a way to rationalize the higher cost of a product, service or experience. In my case, I ended up loving both the atmosphere of the café and the coffee. As a result, I set a new price anchor.
Anchoring can also lead to what Ariely refers to as “self-herding” or the process of when people justify an action or purchase because they have already done it in the past. As Ariely explains, “you’ve already made this decision many times in the past, so you now assume that this is the way you want to spend your money. You’ve herded yourself — lining up, behind your initial experience….”
I found a way to rationalize the cost of my high-priced cold brew coffee and ended up self-herding or making the purchase repeatedly. I had already done it once before, so why not buy it again…and again…and again?
What You Can Do
Keep in mind that if your products or services are comparable to what’s already out there, your consumers are probably already going to have price anchors set in their minds. But if you create a unique, higher quality experience or product, then you will be able to establish new price anchors for your consumers.
People Are Influenced By “Free”
A few weeks ago, my brothers were enraptured by a Breaking Bad marathon on cable TV. I asked one of my brothers why he didn’t just watch it on Netflix, where the entire series was also available — and where there were no commercials — and his response was, “it’s on TV! It’s just better this way.”
I’m not insinuating that my brothers like to sit through commercials (they were muted). Nor are they stupid. Rather, they were swayed by the power of free.
As the author claims, “most transactions have an upside and a downside, but when something is FREE! We forget the downside. FREE! Gives us such an emotional charge that we perceive what is being offered as immensely more valuable than it really is.”
Ariely noted that when Amazon France changed the shipping from one franc (20 cents) to free, the orders increased dramatically. How can just 20 cents make such a difference? When it’s the difference between paying even the tiniest amount — and free — it can make all the difference in the world.
The power of free can also result in many people choosing a product or service that is more expensive in the long-term, merely because there is an attention-grabbing free offer.
What You Can Do
Even just offering one free thing (whether it’s shipping or a small freebie or a complementary consultation) can make a massive difference in your conversions. It’s really that simple.
People Become Easily Attached to Products or Services
Back in June, I went car shopping. The charming car salesman cleverly showed me a brand new car. After taking it for a short test drive, I decided that I wanted that car. I felt like I had to have it.
While I didn’t end up purchasing that exact car, I ended up buying its slightly pre-owned equivalent. Definitely not the most practical choice for me at the time (and a decision that I regret looking back), but now I can at least see why I made the choice that I did — I became swept up in my emotions and the excitement that I felt around the car, which ultimately led me to make a very poor, impulsive and impractical decision.
Turns out that this is actually pretty common. Many people have the tendency to become emotionally attached to things once they start using them.
Not convinced? Let me ask you this: How many times have you bought something, while telling yourself that you can always return it later…but never do?
People become attached to things before they even own them. “Virtual ownership,” as Ariely refers to it, is a result of advertising, and it explains why we sometimes see something and just have to have it (or at least feel like we do). Once we start using it, we become even more attached, which explains why it is so difficult to return that nice dress after we take it home or why we often turn into long-term subscribers after that one-month trial promotion ends.
What You Can Do
After explaining or demonstrating why your product or service is worth the investment, offer your consumers a free sample of your product or a free trial. Chances are, they will want to come back for more.
The money-back guarantee is also effective and can often encourage those who are on the fence about a purchase to make that final leap.
Social Norms Should Not Be Mixed With Market Norms
Imagine your friend gives you a gift for your birthday, and you reach into your nearby wallet and hand her some cash for what you think the gift is worth. That would be pretty strange wouldn’t it? Similarly, it might be odd if your friend handed you a wad of cash or wrote you a check for your birthday — whereas a gift card would be totally within reason.
This is because the exchange of money is tied to market norms (which exist in the business world), whereas gifts are tied to social norms (which exist between family and friends).
Let’s say you ask a friend to drive you to the airport. Since it’s a friend, it would be strange to pay them. But if you want to introduce market norms and offer them $5 to drive you to the airport, they might decide that the money is not worth their time and turn down the offer.
Ariely claims that “introducing market norms into social exchanges violates the social norms and hurts the relationships. Once this type of mistake has been committed, recovering a social relationship is difficult…social norms are not easy to reestablish.”
In recent years, many companies have tried to develop relationships with their consumers based on social norms.
The Dollar Shave Club, for instance, has the motto: “we don’t respond to situations, we respond to people.” They have worked on building relationships with their consumers by providing them with exceptional customer service. Their friendly demeanor is reinforced on their website, where they state that customers have the option to cancel anytime and there is a 100% money-back guarantee if they aren’t satisfied with the product.
The problem arises when companies use social norms, and then switch back to using market norms down the line. As Ariely mentioned, this has the capacity to destroy consumer trust.
Let’s go back to the car salesman, who often tries to develop a relationship with each potential customer, relying on social norms to sell the cars. In contrast, the dealership itself relies on market norms: if you try to return the car to the dealer after purchasing it, you have a few days to do that, but will have to pay a large fine. The clash of social and market norms can result in angry customers who feel they were manipulated.
What You Can Do
Choose your norms wisely. Using social norms has the benefit of increasing customer loyalty, but it comes at a cost; your company must be careful not to revert to market norms later in the game. If one day you are treating your customer like your best friend and the next day you are treating them like just another fish in the sea, you will end up destroying trust — and losing customers.
Expectations Shape Reality
I love red wine.
But I must admit, if I go to a restaurant and I am served red wine in a small glass (or even worse, a cup), filled to the brim, I enjoy it much less than if it’s served in a large, typical red wine glass, filled halfway.
Why might this be? While red wine supposedly tastes better when served in a larger glass (it helps to bring out the flavor), it also has to do with expectations. You see, positive expectations allow us to enjoy experiences more. Because I expect the wine to taste better when served out of a big glass (since this is the proper way to drink wine and it’s generally served this way at fancy restaurants), it actually does taste better to me.
Here’s another example: The famous family-owned restaurant, Rao’s, in New York City is the most difficult restaurant in the country to land a reservation. It’s virtually impossible to get a table unless you know someone who can get you in the door. Some people will even pay thousands of dollars for a table at charity auctions.
Rao’s also does things a little differently from most restaurants: it’s not open on weekends and has no menu or wine list. The restaurant itself doesn’t look like much of anything, and the food is far from exceptional. So what’s all the fuss about?
My theory? It’s the experience they provide — not the food — that keeps the restaurant in business. Based on Ariely’s observations, my guess is that a large part of the widespread desire to dine at Rao’s is a result of its exclusivity. Would so many people really want to go if it weren’t so hard to get a table at?
High expectations (resulting from the exclusive nature of the restaurant) lead to positive, enjoyable experiences for those who are lucky enough to dine at Rao’s.
What You Can Do
Create positive expectations for your consumers, and positive experiences will most likely result.
Good copywriting is essential to generating interest and creating positive expectations. Ariely gives the example of a catering company that has “delicious Asian-style ginger chicken” and another catering company that has “succulent organic breast of chicken roasted to perfection and drizzled with a merlot demi-glace, resting in a bed of herbed Israeli couscous.” Which chicken would you rather eat? They could be exactly the same, but the second description actually makes my mouth water, so I would be much more inclined to go with that one.
Human beings are visual creatures — and as much as we may try not to, we all judge books by their covers. Presentation is therefore another crucial aspect to creating positive expectations.
On your website, this could mean creating a seamless website experience. I don’t know about you, but I’m much more likely to trust a brand with a beautiful, easy-to-use website than one that is confusing and cluttered. If your company sells a product, think about how it’s packaged. Apple’s packaging, for instance, is so simplistically beautiful that just opening the box is an exciting experience (for me, at least!).
Finally, Ariely talks about how “price can change experience “and how more expensive medicines have been proven to “work better” than cheaper medicines, simply because people believe them to work better. He explains, “If we see a discounted item, we will instinctively assume that its quality is less than that of a full-price item — and then in fact we will make it so.”
Bottom line? Consider pricing your product or service higher (as long as the price can be justified by either a stellar experience, an amazing product, or both), while also focusing on aesthetically pleasing presentation and fantastic, descriptive copywriting that pulls your readers in.
If you do all of this, you will likely increase expectations and thereby bring about a more positive experience for your consumers.
People Mistrust Brands
My good friend recently visited the U.S. from Ireland and complained that, “nothing is ever free in this country. In Europe, the price is what it is. No hidden costs. In the U.S., even if something is advertised as free, it’s never actually free!”
Unfortunately, many companies lead consumers to believe that something is free of charge, only to charge them later on with hidden costs that were not stated upfront. Because marketers have done this sort of thing repeatedly over the years, consumers have become more and more distrustful of brands.
What You Can Do
If you are giving away a free product or service — but there is a catch — then state that upfront, instead of in tiny font where it’s barely visible. This will increase your credibility as a brand and will result in fewer angry customers.
Make your company as transparent as possible, and consumers will trust you. Buffer, the social media management company, is one example of a company that walks the talk. One of their values is “default to transparency.” They live up to that, which is evident from the online documents that they make available to the general public. On Trello, their blog content calendar is available for the entire world to see. And on a public Google docs spreadsheet, Buffer has posted each team member’s salary.
Such openness helps to build trust not only internally, but externally as well. If Buffer is that open, about topics that generally companies are so private about, then why would you not trust them with your social media?
But you don’t have to post your salaries online to be transparent. Southwest Airlines held a campaign called “Transfarency” (that’s right, with an “f”), where their goal was to show customers that they did not believe in tacking on hidden costs.
Whatever you do, don’t just say that you are open and honest. Show your consumers. Prove it to them.
Lastly, be sure to respond to customer complaints or inquiries immediately and again, provide customers with that 30-day money-back guarantee.
Remember that once trust is gone, it’s difficult to regain. So be honest and open with your consumers from the get-go, and you will be rewarded in the end with their loyalty.
In a Nutshell
When it comes down to it, people often don’t know what they want. Moreover, the decisions that they make on a day-to-day basis often have no rational motive. One thing that people do know they want is honesty and transparency from the brands that they engage with.
So what does that mean for marketers?
For one, you can facilitate the decision-making process for your consumers by subtly leading them in the direction that you want them to take.
At the same time, embrace transparency and be straightforward with your consumers.
Finally, through higher pricing and outstanding presentation, design and copywriting, you can create high expectations around your product or service, and thereby cultivate positive experiences for your consumers.
At the end of the day, that’s what it’s all about.