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Its all in the mind
on May 5, 2015
Alas, I read “Thinking, Fast and Slow (TFS)” before I read this book. So, a lot of stuff in this seemed to be a repetition.
So, how is this different from TFS. While both the books are on the subject of Behavioral Economics, hower, Dan has kept the topics brief and discussions to the point, so that the interest is sustained. While he would have conducted innumerable number of experiments in course of the research, he has only referred to a select few in this book. And whatever his criteria for selection was, it was pretty good, as it kept the interest of the readers on. I would prefer it over TFS
A brief overview of the interesting concepts in this book, which can of good use in product and pricing decisions are:
Relativity – to make a line look smaller (or a product affordable), draw a bigger line next to it (or a more expensive model). You need not really put an effort to sell the expensive model, but it gives a relative idea. The important thing is that the products should be comparable, as human mind cannot function with incomparables.
Anchoring – Daniel had labored on this a lot in his book TFS. For a consumer to make a purchase, an appropriate anchor is important, which could be even the MRP. So, low MRP does not necessarily help to sell. The interesting revelation was that “ our first decisions resonate over a long sequence of decisions”!! So, get the customer first. Of course, one can de-anchor (don’t know if there is a word like that), for which uncomparable variants need to be introduced (Starbucks case ) and for which its own MRP becomes the anchor
Reaction to price changes : It lasts only as long as the memory of the old price persists, demand soon normalizes
Zero cost : Free is a powerful tool, although expensive to the consumer ( Woody Allens quote that “The most expensive sex is free sex” is so apt, although that was quoted more from the social norms context). So, make the consumers buy something for nothing. Add freebies for upselling, nothing much new about it. But using FREE! to drive social policies is interesting.
Social norms : Very powerful, but cuts both ways. Once a social norm it established, bringing in market norm will destroy it forever (the example of late pickup being charged at day care is a perfect example). Keep sending small gifts to the customer , they will yield good returns.
Influence of arousal : Frankly, not of much use in commercial, but was quite astounded to read and the experiment was an eye opener.
Price of ownership or endowment effect: Giving an option of refund if not satisfied is a very powerful hook in durable segment, as the endowment effect generally inhibits any urge to return.
Keeping doors open : This concept is quite detailed out in the book Paradox of Choice by Barry Schwartz. Too many options only destroy value
Effect of expectation and power of price : When we believe something beforehand that something will be good, it generally will be good an vice versa. So, manage your customer expectation. A high price only enhances the expectation
The continuum message is that human beings are mere pawns in a game whose forces they largely fail to comprehend. And that is where behavioral economics will be a strong feed into marketing – making sure that consumers make the right choice!!