marketing to the prehistoric mind ebook

7/30/2019 Marketing to the Prehistoric Mind eBook

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MARKETINGTOTHEPREHISTORICMIND

HowTheHotNewScienceofBehavioural

EconomicsCanHelpYouIncreaseYourSales

www.AgeofMarketing.com


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Page 2 of 30

Visit www.ageofmarketing.com for more Free sales & marketing articles

TableofContents

1. A b o u t t h i s b oo k :The Theory That Won a Nobel Prize

2. The Pos i t i ve Nega t i ve Asym m et ry Ef fec t : What Vince Vaughn, Bill Clinton and Gordon Ramsay Can Teach You About

Marketing

3. Loss Avers ion & Fram ing E f fec ts :When a Glass Half Empty Is More Persuasive Than a Glass Half Full

4. Risk Avers ion : If That's True of Entrepreneurs, Think What Your Average Customer Is Like?

5. The Endow m ent Ef fec t : When a Bird In Hand Is Worth 14 In The Bush

6. Stat us Quo B ias :What an Outdated Piece of Legislation Can Teach You About The Psychology of

Buying

7. From Desc r i p t i on t o Presc r i p t i on :Using These Systematic Biases To Increase Your Sales

8. Rela ted Sa les & Marke t i ng A r t i c l es9. References


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1.Aboutthisbook:TheTheoryThatWonaNobelPrize

Whatyouhaveinfrontofyouisacondensedandsuccinctsummaryofdecadesofresearch

inthefieldsofpsychologyandbehaviouraleconomics.Specifically,itisbasedonDaniel

KahnemanandAmosTverskysProspectTheoryofdecisionmaking.Thetheoryhasbeenso

insightfulandinfluentialinthedomainofdecisionmakingthatKahnemanwasawardedthe2002NobelMemorialPrizeinEconomicsforhisworkonprospecttheory.

Despitethetheorysvalueandapplicationtothefieldofsalesandmarketing,ithaslargely

remainedconfinedtotheworldofacademia.Inplaceswhereithasenteredtheworldof

businessithasbeenlimitedtobigbusiness,asonlythosewithlargebudgetscanaffordto

spendtensandthousandsofdollarsinhiringexpertsknowledgeableandtrainedinthe

applicationoftheprinciples.90%ofmarketershaveneverevenheardof,letalonestudied,

anyoftheprinciplesofProspectTheory.Manyhaveaccidentallystumbleduponthem

throughtrialanderrorbutveryfewunderstandwhytheseeffectsactuallyexistorhowto

maximizetheir

power.

Accordingly,thisebookseekstorevealandapplythoseprinciplestotheworldofsalesand

marketing.Thelessonscontainedinthisebookareapplicabletoeverybusiness.Regardless

oftheindustryyouareinorthedemographicsofyourmarket,theseprinciplesapplyto

yourbusinessastheyapplytoallhumandecisionmakingacrosscultures,gendersandage

groups.Allyourequireistheimaginationtoapplytheminyourbusiness.

Ifyouhavethepatiencetolearntheseprinciplesandthemotivationtoapplytheminyour

business,youwillgainaninstantcompetitiveedgeoveryourcompetitors.


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2.TheNegativepositiveAsymmetryEffect:

WhatVinceVaughn,BillClintonandGordonRamsayCanTeachYouAbout

Marketing

InSeptember2005,VinceVaughn,thefamousHollywoodactorwhostarredinthehit

moviesWeddingCrashersandAnchorman,decidedtotakeagroupoffourcomediansona

thirtyday

comedy

tour

around

America.

They

were

to

travel

some

6000

miles

through

the

heartlandofAmericavisitingthirtycitiesinthirtydays.TheideawastobringanAgrade

comedyshowtotheremotepartsofAmerica.

ItseemslikeyouhavetogotoNewYorkorVegasorCaliforniaorLosAngelestoseea

showlikethis,explainedVaughninaradiointerview.Ireallywanttobringagreatlive

comedyshowtopeoplesbackyardsandgivethemachancetoseeitintheirowntown.

Moreover,itwasachancetoshowcasethenextgenerationofcomicsandhelpthemobtain

somevisibilityandexperience.Ihopethattheycomeoutofthisstrongerinwhotheyare,

more

knowing

of

themselves.

Thats

the

biggest

thing

with

entertaining,

is

to

know

yourself

andbehonestaboutwhoyouaresaidVaughn.Anothercommentatoradded,Thirtydays

fromtoday,thesepeoplewillbedifferentpeoplewhentheyfinish.

Indeed,theyweredifferent.Thecomicsenduredagreatdealoverthenonstop30daytour,

cuttheirteethonsometoughaudiences,andlearntsomekeylessonsthatwouldserve

themforyearstocome.Intheprocessoflearningtheselessonstheyalsoleftsomeforusto

learn.Inparticularthereisonelessonthatisquiterelevanttostudentsofthehuman

psyche.

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Severalnightsintothetour,JohnCaparulo,oneofthefeaturedcomics,isonstage

performinghissetwhensomethingunexpectedhappens.Aspartofhissetheasksthe

audienceaquestion.

Anybodyeverworkinafastfoodplace?"

Anaudiencememberyellsoutaresponse.Althoughitisnotclearwhatthatpersonhassaid,

Caparuloisclearlyupsetbythecomment.Hesuddenlyslipsintoabadmood.Hegets

defensiveandverballyattackstheunidentifiedaudiencemember.

"Istheresomeshityouneedtoworkoutdog?Whatthef***?Whoisthisdrunkat9?

Yet,evenafterventinghisfrustration,heisunabletoshakeoffthenegativeremark.So

frustrated,infact,thatheabandonshissetandwalksoffthestage.

Ashestormsoutbackstage,shakinghisheadandswearingtohimself,oneofhisfellow

comicsinquires

about

the

situation.

Carapulo

tries

to

explain

what

happened,

but

is

so

frustratedbythesituationthatheisunabletoarticulatetheproblem.

Whatthef***man?Iwasjustdoingmythingandsomeguyinthebackisjust,gothis

f******.

Hiscolleaguetriesagaintoelicitsomeinformation.

"What'shedoing?"asksthefellowcomic.

EventuallyCarapulo

gathers

himself

and

explains

that,

when

he

asked

the

question,

one

of

theaudiencemembersyelledout"f***me",asiftosaythisisaboringshow.Theremark

upsetCarapuloandputhimoffhisgame.Andhoweverhardhetried,hecouldnotseepast

it.

LaterhediscussesthefiascowithVaughnwho,aswellasbeingthemanagerforthetour,is

alsoamentortotheseyoungcomics.VaughnreassuresCarapuloandoffershimadviceon

howtodealwithsuchsituations.ItisilluminatingtoseewhatVaughnadvisesCarapulofor

itshowsVaughnslackofunderstandingoftherootoftheproblem.

Whenpeople

want

to

engage

you

when

theyre

coming

from

an

angry

place,

it

usually

has

moretodowiththemthananythingtodowithyou,especiallyinasetwhenyouhave

everyoneintheaudienceapplaudingandlaughingandallthatstuff.Whylistentothatone

voice?Whynotlistentoalltheothervoices?"

Atfirsttheadvicemakesperfectsense.Whenpeoplearenegativeinsuchcircumstancesit

usuallyhastodowiththem.Theguyprobablycamedrunktotheshowwithaviewtoblow

offsomesteam.Hencearationalpersonwouldnotconcentrateonthatonevoiceand

wouldinsteadlistentoalltheother,morepositive,voices.


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YettheadviceisuselessbecauseitaddsnothingnewtoCarapuloscurrentunderstanding.

Carapuloalreadyacknowledgesthathisreactionwasirrationalandillogical.Ashehimself

said,thereare1301peopleinthereand1300peoplelovewhatIdo.Andthatoneguyisa

f******douche.Youknow,Iforsomereasonfixateonthatoneguy.

Hencethe

advice

doesn't

add

anything

new

or

substantial

to

Carapulo's

understanding

of

hisproblem.That'snottosaytheadvicewasfutile.Itcertainlyhadsomevalue.Butitwas

onlyeffectiveinsofarastheprocessoflisteningtoCarapuloandconsolinghimmadehim

feelsupported.Asfortheactualcontentoftheadvice,itmissedthemarkcompletely.If

anything,itprobablymadeCarapuloquestionhissanity.Itcertainlymakesanoutsider

questionhismentalhealth.WasCarapuloanirrationalindividual?Washeaweak

individual?Ifotherpeoplewouldreactdifferently,thenwhycouldn'thecontrolhis

emotion?Whycouldntheblockoutthenegativevoice?Whatwaswrongwithhim?

Yetforthosewhounderstandthephenomenonbehindhisabsurdreaction,theonlything

Carapulois

suffering

from

is

aserious

case

of

being

human,

aproblem

we

all

share.

What

CarapuloexperiencedthatnightwastheforceofwhatpsychologistscallthePositive

NegativeAsymmetryEffect.Yousee,wearefarmoreaffectedbynegativeexperiencesthan

wearebypositiveexperiences.Allelsebeingequal,negativeeventscommandgreater

attention,elicitadeeperemotionalreaction,andaremorememorablethanpositiveevents.

Moreover,theprincipleholdsacrossawiderangeofdomains,innonhumansaswellas

humans,andwithonlyafewnotedexceptions.

ClassicExperimentsonthePositiveNegativeAsymmetryEffect

Inone

survey,

researchers

asked

hundreds

of

undergraduate

psychology

students

to

list

the

numberofheroicactssomeonemustperform,eachattherisktohisorherownlife,tobe

forgivenformurderingoneperson.Themediananswerwas25.Thedamageoftheone

negativeactvastlyoutweighedtherebuildingeffortofthepositiveacts.

Inanotherexperimentparticipantswereaskedtoimagineeitherlosingorgainingacertain

amountofmoney.Whattheexperimenterswantedtoknowwaswhetherweexperienced

gainsandlossesinthesameway.Turnedoutwedidnt.Theresearchersfoundthedistress

oflosingmoneytobegreaterthanthejoyofgainingtheamountofmoney.Inotherwords,

losing$100andfinding$100isnotthesamething.Thepainoflosing$100faroutweighs

thehedonistic

value

of

gaining

$100.

Most

people

agreed

that

it

would

take

again

of

$200

tobalanceoutthepainoflosing$100.

WhattheHinduCasteSystemandthe1685NegroCodeHaveinCommon

Thisprincipleofnegativitybiasplaysoutonavastsocialscaleforover800,000,000Hindus

inIndiaeveryday,wherethecastesystemstillpermeatesthroughasignificantpartofthe

society.H.N.C.Stevenson,whostudiedthetopicingreatdepthintheearly1950s,noted

thatpeopleofhighercasteareeasilycontaminatedandloweredinstatusthroughcontact

withalowercasteperson.Thecontaminationcanoccuraseasilyasbyeatingfoodprepared


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byalowercasteindividualorbysharingautensilwithalowercasteindividual.Whatwas

mostinterestingwasthattheoppositedoesnotapply.Whenanindividualofalowercaste

comesincontactwithahighercasteindividual,heneitherpurifiesnorachieveshigher

status.Thusitseasytopolluteandhardtopurify.

Thisis

not

just

an

eastern

phenomenon.

In

the

1685

Code

Noir,

better

known

as

the

Negro

Code,onedropofblackbloodwasenoughtocontaminateanindividualandrenderthem

blemished.Yetnoamountofwhitebloodwasenoughtopurifysomeone,aswasevidenced

bythefactthatnomixedraceindividualwasnaturalisedaswhite.Incontrast,wherebeing

blackhasnowbecomebeneficial,insituationswhereaffirmativeactionapplies,thereisno

suchthingastheonedroprule.Aconsiderablystrongerconnectionisrequiredtobenefit

fromtheprivileges.

WhatBillClintonCanTeachYouaboutHumanMemory

Similarly,in

politics

it

has

been

shown

that

short

term

economic

downturns

reduce

the

supportfortheincumbentparty,whereasshorttermeconomicboomshavevirtuallyno

impact.

Onthesubjectofpolitics,considerthefamousAmericanpresidentBillClinton.Duringhis

presidencyhemanagedseveralsignificantvictories.Hetookthelargestbudgetdeficitand

turneditintothelargestbudgetsurplusinAmericanhistory.Hereformedwelfareand

achievedthelowestteenbirthratein60years.Hereducedthetariffsthatpreventedfree

tradeandpassedstrictlawstoprotecttheenvironment.

Evenmore

stunning

were

his

diplomatic

and

military

initiatives,

which

brought

peace

to

Haiti,theBalkans,and,albeitforashorttime,theMiddleEast.Notonlywerehis

interventionsclearcutvictories,theywereachievedwithminimallossofUSpersonnel.

However,despitethisimpressivelistofachievements,theissueforwhichheismost

rememberedandrecognisedishisillicitaffairwithMonicaLewinsky.Hisscandalousaffair

withtheyoungWhiteHouseemployeewasfarmorememorableandsalientthananyofhis

othercontributions.Butwhywasthisthecase?Whydidntpeoplerememberhispositive

contributions?Partofthereasonisthatnegativeeventsaremorememorablethanpositive

events.

Inarevealing

experiment,

researchers

asked

people

to

recall

arecent

and

important

emotionaleventthattheyhadeithertoldsomeoneaboutorkeptsecret.Theresearchers

welcomedbothpositiveandnegativeexperiences.Naturallybothwerereported.However

inasurprisingtwist,farmorebadexperienceswerereportedthangoodexperiences.The

recallrateforbadexperienceswassohighthatitexceededthepositiveexperiencesbyfour

toone.Theresearchersconcludedthateventsinvolvingbademotionsaremorememorable

thaneventsinvolvinggoodemotions.Inlightofthesefindings,itsnowonderthatthe

LewinskyscandalcontinuestoovershadowClintonscontributionsanddominatesthe

publicsmindasthemostmemorableissueoftheClintonera.


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TheRationallyIrrationalSpecies

Animportantpointtonoteaboutthepositivenegativeasymmetryeffectisthatthisisnota

culturalphenomenon.Wearenotnecessarilytaughttoreactthisway.Insteadweare

biologicallyprogrammedtofeelthepowerofbadmorethanthepowerofgood.Butwhy

wouldevolution

select

such

atrait?

What

is

there

to

be

gained

from

being

excessively

fearfulofloss?Whatisthepositivetoourobsessionwiththenegative?Theansweris

survival.Evolutionselectedthistraitbecauseitmadeindividualsmoreadaptabletothe

challengesoflifeandaidedthemintheirstruggleforsurvival.

Buthowdoesthisirrationalandillogicalbiasimproveourchancesofsurvival?Well, as

someleadingscientistsexplainedinarecentarticle,BadIsStrongerThanGood,publishedin

ReviewofGeneralPsychology:apersonwhoignoresthepossibilityofapositiveoutcome

maylaterexperiencesignificantregretathavingmissedanopportunityforpleasureor

advancement,butnothingdirectlyterribleislikelytoresult.Incontrast,apersonwho

ignoresdanger

(the

possibility

of

abad

outcome)

even

once,

may

end

up

maimed

or

dead.

Survivalrequiresurgentattentiontopossiblebadoutcomes,butitislessurgentwithregard

togoodones.Hence,itwouldbeadaptivetobepsychologicallydesignedtorespondtobad

morestronglythangood.

TheFinalVerdictonCarapulosReaction

Accordingly,Carapulowasneitherweaknorirrational,asitmayhaveappearedfroma

strictlylogicalandrationalperspective.Hewasjustexperiencingtheemotionalimpactof

thenegativepositiveasymmetryeffect.Itwashisbiologicalpredispositiontonoticeand

dwellon

the

negative

that

prevented

him

from

blocking

out

the

negative

remark.

To

put

it

anotherway,itwasnthisfaultthathecouldnthelpbutpayattentiontothatonenegative

person,evenwhentherewereotherpositivepeoplepresentatthesametime.

Theironyofitallisthattheguywhoyelledoutf***me,neverevensaidthat.Oneof

Caparulosfellowcomicswhowasinthecrowdatthetime andwitnessedthewholeevent,

latertoldCaparulothattheguyhadactuallysaidf***Yeh.HenceCaparulohadlosthis

coolfornoreason.However,themistakedidntgotowaste.Yearslater,somethousandsof

kilometresawayinacompletelydifferentcontext,thatslighthiccuphashelpedrevealan

importantprincipleofhumanpsychologythatbadexperiencesarestrongerthangood

experiences.

LessonNumberOne

Asalespersononcesaid,Ifyougivebadservice,peoplewilltelltenotherpeople.

Fortunatelytheoppositeisalsotrue.

Unfortunately,andwithallduerespect,itisnt.Amoreaccurateassessmentis,Ifyougive

badservice,peoplewilltelltenotherpeople.Ifyougivegoodservice,atbesttheywilltell

five.Why?Becausebadnewsismorebuzzworthythangoodnews.Thatswhyits


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importanttoensurethatunhappycustomersareattendedtoandtakencareof.Else,it

couldreallydamageyourbusiness.

Thismaysoundobviousbutyou'dbesurprisedhowmanybusinessesgetitwrong.Takethe

caseofthefamouschefandbusinessmanGordonRamsay,forexample.

GordonF******Ramsay

Afterthesuccessofhisfirstrestaurant,Aubergine,Ramsaybecamedismissiveofcustomer

complaints.Asheputit,"IntheAuberginedays,Ihadbecomeanarrogantlittlefucker,and

wheneveraletterofcomplaintarrived,itwentstraightinthebinasanappropriate

testimonytothewriter'scredentials.WhenwestartedatRoyalHospitalRoad,thetradition

carriedon."

Itwasn't

until

one

of

his

advisors

educated

him

on

the

damage

unhappy

customers

can

causethathechangedhisways.

"Itseemednormalenough,untilonedayChrisfoundoutandcamestormingintothe

restauranttopointoutacoupleofhometruths...hewentonabouthowonestonethrown

inthepondcausesripplesfromthecentretotheedgesandyoucan'tstopthem,andhow

importantwordslikehumility,feedback,reputationandwordofmouthareifwewanttobe

seriousrestauranteurs."

"Andwhatpissedmeoff,ofcourse,wasthathewasbangonthebutton."

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3.LossAversion&FramingEffects:

WhenaGlassHalfEmptyIsMorePersuasiveThanaGlassHalfFull

Imaginethe

following

scenario:

Supposethatyouarethemayorofasmalltownwithapopulationof600.Thetownisfacing

anoutbreakofadeadlyvirusthatislikelytokillmany.Youarepresentedwithtwodifferent

solutions.Thefirstwillsaveaguaranteed200people.Thesecondprogramwillsaveall600

withonethirdsprobability.Whichonewouldyouchoose?

Ifyouarelikemostpeople,youwouldhavechosenthefirstprogram.Youwouldtakeasure

thingoverariskygamble.

Now

imagine

the

following

scenario:

Supposethatyouarethemayorofasmalltownwithapopulationof600.Thetownisfacing

anoutbreakofadeadlyvirusthatislikelytokillmany.Youarepresentedwithtwodifferent

solutions.Thefirstwillallow400peopletodie.Thesecondwillletall600livewithone

thirdsprobability.Whichonewouldyouchoose?

Thistimeyouprobablywentwiththesecondprogram.Yetboth scenariosareexactlythe

same.Savingaguaranteed200peopleoutof600isthesameaslosingaguaranteed400

peopleoutof600.Sowhythereversalinchoice?Isitbecauseyouarenotanexpert

medicalpractitionerandtrainedinevaluatingmedicalprograms?

No,becausewhenthequestionwasputtoalargesampleofphysicians,theytoo

overwhelminglychosethefirstprograminscenarioone(72%)andthenreversedtheir

choicetothesecondprograminscenario2(78%).

FramingEffects:WhyaGlassHalfEmptyisMorePersuasivethanaGlassHalfFull

Thedifferenceisinwhatpsychologistscallframing.Sincebadexperiencesarestrongerthan

goodexperiences,lossesarefeltmorestronglythangains.AstheNobelPrizewinning

psychologistswhofirstdiscoveredthiseffect,AmosTverskyandDanielKahneman,famously

putit,lossesloomlargerthangains.

Thismeanspeoplearemoremotivatedtoavoidalossthantoseekagain.Thusinthe

exampleabove,themedicalpractitionersweremorelikelytaketheriskygamblewhenit

wasframedintermsofavoidingalossof400people,thanwhenitwasframedintermsof

savingthelivesof400people.

Whatthismeansforyouasamarketerorasalespersonisthatifyouwanttopersuade

someonetodosomething,tellthemnotwhattheywillgainbutwhattheywilllose.

Considertheexperimentundertakenbythepsychologists,YoavGanzachandNiliKarsahiof


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Page 11 of 30


theHebrewUniversityofJerusalem,Israel.

Collaboratingwithanationalcreditcardcompany,theyrandomlyselectedtwohundredand

fortysixcreditcardholderswhohadnotusedtheircardsforthepreviousthreemonths.

Thentheysentthemallamessageintheformofaphonecallfollowedbyaletter

highlightingthe

benefits

of

using

their

credit

cards

over

cash

or

cheque.

TheCatchWas

Theonlycatchwas,notallthecustomersreceivedthesamemessage.

Halfthecustomersreceivedanegativelyframedmessage(thelossofnotusingtheircredit

card)whiletheotherhalfreceivedapositivelyframedmessage(thebenefitofusingtheir

creditcard).

Thecustomers

in

the

negative

framing

condition

received

the

following

message:

"...Iunderstand.Itisworthwhileforyoutoknowthatthereare

manydisadvantagesinusingcashinsteadofZionCard.Oneis

thatinusingcashthereisadangerthatmoneywillbelostor

stolen;butifsomeoneusedyourcard,weareresponsible,and

themoneywillbereturnedtoyou.Thismeansthatpayingby

cashisnotonlylessconvenient,butalsomuchlesssecure.(Emphasisadded)

Incomparisonthoseinthepositiveframingconditionreceivedthefollowingmessage:

"...Iunderstand.Itisworthwhileforyoutoknowthatthereare

manyadvantagesinusingZionCardinsteadofcash.Oneisthat

inusingZionCardthereisnodangerthatmoneywillbelost

orstolen;thatisifsomeoneusedyourcard,weareresponsible,

andthemoneywillbereturnedtoyou.Thismeansthatpaying

byZionCardisnotonlymoreconvenient,butalsomuchmoresecure.(Emphasis

added)

Similarlytheywerealsoinformedofotherreasonsforusingthecreditcardbutwith

differentframing:

LossFramed GainFramed

Additionaldisadvantagesinusingcash

Nofreecreditforuptoonemonth.

Nocontinuoustrackingofyour

expenses.

Inconvenienceindailyuse.

AdditionaladvantagesinusingZionCard

Freecreditforuptoonemonth.

Continuoustrackingofyourexpenses.

Convenienceindailyuse.


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Page 12 of 30


Asyoucanseeboththemessageswerethesame.Theonlydifferencewasinthewaythey

wereframed.Whattheexperimenterswantedtoseewaswhetherframingamessagein

termsofalossoragainwouldhaveanimpactonthenumberofcustomerswhowould

subsequentlystartusingtheircreditcard.

Theresults

were

clear

cut

and

decisive.

Loss

framing

had

astronger

effect

on

customer

behaviour.Itwasntasmalldifferenceeither;thosewhohadreceivedthelossframed

messagedoubledtheiruseofthecreditcardcomparedtothosewhohadreceiveda

positivelyframedmessage.Also,whenquestionedsixmonthslater,66%ofthecustomersin

thenegativeframingconditionrecalledthemessagecomparedtoa43%recallratefor

thoseinthepositivelyframedcondition.Sometimesitpaystopitchtheglassashalfempty.

Cautionshouldbeexercisedininterpretingtheseresults.Whilelossframingismore

persuasivethangainframinginmostcases,thereareexceptions.Forexample,prevention

sellsbetterusinggainframedmessages.Inastudyonskincancerprevention,forexample,

theresearchers

found

that

apositively

framed

message

(Regular

use

of

sunscreen

can

protectyouagainstthesunsharmfulrays)wasmoreeffectiveatpersuadingpeopleto

requestsunscreen(71%)comparedtoalossframedmessage(Ifyoudontusesunscreen

productsregularly,youwontbeprotectedagainstthesunsharmfulrays)whichonly

managedacompliancerateof46%.

Theonlywayaroundthisproblemistesting.Youshouldtestthemessageonasmallscale

beforegoingallout.

Withthatsaid,lossframinghasarobusteffectandcanleadtosignificantlyhigher

complianceas

is

evidenced

by

the

credit

card

study.

UsingLossAversionandFramingEffectsinCopywriting

Entrepreneurs/copywriters/marketers/salespeoplegenerallytendtowriteaboutwhatis

tobegainedbybuying.Butasbadexperiencesarestronger,thereismuchtobegainedby

alsopointingoutwhatcanbeavoidedbybuyingaproductorservice.

Forexample,inadditionto:

Buythatdreamhouse. Havemoreenergytoplaywithyourkids. Fitintothatbikini. Freecreditforuptoonemonth.

Alsopointout:

Escapethedrudgeryofmortgagepayments. Avoidtheembarrassmentofnotbeingabletorunaroundwithyourkids. Avoidnotfittingintothatbikini. Nofreecreditforuptoonemonth.


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Page 13 of 30


Sotakealookatyoursalesletters/webpagesandifyounoticethattheyareprimarily

focusedonmovingtowardspleasure,thenrewritethemtoincorporatewhatyourproduct

allowsthecustomertoescapefrom.

LossAversioninAutoresponders

Youcanalsoincorporatethisintoyourautorespondermessagesequence.Ratherthan

having10messagesfocusedonmovingtowardspleasure lookinggreatinabikini,or

buyingthatMercedesyouvehadyoureyeon youcanalsohaveseveralmessagespushing

theavoidpainbuttonescapetheembarrassmentofnotfittingintoyourclothes,escape

thejobthatyouhate.

Thatwayyou(a)havemoremessagesforyourautoresponder(especiallyusefulforpeople

whofindithardtocomeupwithcontent)and(b)hitavarietyofuseremotionbuttonsand

tapintoalltheusermotivations,thusmaximisingyourchancesofmakingasale.

Likethecreditcardusersandthemedicalpractitioners,youmayfindthatyourcustomers

tooaremorepersuadedandmotivatedbywhattheycanlosethanbywhattheycangain.


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Page 14 of 30


4.RiskAversion:

IfThat'sTrueofEntrepreneurs,ThinkWhatYourAverageCustomerIsLike?

Anotherimplication

of

negative

experiences

being

stronger

than

positive

experiences

is

in

thefieldofrisktaking.Notsurprisingly,peopledontliketakingrisks.Whatissurprisingis

justhowriskaversemostpeopleactuallyare.

InanexperimentondecisionmakingthepsychologistLolaLopespresentedparticipants

withtwotypesoflotteryticketsbothofferingprizesbetween$0and$200.Thefirstlottery

haditsoddsevenlysplitacrossallamounts,meaningtheparticipantshadanequalchance

ofwinning$0,$50,$100,$150and$200.Thesecond,incontrast,concentratedtheodds

nearthemiddle,offeringahighchanceofwinningasumaround$100butwithlittlechance

ofwinningahighprizelike$200oralowprizelike$0.

Logicallytherewasnorightorwronganswer.Onelotterywasntsuperiortotheother

becauseifyouhadaveragedthedollaramountsinboththelotteriesyouwouldhaveended

upwithanaverageof$100.Thiswasjustaswellbecauseitwasntatestonthe

participantsdecisionmakingability.No,itwasatestontheparticipantsdecisionmaking

tendency.Lopeswantedtoseewhethermostpeoplewerepotentialseekingorwhether

theywere,whatshecalls,securityminded.

TheProverbialCoinNotOneofLogicButof

Sinceboththelotterieswerethesame,Lopesshouldhaveendedupwithparticipants

choosingatrandomleadinghalftooptforthehighriskhighrewardoptionandhalftoopt

forthelowrisklowrewardoption.Excepttheproverbialcointheparticipantstossed

wasntoneoflogicbutofemotion,which,aswehaveseen,isanythingbutimpartialor

symmetrical.Withbadbeingstrongerthangood,theparticipantsoverwhelminglychosethe

lowrisk,lowpayoutoption.Asoneoftheparticipantsputit,[theevenlysplitlottery

offered]toomanychancesofgettingalowerprize.Thestatementisinsightfulasitshows

thatpeoplearenotaseuphoricaboutgainingastheyareworriedaboutlosing.

Also,itwasntjustthattheparticipantsinLopessexperimentwerewallflowersorpansies.

Evenpeoplewhoaretheepitomeofrisktakingandpotentialseekingarentasriskseeking

aspopularmythologywouldhaveyoubelieve.Recently,sociologistsHongweiXuofStanfordUniversity,USA,andMartinRuefofPrincetonUniversity,USA,askedanationally

representativepopulationofbuddingentrepreneurstochoosefromthreepotential

ventures.Ventureonehadapayoffof$5millionwitha20%successrate,venturetwohad

a$2millionpayoffwitha50%chanceofsuccessandoptionthreehada$1.25millionpay

offwitha80%successrate.

Ifentrepreneurswerereallyriskseekingmissilesasthepopularimagesofbusinessmoguls

suggest,thentheyshouldhaveoverwhelminglychosenthehighrisk,highpayoffventure.

Exceptthatsnotwhattheresearchersfound.Theentrepreneursoverwhelminglywentwith


15/30

Page 15 of 30


thesurething(venturethree).Andifentrepreneurs,theembodimentofriskseeking,are

riskaverse,thenwhatdoesthatsayaboutyouraveragecustomer?

WhatRiskAversionMeansForYourBusiness

Whatall

this

means

for

your

business

is

this:

when

acustomer

is

making

abuying

decision,

heorsheismorefocusedonwhattheymightloseiftheyendupmakingabadbuy,orthe

purchaseotherwisefailstomeetexpectation,thanwhatistobegainedbyit.Most

salespeoplewillbefamiliarwiththisintheformofIneedtothinkaboutit,whichreally

justmeansthatthepotentialgainofmakingthepurchasedoesntyetoutweightheriskofa

potentialloss.

Forexample,whenpurchasingajacket,acustomeristhinkingmoreabouttheriskofbuying

thatjacket WhatifIseeanotheroneIlikemoreatadifferentstore?Whatifitsnolonger

infashion?WhatifIdontlikethecolourafterawhile?Whatifitdoesntgowithmyother

outfits?What

if

Ineed

the

money

for

something

else?

HowOneSimpleDeviceCanHelpYouOvercomeRiskAversionandDoubleYour

Sales

Yourjobasamarketerthenistofigureoutawaytoreducetheriskinherentinpurchasing

yourproduct.Thesimplestwaytodothisistoimplementalittledevicecalledaguarantee.

Guaranteesrelievetheriskandstressofpurchasingalemonoranotherwiseillsuited

product.

Intraditional

offline

businesses

guarantees

dont

always

work.

Not

because

they

dont

motivatepeopletobuybutbecausetoooftentheymotivatepeoplewhohavenoreal

intentiononbuyingtrialtheproduct.Thismakesthetacticprohibitiveasthecostsof

refundingoutstripstheextrabusinessbroughtinbytheguarantees.

SupposeyourunapayTVcompanyforexample.Ifyouofferaonemonthtrialatno

obligation,thenyouwillgeneratemorebusiness,nodoubtaboutit,upto23timesas

much.Butthecostofacquiringandsigningupthatcustomer(payingfortheadverts,the

salespeopletopresentandselltheproductandtheadministrativestafftosignthemupon

thebooks)andofhavingtosendanelectriciantoinstalltheequipment(technicianstime

andcost

of

equipment)

may

cost

you

over

$500

hundred.

Then

theres

the

cost

of

processingtherefunditself(removingtheequipmentandreconcilingtheiraccount).

Thus,unlessyoucanretainmostofthenewcustomersyouwillnotbenefitfromtheextra

businessgeneratedbytheguarantee(unlessyoucanfindasecondarywaytomonetizethe

customers,e.g.adverts).Soyouhavetotestitwithasmallsampleofcustomerstoseeifthe

extrabusinessgeneratedbytheuseofguaranteeswilloutstripthecostofpeoplewhotry

butdonteventuallybuy.

Withthatsaid,inmostcasesguaranteesworkwonders.Especiallyifyoudonthaveawell


16/30

Page 16 of 30


knownandtrustedbrandyouneedtoimplementsomeformofaguarantee.Onewayto

decreasecustomerattritionandexploitationofguaranteesistoincorporatecommitment

intotheguarantee.Askthemtopayfortheirfirstmonth.Anyformofmonetaryinvestment

willquicklyseparatethebuyersfromthepuretrailers. Henceratherthangivingthemafree

installation,freefirstmonthand1monthtrial,youmightofferthemfreeinstallationbut

theystill

might

have

to

pay

for

their

first

month.

This

way

only

the

people

who

genuinely

haveaninterestinbuyingtakeyouupontheoffer.Thosewhosimplywantedtotrailit

becauseitwasfreewillnotbewillingtopayforthefirstmonthandwillthereforefilter

themselvesout.

Theonlyplacewhereyoushouldhavenoqualificationsorfiltersorrequirecommitment

withguaranteesisonline.Whenitcomestodigitalcontentitcostsnexttonothingto

replicate.Thereyoushoulddefinitelygowithanoobligationtrial.Itwillallowyour

customerstotrailyourproductsatzerorisk,whileallowingyoutogeneratefarmore

businessesthanyouwouldwithouttheguarantee.


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Page 17 of 30


5.TheEndowmentEffect:

WhenaBirdInHandIsWorth14InTheBush

One

sunny

day

in

1994,

Dan

Ariely,

a

famous

economist,

was

walking

through

the

campus

groundsofDukeUniversitywhenhestumbledontothemostincredibleofscenes.ItwasK

Ville,Duke'sannualstudentcampoutwherebasketballfanspitchtentsoutsidethe

universitystadiuminabidtowinticketstotheDukebasketballgames.YouseeDukehasa

smallbasketballstadiumwithonlyalimitednumberofseats.Soinordertoseparatethedie

hardfansfromtherestandallocatethescarcetickets,anintricateritualhasdevelopedover

theyears.

Aspiringfansformgroupsofeighttotenandpitchtentsonthegrassyareaoutsidethe

basketballstadium.Itisfirstcome,firstenter.Thosewhopitchfirstgetspotsclosesttothe

stadium'sentrancewiththelatecomersprogressivelygettingfurtheraway.Atrandom

timesanairhornissounded,atwhichpointatleastonememberfromeachtentmustcheck

inwiththeauthorities.Ifatentfailstodosowithin5minutes,theyaremovedtotheback

oftheline.Thiscontinuesformostofthespringsemesterbeforeintensifyinginthelast48

hoursbeforeagame.Inthefinal48hourstheairhornblaresatallhoursoftheday,and

sometimesevenofthenight.Also,itnolongerremainsagroupcheckin.Itbecomeseach

fanforhimselfwithindividualfanshavingtoxcheckinpersonallywhenevertheairhornis

sounded.

Yetafterallthatwork,thestudentsatthestartofthelinestilldon'tgetaticket.Instead

theygointoadrawtowinthetickets.Thisrandomisationnotonlymakesthewhole

situationalittle

crazy

but

also

experimentation

worthy.

Think

about

how

closely

the

ritual

resemblesadesignedexperiment.Recruitagroupofparticipants,saystudentsatDuke,

promisethemthesameexperience,saythebasketballgame,makethemworkequallyhard

towintheprize,saythepainfulcampout,and thenusearandomisationprocess,saythe

lottery,tosplitthemintotwogroups,sayticketwinnersandticketlosers.Itisthekindof

thingasocialscientistwoulddesign.Andhereitwasoccurringallonitsown,withoutany

researchgrants,withoutanyonetryingtocreateartificialfanclubs,justwaitingfor

someonetocomealongandasktherightquestion.

ThatswhyArielywasfascinatedthatdaybecausehehadtherightquestionforthe

accidentalreal

life

experiment.

That

question

was

this:

"Would

the

students

who

had

won

tickets whohadownershipoftickets valuethoseticketsmorethanthestudentswhohad

notwonthemeventhoughtheyhadallworked'equally'hardtoobtainthem?"Thatis,if

youaskedoneofthewinnerstoselltheirticketandaskedoneoftheloserstobuythat

ticket,wouldtheyagreeontheprice?

Now,accordingtoconventionaleconomictheory,thequestionisntevenworthasking.Why

wouldthewinnersandlosersvaluetheticketsdifferently?Ifboththepartieswere

promisedthesameconditions,expectedthesameexperienceandworkedequallyhardfor

thesameprize,whythenwouldtherebeadiscrepancybetweenwhatasellerwouldbe


18/30

Page 18 of 30


willingtoselltheticketatandwhatabuyerwouldbewillingtopayforit.Ofcoursethey

wouldvalueitthesame.Itsjustcommonsense.

Ariely,however,didn'tseeitthatway.Inwhatmusthaveannoyedtheheckoutofclassical

economists,Arielyarguedthesellerswouldvaluetheticketsmorethanthebuyers.Yousee,

Arielysnot

just

any

old

economist.

Hes

from

the

insurgent

school

of

economics

called

behaviouraleconomics.Formostpart,behaviouraleconomistsarenotmuchliked,letalone

admired.Why?Becausetheykeepinsistingthathumansareirrational,oratleastnotas

rationalastraditionaleconomistsbelievethemtobe.Theyarguethatthehumanpsycheis

plaguedwithsystematicglitchesthatblurjudgmentandcolourthedecisionmakingprocess.

Whatsmorethesebiasesare,toacertaindegree,predictable.AsArielyputsit,peopleare

predictablyirrational.Thisisproblematicforclassicaleconomicsbecausemostneoclassical

economictheoryisbasedontheassumptionthatpeoplearerational,thatweknowwhatis

inourbestinterests.Soit'sfrustratingforeconomistswhenbehaviouraleconomistslike

Arielycomearoundarguingotherwise.

HealthNutsorOwnershipJunkies?

Hisrebelliousness,however,didhavesomescientificbasis.Inthiscase,hisinsistencewas

basedonastudydonebyJackKnetsch.Knetschrecruitedagroupofpeopleandgaveeach

participantanewcoffeemugbrandedwiththeiruniversitylogo.Thenheofferedeach

participantachancetotradetheirmugforapound(450grams)ofappetizingSwiss

chocolate.Whathewantedtoseewashowmanywouldmakethetrade.

Atrifling11%decidedtoaccepttheoffer.Theother89%decidedtoholdontotheir

belovedmugs.

Now

this

in

itself

doesnt

tell

us

much.

All

you

can

draw

from

this

is

that

the

participantswereeithercoffeecuploversorabunchofhealthnutswhodespisedjunkfood.

Whereitgetsinterestingisinthesecondpartoftheexperiment.Inphasetwo,the

experimentersagainroundedupagroupofparticipantsandrepeatedtheexperiment.Only

thistime,theyswitchedthegifts.Wheretheyhadpreviouslygiventhemcoffeemugs,they

nowgavetheparticipants Swisschocolate.Wheretheyhadbeenofferedatradefortheir

mugs,theywerenowofferedatradefortheirchocolate.Thechocolatewasexactlythe

same.Themugswereexactlythesame.Allthathadchangedwaswhattheparticipants

weregivenupfront,bydefault.Thistimetheresultsdidntjustchange,theyreversed.90%

ofthe

participants

decided

to

keep

the

chocolate

with

ameasly

10%

making

the

trade

for

thepreviouslybelovedmug.Knetschconcludedthatpeoplevaluewhattheyhavemore

thanwhatothers,nonownersofthegood,valueit.

Theproblemwithlaboratoryexperiments,however,isthattheyoftendonttranslateinto

practice.Thingsdontalwaysworkthatwayinreallife.Asthejokegoesthedifference

betweenscientifictheoryandrealityislikethedifferencebetweenreadingthemenuand

eatingdinner.ThatspreciselywhythesituationatDukeexcitedAriely.Itwasorganic.It

wasreallife.Ifhecouldprovehishypothesisthere,hecouldmakeastrongcaseforhisidea.


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Page 19 of 30


Tofindout,Arielyandhiscolleaguedecidedtophonethewinnersandlosersandtrytoset

upsomedeals."OurfirstcallwastoWilliam,asenior,majoringinchemistry",recallsAriely.

Williamwasoneofthelosers.Afterreachingthefrontoftheline,he'dmissedoutonthe

lotteryandthusthetickets.

'"Hi,William,"

Isaid.

"I

understand

you

didn't

get

one

of

the

tickets

for

the

final

four."

"That'sright."

"Wemaybeabletosellyouaticket."

"Cool."

"Howmuchwouldyoubewillingtopayforone?"

"Howabout

ahundred

dollars?"

he

replied.

"Toolow,"Ilaughed."You'llhavetogohigher."

"Ahundredfifty?"heoffered.

"Youhavetodobetter,"Iinsisted."What'sthehighestpriceyou'llpay?"

Williamthoughtforamoment."Ahundredseventyfive."

"That'sit?"

"That'sit.Notapennymore."

"Ok,you'reonthelist.I'llletyouknow."

AndonebyoneArielyandhiscolleaguecalledsome100studentswho'deitherwonorlost

toseeiftheycouldmanageadeal.Theirefforts,however,wereinvain.

WhenaBirdInHandisWorthFourteenintheBush

Notonepersonwaswillingtoselltheirticketatapriceabuyerwaswillingtopay.Losers,

onaverage,werewillingtopayaround$170foraticket.Thewinners,ontheotherhand,

demanded,onaverage,acrazy$2,400togiveuptheirtickets.Whatwasgoingonhere?

Oneminuteeveryonevaluedtheticketsthesameandthenexttheysuddenlysplitintonon

ownerswhothoughttheexperiencetobeworth$175andownerswhothoughtitwas

worthsome14timesmoreat$2,400.

Theanswercomesdowntowhatbehaviouraleconomistsandpsychologistscallthe

EndowmentEffect.Yousee,whenyouownsomething,youstarttovalueitalotmorethan


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Page 20 of 30


its'true'worth.Thatis,youvalueitalotmorethanpeoplewhodon'townit.Thewinners

valuedtheticketsmorethanthelosersbecausetheyhadclaimedownershipofthetickets.

Exactlywhythisissoisacomplexquestionbutitdoeshavealottodowithlossaversion.

Sincewehaveanirrationalfearofloss,whensomethingbecomesourownwestarttovalue

itmore

because

parting

with

it

then

starts

to

be

viewed

as

aloss,

which

we

just

cant

stand.

MarketingLessonfromaPetStore

Petstoresusetheendowmenteffecttogreateffect.Whenareluctantparentisunwillingto

committopurchasingapuppy,oranyotheranimalforthatmatter,thesalesassistant

simplysaysItellyouwhat,takethepuppyhomefortheweekend,andifyoufinditisnta

rightfitforyourfamily,bringitbackandwellrefundyourmoney.Noquestionsasked.Not

surprisingly,thecustomertakesthepuppyhome,thechildandfamilybondwiththepuppy

overtheweekend,andbeforeyouknowit,theycantrememberevernothavingthepuppy.

Partof

the

reason

the

technique

works

well

is

due

to

the

emotional

bonding

the

family

or

childundergowiththepuppy.Butjustaspowerfulisthetechniquesabilitytotriggerthe

endowmenteffectandgivethecustomerasenseofownership,becauseasArielys

experimentshows,onceweownsomethingwestarttovalueitmorethanwewouldifwe

didntownit.

Applyingthattoyourbusiness,canyougivesomethingawayfortrial?Whetheritsrugs,

vacuumcleaners,treadmills,coffeemakersorsoftwareprograms,bygivingsomethingaway

foratrialperiodyouwilltriggertheendowmenteffectandmakethechanceofasaleor

purchasemoreprobable.

ConfessionsofaFerrariCarSalesmanandtheArtofInstillingVirtualOwnership

Ifthephenomenonoftheendowmenteffectisn'tstrangeenoughalready,thenconsider

this.Fortheeffecttotakehold,theownershipdoesn'tevenhavetobereal.Sheer

perceptionofownershipcansufficeintriggeringtheeffect.Thatis,merelygettingsomeone

toimaginetheyownsomethingcanmakethemvalueitmore.

Soundssimpleenough,buthowexactlydoyouachieveit?MaybeChrisRoutledgecanhelp.

Routledgeisacarsalesman.Buthesnotjustanyoldcarsalesman;heisoneofLondons

best.You

have

to

be

if

you

want

to

sell

top

of

the

line

classic

cars

like

The

Ferrari

250

GTO

or

the1953JaguarXK120Dropheadcoupe.Withthesebeautiespricedathundredsand

thousandsandevenmillionsofdollars,Routledgehastoknowhissellinggameinsideoutin

ordertogetthebestprice.

Sowhatcanamanwhosellsrarevintagecarsthatcostmorethanmostpeopleshousestell

youaboutselling,andmoreimportantly,aboutinstillingvirtualownership?Well,firstthere

istheusualbuttimelessadviceontheimportanceofsalesdiscovery,offindingoutyour

prospectswantsanddesires.Theresnopointinsellingthecustomersomethingthey

dontwant,saysRoutledge.ButthemostrevealingpieceofadviceRoutledge givesyouis


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Page 21 of 30


oninstillingvirtualownership.Unlikethepetstores,hedoesntlettheprospecttakethecar

homefortheweekendandletthembondwithituntiltheycantrememberwhatitwaslike

livingwithoutit.Thoughhedoessomethingverysimilar heletstheprospecttakethecar

foratestdrive.

Iusually

save

the

test

drive

till

the

end

of

the

process,

says

Routledge,

but

if

Iknow

the

carisreallyreallyhot,Iputthecustomerinitinthebeginning.Astheprospectdrives

aroundinthecarfeelingitspowerunderneaththeirfeetandenjoyingtheenviouslooks

frompeoplelookingoninawe,hecanthelpbutfeelasenseofownership.Oncethat

powerful,albeitimaginary,senseofownershipisinstilled,itsprettyhardtowalkawayfrom

thecar.AsRoutledgeputsit,Thattestdriveoftendoesmyjobforme.

Atfirsttheideasoundsabsurd.Itsoundsallairyfairy.Butthereisscientificevidenceto

provethatthephenomenonexists.Considertheexperimentbyacoupleofmarketing

researchers,JoanPeckandSuzzaneBShu,attheUniversityofWisconsin,USA.

Theyrecruitedagroupofover200participantsandhadthemtouchandholdaslinkyanda

mugforaminute.Excepttheydidntgetalltheparticipantstodoso,askingsometosimply

standthereanddonothingfortheminute.

Thentheyhadtheparticipantsfilloutaquestionnaireaskingthemtoassesshowmuch,ona

scalefrom1to7,IfeellikethisismySlinky/Mug,Ifeelaveryhighdegreeofpersonal

ownershipoftheSlinky/Mug,andIfeellikeIownthisSlinky/Mug.

Theresearchersfoundthatthosewhodphysicallyinteractedandtouchedtheproductsfelt

agreater

sense

of

ownership

(3.36)

than

those

who

hadnt

(2.75).

Thus,Routledgehadlearntsomethingabouthumanpsychologythatmostpeoplewillnever

realiseintheirlifetime.Whetheritsa$250,000Ferrari,a$250phoneora$25tshirt,

lettingpeopletouch,tryandholdaproductmagnifiesdesireandcreatesasenseof

ownership.Asthefamousconsumerbehaviourscientist,PacoUnderhill,explains,

Possessionisanemotionalandspiritualprocess,notatechnicalone.Itbeginsintheeyes

andtheninthetouch.Oncethethingisinyourhand,oronyourback,orinyourmouth,you

canbesaidtohavebeguntheprocessoftakingit.Payingforitisameretechnicality.

Howto

Use

the

Endowment

Effect

to

Increase

Sales

Thelessonthenisclearyourjobistofigureoutawaytoletprospectsandcustomers

experienceyourproducts.Theeasieryoumakeittosee,touch,tasteandexperienceyour

productthemorequicklyitwillchangeownershipfromyoutothecustomer,whichinturn

willincreaseyourchancesoftechnicallysellingthatproductandthereforeincreasingyour

sales.

TrialPeriods

Canyougiveyourcustomersaproducttotryforaday,weekoramonthforfree?


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Page 22 of 30


Howaboutofferinga30daymoneybackguarantee,noquestionsasked?

VirtualOwnership

Canyouchangeyourshopfrontlayouttoallowcustomerstomoreeasilytouchandfeel

yourproducts?Canyouallowthemtotakeyourproductforatestdrive?

Stories

Canyoutellwickedtalesthatgetthecustomerstoimaginewhatitwouldlikeusingyour

productsorservices?See:GettingCustomersto'ImagineThis'WithoutAskingThemto

'ImagineThis'
http://www.ageofmarketing.com/selling-with-storieshttp://www.ageofmarketing.com/selling-with-storieshttp://www.ageofmarketing.com/selling-with-storieshttp://www.ageofmarketing.com/selling-with-storieshttp://www.ageofmarketing.com/selling-with-storieshttp://www.ageofmarketing.com/selling-with-storieshttp://www.ageofmarketing.com/selling-with-storieshttp://www.ageofmarketing.com/selling-with-storieshttp://www.ageofmarketing.com/selling-with-storieshttp://www.ageofmarketing.com/selling-with-storieshttp://www.ageofmarketing.com/selling-with-storieshttp://www.ageofmarketing.com/selling-with-storieshttp://www.ageofmarketing.com/selling-with-storieshttp://www.ageofmarketing.com/selling-with-storieshttp://www.ageofmarketing.com/selling-with-storieshttp://www.ageofmarketing.com/selling-with-storieshttp://www.ageofmarketing.com/selling-with-storieshttp://www.ageofmarketing.com/selling-with-storieshttp://www.ageofmarketing.com/selling-with-storieshttp://www.ageofmarketing.com/selling-with-storieshttp://www.ageofmarketing.com/selling-with-storieshttp://www.ageofmarketing.com/selling-with-storieshttp://www.ageofmarketing.com/selling-with-storieshttp://www.ageofmarketing.com/selling-with-stories


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6.StatusQuoBias:

WhatanOldOutdatedPieceofLegislationCanTeachYouAboutThe

PsychologyofBuying

Intheearly1990stheUSstatesofNewJerseyandPennsylvaniaintroducedtortsreformsto

helptheircitizensmakebetterchoicesinautomotiveinsurance.Indoingso,they

inadvertentlysetupanexperimentthathelpedrevealasystematicglitchintheway

consumersthink,decide,andbuy.

Aspartofthenewchangesthestatesofferedtheircitizenstwooptionsfortheirautomotive

insuranceanexpensiveoneandacheapone.Theexpensiveonegavefullrightstosue,

whilethecheaperoneonlyprovidedthecitizenswitharestrictedsetofrightstosue.

InNew

Jersey

75%

of

the

citizens

chose

the

expensive

option,

with

only

amere

25%

opting

forthecheapoption.Thisinitselfwasntremarkable.Atbestallthistoldanyonewasthat

peoplearentalwaysafterthecheapestoption.Whatmadethesefiguressignificantwas

howtheydifferedfromthoseofthestateofPennsylvania.ThePennsylvaniancitizens,in

contrast,overwhelminglychosethecheaperoption.Amassive80%ofcustomerschosethe

cheaperoption,withonly20%ofpeoplejoiningtheirNewJerseyfriendsinchoosingthe

moreexpensiveoption.

Thequestionofcoursewaswhy?Whydidtheygetsuchbipolarresults?Werethe

Pennsylvanianslesseducatedorinformedontheimportanceofhavingfullsuingrights?Or

were

the

citizens

of

Pennsylvania

just

plain

old

cheap?

Theanswer,astonishingly,turnedouttobemuchmorebanalthanthat.Thestark

differenceinconsumerchoicedidnotresultfrombettereducationordifferencesinsocio

economicstatusoranyotherkeydifferenceinmarketdemographics.Ratheritstemmed

fromthewaythechoiceswerepresentedinthetwostates.InNewJersey,theexpensive

optionwasthedefaultoption,whileinPennsylvaniathecheaperoptionwasthedefault.

Mostcitizens,foronereasonoranother,justwentwiththedefaultoption.

TheAustriansandtheGermans

Asimilareffecthasbeendiscoveredintherealmoforgandonation.InAustria99%of

peopleareregisteredasorgandonors.ComparethattoGermanywhereonly12%are

registeredfororgandonation.Againwhythehugedifferenceinthesefigures?AreAustrians

morealtruisticthanGermans?Dotheyholddifferentvalueswhenitcomestoorgan

donation?

Nope.Whataccountsforthisdifferenceissimplythewaythechoicesarepresentedinthe

twonations.InAustria,organdonationisthedefaultoption.Youhavetooptoutofthe

donorregisterifyoudontwishtodonate.InGermanyitsthereverse,youhavetooptinif

youwanttobeadonor.Thissimplechangeinchoicepresentationisthecauseofthe


24/30

Page 24 of 30


significantlydifferentresultsbetweenthetwonations.

Thistendencytostickwiththedefaultoptioniswhatpsychologistsandbehavioural

economistscalltheStatusQuoBias.Itisasystematicglitchinhumandecisionmakingthat

canleadto,asevidencedbytheorgandonationstatistics,significantuptakesofaparticular

idea,option

or

product.

It

is

so

inbuilt,

in

fact,

that

even

being

aware

of

ones

predisposition

tostickwiththedefaultoption,peoplestillcanthelpavoiditslure.

AtellingexampleisthatoftheAmericanscholarCassSunstein.Sunsteinhasstudiedhuman

biasesinjudgmentanddecisionmakingandisoneoftheleadingexpertsinthefield.Hehas

alsowrittenabook(Nudge,coauthoredwithRichardThaler),onhowthesebiaseswork,

howtofightthem,andhowtousethemtoimprovesociety.Yet,asSunsteinscolleague,

RichardThaler,pointsout,Sunsteinhimselfisntsignificantlybetteratresistingthepowerof

thestatusquobias.

Manyyears

ago

American

Express

wrote

Sunstein

acheerful

letter

telling

him

that

he

could

receive,forfree,threemonthsubscriptionstofivemagazinesofhischoice,tellsThalerof

hiscolleaguessituation.Freesubscriptionsseemedlikeabargain,evenifthemagazines

rarelygetread,soSunsteinhappilymadehischoice.

WhatSunsteindidntknow,however,wasthathewouldhavetoactivelycancelhis

subscription.Otherwisehewouldcontinuetoreceivethemagazines,andmoreimportantly,

havetopaynormalpriceforthem.Soforaboutadecade,hehascontinuedtosubscribeto

magazinesthatherarelyeverreads(hekeepsintendingtocancelthosesubscriptions,but

somehownevergetsaroundtoit).

WhytheStatusQuoBiasissoPowerful

Thatcharminglittleanecdoteisagreatexampleofthepowerofthestatusquobias.But

whyarepeoplesopredisposedtostickingwiththedefaultoption?Theanswerseemstobe

acombinationofmultiplefactorsandeffects.Firstlypeoplearelossaverse,meaningpeople

dontliketolosethingsthattheyalreadyhave.CombinethiswiththeEndowmentEffect,

thephenomenonthatoncesomeoneownssomethingtheystarttovalueitmore,andyou

haveindividualsnotwantingtogiveupwhattheystartedwith,evenwhenwhatthey

startedwithwasntactivelychosen.

Third,itrequiresefforttodosomething,likeoptoutofasubscription,andthatseffortthat

manyofuswontexpenduntilweabsolutelyhaveto. Inotherwordspeopleprocrastinate.

Finally,asThalerandSunsteinhighlight,Inmanycontextsdefaultshavesomeextra

nudgingpowerbecause,rightlyorwrongly,thedefaultoptioncomeswithanimplicit

endorsementfromthedefaultsetter,beittheemployer,government,orTVscheduler.

Fortheworldofsalesandmarketing,thisisapowerfulconcept.Ifconsumershavea

tendencytostickwiththedefaultoption,thenyoucansignificantlyincreasetheuptakeofa

productorservicebysimplymakingit,thatsright,thedefaultoption.Magazinepublishers,


25/30

Page 25 of 30


asSunsteinsanecdotedemonstratessowonderfully,havecertainlycapitalizedonthe

phenomenon.Buttheyarenotalone.

Gymsandfitnesscentershavealsostartedtoincorporatethisstrategyintotheirplansand

packages.Mostgymsknowthatthecustomerswillpowerandneedtochangearetransient

statesof

mind.

According

to

one

source,

90%

of

people

who

join

agym

will

stop

going

withinthefirst90days.However,thecostofacquiringacustomerisincrediblyhighfor

mostgyms,andfrankly,threemonthsofsubscriptionissimplynotprofitable.Sohowdo

yougetthemostoutofeachcustomer?

Simple:byimplementinganautomaticpaymentssystemintheformofaDirectDebitPlan.

Whenthecustomerssignup,theyarechargedautomaticallyeverymonthtotheirbank

accountorcreditcarduntiltheyactivelycanceltheirplan.Mostpeople,duetothestatus

quobias,keepputtingitoff,andthegymgetsanextrafewmonthsworthofsubscriptions

outofthecustomers.Nowsupposetheysqueezeanextratwomonthsoutofeach

customer.At

$60

amonth

thats

roughly

an

extra

$120

per

customer.

Multiply

that

by

some

200hundredcustomersandthatonesmallchangeresultsinsomethinglike$240,000in

extrarevenuesmostofwhichisprofit.

Thestrategyworksespeciallywellforbusinessesthatdorepeatbusinessorsella

subscriptionbasedproduct.Magazines,bookclubs,gyms,cosmeticcompanies,fruitto

yourdoorbusinesses,payTVvendors,internetserviceproviders,andphonecompaniesare

justsomeofthesebusinesses.Byincorporatingautomaticpaymentplans,optout

subscriptions,andautomaticrenewalsofexpiredservices,anysubscriptionbasedbusiness

cansignificantlyaddtoitsbottomline.Andifyoudonthaveasubscriptionbusiness,thenit

maybe

worth

looking

into

setting

one

up.


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Page 26 of 30


7.FromDescriptiontoPrescription:

UsingTheseSystematicBiasestoIncreaseYourSales

Hereisasummaryofallthetechniquesdiscussedinthechaptersbefore.

Lesson1:LimitandControltheBadNews

Asbadisstrongerthangood,acustomerismorelikelytotellothersaboutabadexperience

thanagoodone.Andasbadexperiencesaremorememorableandfeltmorestrongly,the

personhearingthenewswillalsobemoreaffectedbyit.

Thismeansyoushouldattendtounhappycustomersquicklyandeffectivelyinorderto

reducethedamagethattheymaycause.

Lesson2:UseNegativeFraming

Inadditiontopointingoutwhatistobegainedbybuyingyourproductorservice,you

shouldalsohighlightwhatistobeavoidedbyusingyourproductorservice.

Forexample,inadditionto:

Buythatdreamhouse. Havemoreenergytoplaywithyourkids. Fitintothatbikini. Freecreditforuptoonemonth.

Alsopointout:

Escapethedrudgeryofmortgagepayments. Avoidtheembarrassmentofnotbeingabletorunaroundwithyourkids. Avoidnotfittingintothatbikini. Nofreecreditforuptoonemonth.

Thatwayyouarenotonlypushingtheseekpleasurebuttonsofyourcustomers,butalso

theavoidpainbuttons.Sincepeoplearemoremotivatedtoavoidpainthanseekpleasure,

thiswillmakeyourmessagemorepersuasive.

Lesson3:ReduceRisk

Mostpeoplearenotaseuphoricaboutgainingastheyareworriedaboutlosing.Thus,when

acustomerismakingabuyingdecision,heorsheismorefocusedonwhattheymightloseif


27/30

theyendupmakingabadbuy,orthepurchaseotherwisefailstomeetexpectation,than

whatistobegainedbyit.

Yourjobasamarketerthenistofigureoutawaytoreducetheriskinherentinpurchasing

yourproduct.Oneofthemostpowerfulwaystodothisistoimplementaguarantee.Havea

30day

money

back

guarantee

no

questions

asked,

for

example.

Lesson4:InstillVirtualOwnership

Peoplevaluewhattheyownmorethanwhattheydontown.Andtheeasieryoumakeitto

see,touch,tasteandexperienceyourproductthemorequicklyitwillchangeownership

fromyoutothecustomer,whichinturnwillincreaseyourchancesoftechnicallysellingthat

productandthereforeincreasingyoursales.

3WaystoInstillingVirtualOwnership

1. TrialPeriodsCanyougiveyourcustomersaproducttotryforaday,weekoramonthforfree?

Howaboutofferinga30daymoneybackguarantee,noquestionsasked?

2. PromoteCustomerProductInteractionCanyouchangeyourshopfrontlayouttoallowcustomerstomoreeasilytouchand

feelyourproducts?

3. StoriesCanyoutellwickedtalesthatgetthecustomerstoimaginewhatitwouldlikeusing

yourproductsorservices?SeeGettingCustomersto'ImagineThis'withoutAsking

ThemtoImagineThis.

Lesson5:UsethePowerofDefaults

Setyourmostdesirableoptionsasdefaults(leftoptionofimagebelow).Ifyoudontwantto

betooassumptive,usearecommendedtag(rightoptionofimagebelow).

Example:

Page 27 of 30



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Page 28 of 30


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Leventhal'sTetanusExperiments:DoesFearPersuadeorParalyse?

GettingCustomersto'ImagineThis'WithoutAskingThemto'ImagineThis'
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9.References

Chapter1AboutThisBook

Kahneman,D.,&Tversky,A.(1979).ProspectTheory:AnAnalysisofDecisionunderRisk.

Econometrica,XLVII,

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291.

Chapter2 ThePositiveNegativeAsymmetryEffect

Baumeister,R.F.,Bratslavsky,E.,Finkenauer,C.,&Vohs,K.D.(2001).Badisstrongerthan

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Chapter3 LossAversion&FramingEffects

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Chapter4RiskAversion

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Chapter5 TheEndowmentEffect

Ariely,D.(2008).PredictablyIrrational:TheHiddenForcesThatShapeOurDecisions(1stEd.).

USA:HarperCollinsPublishers.


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Chapter6StatusQuoBias

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Thaler,R.,Sunstein,C.(2009).Nudge:ImprovingDecisionsAboutHealth,Wealth,and

Happiness(UpdEd.).USA:guin(NonClassics).

Wetmore,D.

(2010).

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marketing to the prehistoric mind ebook

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