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 reveal a great deal about what makes your customers tick and how to effectively sell to them.
Let’s dive in.
Everything Is Relative
Human beings are wired to compare things. Moreover, people tend to focus on two things that can easily be compared.
Feeling lost? Let me explain.
Ariely gives an example from Economist.com. The publication offered customers three different subscriptions:
- An Internet-only subscription for $59
- A print-only subscription for $125
- 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 wanted to purchase the middle option (print-only) — after all, why would they?
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 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 chose 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.
Can you guess what happened?
The sales of the cheaper breadmaker skyrocketed, because people 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 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 my town. 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! I was tempted to cancel my order (if nothing else than out of principle), but instead, I vowed never to buy such expensive coffee ever again.
And guess what? I ended up purchasing that coffee many times after.
According to Ariely, this is because human beings unknowingly establish price “anchors.” The first price that becomes anchored is arbitrary, but after that, we compare all similar products or services to that initial price.
Originally, I expected a coffee to cost around $5 (at a nice café); this is the price I had always paid in the past (or 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’re 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” which is when people justify an action or purchase because they’ve 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 purchased 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 customers 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’ll be able to establish new price anchors for your customers.
Human Beings Are Influenced By “Free”
A few weeks ago, my brothers were enraptured by a Breaking Bad marathon on cable TV. I asked why they didn’t just watch it on Netflix, where the entire series was available commercial-free and one of them responded, “it’s on TV! It’s just better this way.”
I’m not insinuating that my brothers like to sit through muted commercials. 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’s more expensive in the long-term, merely because there’s 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. Try it out and see what happens!
We Become Easily Attached to Products or Services
Back in June, I went car shopping. The charming car salesman showed me a brand new car. After taking it for a short test drive, I decided that I had to have that car.
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.
In fact, 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 feel the urge to buy it.
Then once we start using the desired product, we become even more attached, which explains why it’s so difficult to return that beautiful dress after we wear it or why we often turn into long-term subscribers after our one-month trial promotion ends.
What You Can Do
After explaining or demonstrating why your product or service is worth the investment, consider offering your customers a free sample of your product or a free trial. Chances are, they’ll want to come back for more.
Offering a money-back guarantee can encourage those who are on the fence to make a purchase.
Social Norms Shouldn’t Be Mixed with Market Norms
Imagine your friend gives you a gift for your birthday, and you reach into your 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 isn’t 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.
Dollar Shave Club, for instance, has the motto: “we don’t respond to situations, we respond to people.” They’ve worked on building relationships with their customers 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 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 tries to develop a relationship with each potential customer, relying on social norms to sell the cars.
In contrast, the dealership itself often relies on market norms: For example, if you try to return the car to the dealer after purchasing it, you might have a few days to do that, but will have to pay a large fine.
The clash of social and market norms here 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 you have to be careful not to revert to market norms later.
If one day you’re treating your customer like your best friend and the next day you’re treating them like just another fish in the sea, you’ll 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’m served red wine in a cup filled to the brim, I enjoy it much less than if it’s served in a large red wine glass, filled halfway.
Why might this be? I expect the wine to taste better when served in a big glass (since this is the proper way to drink red wine and it’s generally served this way at fancy restaurants). And those positive expectations shape my reality: It actually does taste better.
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 reason why so many people want to dine at Rao’s is because of its exclusivity. Would so many people really want to go if it weren’t so hard to get a table at?
The exclusive nature of the restaurant creates high expectations, and in turn, positive experiences for those who are lucky enough to dine at Rao’s.
What You Can Do
Create positive expectations for your customers, and positive experiences will most likely result.
Good copywriting can help you capture their interest and create 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. Wouldn’t you?
Presentation is also crucial to creating positive expectations. Human beings are visual creatures, and as much as we may try not to, we all judge books by their covers.
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’s confusing and cluttered. Need help designing and building a website for your brand? Good news: Our team can help.
If your company sells a product, put thought into the packaging. Apple’s packaging, for instance, is so simplistically beautiful that just opening the box is exciting (for me, at least!).
Finally, Ariely talks about how “price can change experience “and how more expensive medicines are proven to “work better” than cheaper medicines, simply because people believe them to work better.
He explains, “If we see a discounted item, we’ll 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 on-brand, descriptive copywriting that draws your readers in.
If you do all of this, you’re likely to increase expectations and bring about a more positive experience for your customers.
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 customers to believe that something is free of charge, only to charge them later on with hidden costs that weren’t stated upfront. Because marketers have done this sort of thing repeatedly over the years, customers have become more and more distrustful of brands.
What You Can Do
If you’re giving away a free product or service — but there’s some sort of catch — then make that clear. Don’t put it in tiny font where it’s barely visible.
For example, Southwest Airlines held a campaign called “Transfarency” (that’s right, with an “f”), where their goal was to show customers that they didn’t believe in tacking on hidden costs.
Whatever you do, don’t just say that you’re 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 customers from the get-go, and your brand will be rewarded in the end with their loyalty.
The decisions that your customers make on a day-to-day basis often have no rational motive. One thing that they do know they want is honesty and transparency.
So what does that mean for marketers?
For one, you can facilitate the decision-making process for your customers by subtly leading them in the direction that you want them to take.
At the same time, embrace transparency.
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 customers.
At the end of the day, that’s what it’s all about.