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Mental Budgeting and Emotional Accounting

People aren’t always great at managing their money, right down to how they think about their money. We have a tendency to sort and label our income and our expenses in ways that don’t always lead to the best financial decisions, and recognizing why and how your customers may construct these “mental budgets” can help you understand them better.

19-scatterbrainMental Accounting

Everyone makes and keeps mental budgets (some people more than others), and the fact that many consumers feel at least a little compelled to divide their money into different categories has some interesting implications (in Behavioral Economics, this is considered a form of “Mental Accounting,” a label used to describe the collection of cognitive strategies and biases that arise when people think about their money). Because consumers have this tendency to form different mental budgets, it leads them to assign purpose to their money in predictable ways, often without realizing it.

This concept was fleshed out in a 1985 paper by Richard Thaler (co-author of Nudge), and has been greatly expanded since. One of the surprising findings that Thaler discussed was how consumers would not only subconsciously sort their money into mental budgets and accounts, but they would also feel like those accounts had meaning. As a result, people are hesitant to move money from one of these imagined budgets to another, creating artificial feelings of budgetary constraint. In other words, consumers would sometimes restrict themselves from buying something they wanted or needed simply because they felt that there wasn’t enough money left in an imaginary budget for it.

If this sounds a bit far-fetched, consider a 1996 study by Chip Heath (co-author of Made to Stick) and Jack Soll. They asked participants a series of questions that looked something like this:

Suppose that earlier this week you spent $50 to pay for a parking ticket. Would you purchase a $25 theater ticket to a show you want to see later this week?

What would you say? Now compare your answer to how you feel about this version:

Suppose that earlier this week you spent $50 to go to a sports event. Would you purchase a $25 concert ticket to a show you want to see later this week?

If you are like most consumers, then chances are that you would be more willing to buy the $25 ticket after paying for the parking ticket rather than the sports ticket. Why? Because we have at least a loose idea that the money for tickets to a game or to a show come out of the same mental budget (e.g. for entertainment), whereas the money for a parking ticket comes out of an entirely different budget. Because spending $50 on a game is a decent expense (for most of us), spending another $25 out of the same budget in the same week starts to feel uncomfortable.

19-notequalBudget Boundaries

Consumers subconsciously form mental budgets, but this doesn’t tell us what those budgets are necessarily intended for. Heath and Soll showed that consumers appear to have separate budgets for entertainment, food, clothing, health, and parking tickets, but these categories are by no means fixed. In fact, they probably vary a lot between people and depending on the situation. Furthermore, different types of budgets may overlap: if a customer thinks about their money in terms of “just for fun” versus “necessities,” these will blur with their budgets for food or for clothing (both of which could be used to buy either frivolous or necessary products).

One surprising way in which people tend to categorize their budgets is based not on how they intend to spend the money, but on how they got the money in the first place. This idea was explored in an unpublished paper by Suzanne O’Curry, who observed that consumers take into account the “seriousness” of money both when they receive it and when they spend it. Specifically, consumers try to match the seriousness of income with the seriousness of a purchase.

For example, if consumers are thinking about the money they make from their job (a serious source of income), they are more interested in spending it on necessities (a serious purchase). However, if they get some windfall cash, then they prefer to spend it on something more frivolous. For example, if you found $20 on the ground in a supermarket, you would likely be more motivated to buy an extra treat than to buy extra home supplies.

Similarly, Jonathan Levav and Peter McGraw found in a 2009 paper that many consumers may actually budget their money based on emotional reasons. Specifically, if they feel that there is a negative or guilty association with the money, consumers are motivated to spend it on necessities to avoid feeling more guilty. For example, the authors asked a group of college students how they would spend money given to them by a family member, but some students were told to suppose the family member was having financial difficulties. When the students associated the money with this added guilt, they were less likely to buy something frivolous or fun with it.

Mental Budgeting Basics

An understanding of how and why customers may sort and spend their money based on mental budgets can help to motivate them. First and foremost, removing the sense that purchases are all coming out of the same mental budget can reduce some of the resistance that customers may feel towards buying more than one item. If you have a wide array of products, particularly spanning the spectrum of “serious” to “frivolous” or from “necessities” to “for fun,” offering a mix (or forcing them to view a mix) can encourage purchasing across categories. Alternatively, if you don’t have a wide array of products, a similar result might be accomplished using some simple variety manipulations to give the sense that products are more varied than they may actually be. One simple approach which leverages a common online practice is by providing a wide array of product category key-terms on which to sort items.

Beyond having implications for your product offerings, recognizing mental budgets can help you optimize your coupon or gift card offerings. If your products tend to fall more into the necessities category, tell your customers that they have “earned” coupons, because the act of earning makes it seem like a more serious source of income. In contrast, if your products are more frivolous, try to cast your coupons as a surprise or as having been given to them because of luck. You might even have coupons with variable values that only become known when the customer accepts it. Not only does this give a sense that the coupon is a windfall, but it leverages the power of variable reinforcement, one of the most compelling ways to engage people’s interest (and an underlying mechanism for the addictiveness of behaviors ranging from gambling to mobile gaming).

19-couponbuttonLastly, recall from my post on the Valuation Effect that consumers overvalue a product or coupon when they are told the “purpose” of it. Leveraging this idea, you can explicitly tell your customers which mental budget a given deal, coupon, or even product belongs to, and they will not only sort their budgets accordingly, but may overvalue your offer in the process.

Takeaways

  1. Consumers naturally budget their money, which means that retailers need to be careful to understand which budget(s) they are appealing to.
  2. Appealing to multiple budgets can encourage customers to spend more than if they felt they were only spending out of one budget.
  3. Consumers prefer more frivolous purchases over serious purchases when they believe their money came from a less-serious or more fun source, and vice versa.

Guest post by Stanford’s Alex DePaoli

Follow him @AlexDePaoli.

 

 

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Valuation Effects

When is the best time to sell a snow shovel? Probably during or right after a big snowstorm when people really need one, and are even willing to pay more for one. This makes logical sense because if a consumer needs to do something, they will place more value on the product(s) that will help them fulfill that need.

In consumer psychology, this is captured by the idea of a goal-driven Valuation Effect: the more useful a product is for accomplishing a goal, the more a consumer will value it. A snowed-in consumer will value a shovel more than if that same consumer didn’t have any snow to get rid of, just as a hungry consumer will pay more for a sandwich than a consumer who isn’t hungry.

The Valuation Effect

Arthur Markman and C. Miguel Brendl published a paper in 2000 that elaborated on this idea that consumers’ goals affect their value judgments. More specifically, they stressed that whatever goal was most important at a given moment could skew valuations.

In one of their studies, the authors offered to sell raffle tickets to college students. They approached students who were waiting in line at their university bursar’s office (the office that collects university fees), and presented them with one of two raffles:

  • Half of the students were asked how much they would be willing to pay to enter a raffle for $1000 in cash
  • The other half was asked how much they would pay to enter a raffle for $1000-off their university bill

If they were offered the $1000 cash raffle, these students were willing to pay only about 93 cents for a ticket, but if they were offered $1000 off their bill (which seemed very significant given where they were), they offered about $1.52 on average. That’s a 60% increase simply by telling the students that the prize money would address a relevant goal.

18-raffleAs a point of comparison, the authors also approached students in line at a cafeteria with the chance to buy raffle tickets, and they found that students offered $1.12 on average for the chance to reduce their university bill. This time, because the students were not in a place that made the goal of paying their bill very relevant (as compared to the bursar’s office), they did not value the raffle as much.

These findings demonstrate the Valuation Effect: consumers will value a product more if they feel they have a greater need for it. When students feel like they need to pay their bills, then they see money earmarked for those bills as more valuable than plain cash.

In another compelling study, the authors offered to sell raffle tickets to two groups of smokers for the chance to win a carton of cigarettes. One group of smokers had recently taken a smoke break, while members of the other group were about to take a smoke break. Even though the raffle wouldn’t be held for many days, smokers bought more tickets if they hadn’t had their smoke break yet simply because they felt a stronger need to smoke. In other words, because they wanted a smoke, they paid more for the chance to win cigarettes.

The Devaluation Effect

18-smokingcostAnother paper by Brendl and Markman published in 2003 suggests an additional way that goals can influence how we value products: a Devaluation Effect. While we may overvalue things that can help us achieve a relevant goal, we also may systematically undervalue things that don’t help us achieve that goal. For example, in another version of the cigarette study, smokers were offered a raffle for a cash prize either before or after their smoke break, and it turned out that they valued the cash less before they’d had their smoke. Thus, it may be the case that smokers undervalued the cash (in addition to overvaluing the cigarettes) when they needed to smoke. In other words, because they want to smoke, but the cash can’t help them satisfy their cravings, they were less interested in the money.

Another study involved asking consumers to taste-test some popcorn and evaluate a series of products, some of which where food items and some of which were not. Half of the participants first got to eat a handful of the popcorn, which was meant to stimulate their appetites and leave them wanting more, while the other half had to wait until after they evaluated the products in order to try the popcorn. The results suggested that when consumers’ appetites were stimulated, they rated the non-food products as less interesting than did consumers who had not been stimulated. In other words, consumers devalued the non-food products because they couldn’t help them take care of their hunger.


Value of the Valuation Effects

The Valuation and Devaluation Effects lend themselves to a few immediately obvious applications. First, they suggest that you should always try to put your product or an ad in front of a consumer who is already thinking about a relevant goal. Many online advertising strategies already allow for an approach like this, for example, by matching website content or search keywords (like Google AdWords) to the product or product goal.

A similar strategy for leveraging the Valuation Effect is to identify patterns or times when customers are more likely to be thinking about the target goal, and to appeal to them during these periods (this is similar to the strategy of targeting the Fresh Start Effect, which is also driven by customer goals). More importantly, however, is that the Devaluation Effect suggests there may be negative consequences to presenting an advertisement at a time when consumers are thinking about goals not relevant to your product. If they see an ad for popcorn when all they want is a cigarette, they will place much less value on the popcorn.

Also note that when customers are experiencing a Valuation Effect, such as the case of someone in need of a snow shovel following a blizzard, they are possibly willing to pay more for the relevant product. However, an important concern with trying to act on this price overvaluation is that you need to be careful not to upset people if you raise your prices.

A slightly more subtle approach (although also not uncommon in advertising) is to focus your message on the desired outcome or goal instead of the product itself. Highlighting a goal makes it more immediate and relevant for the consumer, even if they had not been thinking about it before seeing the advertisement. In fact, many times people may ignore their goals unless they are explicitly reminded of them (weight-loss goals are a prime example). Once a goal is activated, the Valuation Effect will kick-in, and your product will look more attractive.

For example, plenty of homeowners have a vague goal of improving their homes in some way, but this goal is rarely top-of-mind in their everyday lives. If you’re trying to sell home improvement products, then an ad that reminds your target customers of their home improvement goals will increase the value of your products in their eyes.


With regards to money (such as in the raffle studies above), the Valuation Effect also helps to explain why people actually really like gift cards. Even if a $50 gift card seems like just a restrictive version of $50 in cash, customers may find gift cards more subjectively valuable because the “goal” of the money is made very clear. This is true for things other than money as well: if Apple wants customers to upgrade from the 16GB iPhone to the 32GB or 64GB iPhone, they should tell people explicitly what they could do with that extra memory space. Keep in mind which features of your product appeal to specific customer needs, and make sure they understand exactly which needs can be met by those features.

18-iphone5sTakeaways

  1. A product will be overvalued when customers believe it will help them accomplish their goals.
  2. Customers focus on the goals that are most obvious or most relevant to them at any given moment. Just because they have a long term goal doesn’t mean they will act on it unless they are reminded of it.
  3. Appeal to customers’ relevant goals in order to make your product more attractive.

Guest post by Stanford’s Alex DePaoli

Follow him @AlexDePaoli.

 

 

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Value of Variety

It’s good to have choices, especially if that means you have a lot of variety to choose from. Intuitively, this feels very true, and given the push to provide products and apps that fill every niche possible, it seems that many companies share this intuition. But is it always true? How much do your customers really appreciate the variety of choices you offer them? And how much do they really need?

Variety Seekers

People think they like having variety much more than they actually do. A clever 1990 paper by Itamar Simonson, then at Berkeley’s Haas School of Business, demonstrated this fact. For three weeks, students in various classes were offered the chance to get free snacks. Each week, they got to have one snack, and they were offered six types of name-brand cookies or chips to choose from. The students in some classes got to choose which snack they wanted at the beginning of each class, while students in another set of classes were asked to choose the snacks they wanted for each week on the first day. In other words, some students got to pick what they wanted to eat that same day, while others had to plan out what they would eat later. Simonson likens this to going grocery shopping when you need a specific meal versus when you’re stocking up for the rest of the week.

Students who chose the snacks ahead of time picked a wider variety of products than students who chose a same-day snack. In fact, only 15% chose the same snack for each day when they were planning ahead, but 38% chose the same snack each day when they were deciding what to eat more immediately. Likewise, 64% of planners chose a different snack for each of the three weeks, but only 9% of same-day snackers chose so much variety.

17-snacksWhy is it that these students thought they wanted a lot of variety when they were thinking more abstractly, but really just wanted the same thing when they had to make an immediate choice? Simonson suggests that consumers just really like the idea of variety: they want to keep their options open, but when it comes time to actually consume something, they tend to stick with safer, more consistent options.

Choice Overload

So is it better to offer more variety to your customers? Unfortunately, there isn’t a straightforward answer. For over a decade, behavioral economists have suggested that offering customers a lot of variety makes them more attracted to a store’s offerings, but also less happy with them.

17-jam2In 2000, Stanford psychologists Sheena Iyengar and Mark Lepper published a notable paper documenting what many now call “choice overload” or a “paradox of choice” (which is also the name of a related book by Barry Schwartz). One of their studies is the now famous Jam Study, in which shoppers at a supermarket in Menlo Park, CA were offered the opportunity to try free samples of uncommon jams carried by the store. The catch was that on some days the experimenters offered six samples of jam, while on others they offered twenty-four options.

What happened? First of all, the 24 jam display was far more impressive: 60% of customers who saw it decided to stop and look at the selection, while about 40% stopped to look at the 6 jam selection. A wide selection with lots of choices tends to draw in customers, but that doesn’t mean they are more likely to chose anything. Regardless of how many jams were on display, customers only tasted one or two flavors, and when it came time to decide what to buy, only 3% of customers bought one of the 24 jams, while 30% bought one of the 6 jams!

Since this paper was published, the idea that too much choice can be demotivating has been one of the strongest warnings to come out of behavioral economics, whether for consumers, companies, or policymakers. However, as more researchers have explored the effects of choice and variety, a more clouded picture has emerged. In 2010, a review of this literature concluded that, while too many options or too much variety may hinder people’s choices, it’s not at all a universal phenomenon.

When and why might many options be worse than fewer? There are a number of reasons that can conspire to make a large number of choices discourage consumers. For example, Barry Schwartz and colleagues argue in a 2002 paper that some consumers may worry that they will make a poor choice, and this causes them anxiety or leads them to fear they will regret their chocie. Another line of reasoning suggests that people may become cognitively overwhelmed by the mental effort it would take to make a comlex decision among many options, so instead they choose not to choose.

Given these theories, we can guess that having more options will make customers less happy with their choices when…

  1. They are faced with products for which they believe there is a best option, and…
  2. They don’t have the time, resources, or patience to figure out which choice is the best.

Offering the Right Amount

Is it wise to give customers a lot of choices? Probably not just for the sake of giving them variety. If you want to add extra options, it would probably be better to construct Compromise and Decoy Effects out of your products rather than simply try to increase the choices. Although more choices can make it seem like your store or website is more attractive, ultimately it may not outweigh the risk of discouraging customers from actually choosing and buying.

17-norightanswerOn the other hand, if you already have a wide variety or products and/or options (such as opportunities for customization), it might be a good idea to stress that there is no “best” final outcome. This can reduce the stress on customers who would otherwise feel anxiety over the need to make the optimal choice. If this is not the case, and for some customers there is a best option, then you should either try to match them to that option as seamlessly as possible, or at least reduce the number of choices they need to consider at a time.

Also recall that it matters when your customers plan on needing or using your product. If they are buying a one-shot product (like a camera or a perfume), they will likely just want to pick the “best” option or their favorite option, and if they come back to make this same type of purchase later, they will do the same thing. However, if they buy several things at once because they plan on wanting them later (such as articles of clothing or groceries), they may prefer to have more options and to choose a wider variety of products. Thus, it is important to tailor the variety of products you offer to how your customers will plan to buy those products.

Other Various Uses for Variety

There are also some creative ways to influence how much variety your customers may want. In one particularly creative example, a 2009 study out of the Columbia Business School suggested that shoppers in a grocery store may tend to prefer and choose a wider variety of items if they were in narrower or more cramped aisles. In one study, participants were also more likely to choose new, unknown, or unfamiliar options when they felt confined. The reason? Possibly it’s that consumers (at least in the U.S. and Canada) may think of choosing a wider variety as a way of pursuing an abstract idea of “freedom” (to balance out the confinement they feel in the cramped space), so it could be the case that encouraging your customers to seek more freedom or to be more adventurous (perhaps just by showing them images and messages that evoke these ideas) may improve the odds of them responding positively to variety.

Lastly, you can also play with the amount of variety you offer in order to influence how your customers feel about your products. While it’s true that more options can make customers worry about making a bad decision, the presence of variety can also cause consumers to get more enjoyment out of certain kinds of products. Because of the funny ways our brains are wired to get tired of things (like the way we slowly stop enjoying a song we’ve heard several times), the presence of variety can disrupt the usual processes that lead us to get bored of products or experiences (in the short run). A 2009 paper suggest that simply being reminded or aware of variety can make this happen: participants asked to eat jellybeans were willing to eat more when they simply thought about other kinds of candy. In other words, customers may consume more and longer when they are reminded of how much variety exists within the product space.

The implication here is that the variety of choices you offer to your customers may have further reaching impacts than just whether or not they make a purchase. Once a purchase is made (using whichever level of variety is best), remind your customers of just how many options you have so that they will enjoy your product more, and want to come back again.

Takeaways

  1. Customers tend to think that they like having a lot of variety to choose from, but they don’t always respond well to it if they feel it is hard to make a smart choice.
  2. Be mindful of whether your customers are making one-shot purchases or are purchasing many products which they plan to use later. In the one-shot case they may prefer less variety than in the planning case.
  3. In general, if there isn’t a “best” option for a customer, make sure they know that so variety doesn’t intimidate them.

Guest post by Stanford’s Alex DePaoli

Follow him @AlexDePaoli.

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How to raise prices without pissing your customers off

No matter what size a retailer is, there’s no better way to annoy your customers than by raising your prices. Sometimes, however, you may find yourself needing (or wanting) to do just that. Figuring out how to tactfully increase your prices is tricky, but behavioral economics can help. The key point to emphasize is that consumers tend to be very sensitive to how fair they think a price is, and targeting that experience of a price being fair or unfair can help alleviate your customers’ frustration.

16-tagPrice Fairness

The idea of “price fairness” is a bit vague, but in general, it’s the relatable feeling that a price is about right for a product. When you walk past (or scroll past) a product and you immediately get the sense that it’s too expensive or that it’s surprisingly cheap, you’ve made a price fairness judgment. We usually think of this as an emotional response to price, and as a result, it is sensitive to customers’ existing emotions: customers in a good mood are more likely to think prices are fair.

8-zappossalePreviously, I have discussed how to use a certain type of price fairness evaluation, namely the use of reference prices, to make deals look better to customers. This approach plays on the emotion of price fairness by giving customers something to base their gut-reactions on in order to get an immediate sense that “this is a good price!” or “this is not a good price!”

While this strategy can allow you to temporarily increase customers’ valuations of your products, what if you need to actually increase your prices? How do we address the negative emotion of unfairness?

A comprehensive look at price fairness perceptions comes courtesy of a 1986 paper by behavioral economic heavyweights Daniel Kahneman, Jack Knetsch, and Richard Thaler. The authors conducted a massive set of telephone surveys asking respondents about hypothetical situations dealing with issues like price increases or wage decreases in domains from groceries to photocopies to real estate. They had these people evaluate how fair or how acceptable these company behaviors would be, and one of their most surprising findings was that consumers were, on average, surprisingly sympathetic.

Dual Entitlement

Remember how consumers think prices are more fair when they compare favorably to a reference price? It turns out that 75% of consumers feel that retailers are also entitled to similarly “fair” levels of profit. In other words, if a company was making $X of profit and their costs went up, consumers agree that it is fair for prices to increase so that the company could maintain its $X profit.

In fact, most consumers believed it would be fair for a firm experiencing losses to shift that loss completely onto their customers. As long as the firm was upfront and honest about why it had to raise prices (and those reasons were good), consumers indicated that price increases were entirely fair. Note that this does not necessarily mean they would still be willing to pay higher prices, but it does mean they would not develop a negative impression of the firm.

There are a few caveats to this idea of reference profit entitlement:

  • Just because consumers agree that retailers are entitled to a reference profit does not mean they will agree on what that reference should be. If a firm is already making more money than a close competitor, consumers may instead select the competition’s profits as the most appropriate reference. In a sense, they are making a fairness judgment about how to make another fairness judgment, and successful and profitable companies will generally be seen as having less of an excuse to raise prices (consumers see profitable companies as about 3 times less justified in raising prices as compared to companies losing money).
  • It is not fair to increase prices when the threat to profit is unrelated to the product at hand. For example, increased manufacturing costs may be a fair reason to raise prices on a product, but increased employee pay may be a less fair reason because it feels less directly related. If you want to increase the price of a product, emphasize that it is because of costs specific to that product.
  • It is not fair for a firm to increase prices in anticipation of lost profit. For example, if you know that the wholesale cost of a product will increase at some point in the near future, 79% of consumers would say it is not justifiable to increase the price of your products in stock now. A company must be in a position where its profits are actively threatened in order to fairly raise their prices.

Interestingly, while consumers feel that it is fair for a firm to raise prices when their profits are threatened, they do not tend to think it is unfair if a firm does not pass on savings to their customers. In other words, if costs go up, then retailers are allowed to raise prices, but if costs go down, retailers are not expected to lower prices. Consumers are apparently much more retailer-friendly than we might have thought.

Explain!

To quote the paper, “the cardinal rule of fair behavior is surely that one person should not achieve a gain by simply imposing an equivalent loss on another.” Consumers are much more forgiving of a price increase when they understand that there was a need for it, and explaining that need will generate more sympathy than ignoring the issue or trying to offer a small concession in conjunction with the price increase.

16-shovelThis also means that retailers must ensure that they never appear to be abusing their position within the market. In the most famous hypothetical from this paper, respondents are asked to imagine that there has just been a large snowstorm in their town, and in response, a hardware store increases the price of snow shovels. From an economic point of view, this is rational: consumers value snow shovels more, so the store is wise to raise the price. However, 82% of consumers see this as an abuse of market power, and even if they need and can afford the shovel, they are both less likely to buy it and certainly more likely to remember this unfair behavior in the future.

Nevertheless, overcoming this bias using explanation can be surprisingly effective. For example, Uber‘s surge pricing (in which multipliers are added to the price of a ride during periods of high demand) is a textbook example of an “unfair” pricing strategy. However, the brief explanation offered by the app that this multiplier is meant to “get more Ubers on the road” manages to diffuse much of the frustration. Lyft goes one step further and states explicitly that the extra fare goes directly to the driver, thus linking the need for the price increase with its source.

http://cdn.phillymag.com/wp-content/uploads/2013/12/uber-surge-pricing.jpg

To make a price increase seem even more fair, you can mix the explanation strategy with a reference price strategy. For example, when Amazon Prime recently increased it’s annual cost from $79 to $99, not only did they attempt to explain that it was to cover rising fuel and transportation costs, but they also originally suggested that they might raise the price to $119, which makes the $99 price tag look more attractive.

What might be an example of a bad explanation? Just yesterday, Netflix announced that they would be raising prices, and their explanation was, “these changes will enable us to acquire more content and deliver an even better streaming experience.” This explanation is vague and does not appeal to any underlying costs or losses that a price increase will address (even if there is one). Since it doesn’t do much to address the sense of unfairness that new customers will be feeling as they pay the higher prices, it will be interesting to see how consumers react once the price hikes take effect.

Takeaways

  1. Customers may be surprisingly understanding of the need to increase prices. They tend to believe that firms are entitled to their profits and are fully justified in protecting those profits.
  2. Explanations go a long way. Making your reasons for price increases clear, simple, and fair will go a long way towards making your customers accept your new prices.

Guest post by Stanford’s Alex DePaoli

Follow him @AlexDePaoli.

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The Fluency Effect

When designing a good website or a good shopping experience, simple is almost always better. Intuitively, an uncluttered layout with easy-to-follow instructions removes a lot of the friction that customers might otherwise encounter when interacting with an  online store (or any kind of website or mobile app). This makes it easier and thus more likely to be used, perhaps helping to explain the current popularity of minimalist website design.

15-minimalistThe power of simplicity has been further explored by consumer psychologists and behavioral economists. The more simple a tool, whether analog or online, the more easily people feel that they understand it. This feeling of “ease of understanding,” sometimes called Processing Fluency, can make a big difference in your customers’ behavior.

Processing Fluency

If someone speaks to you in a language you know very well (namely, one in which you are a fluent speaker), you will understand them better than if they spoke in a language you did not speak so well. This analogy holds for the idea of Processing Fluency: if you feel that you learned a piece of information more easily than another piece of information, then the first piece is more Fluent than the second. Because simple presentations are easier to understand, presenting the same information in a simple way versus a complex way will make it more Fluent.

This simple versus complex idea extends beyond the relative simplicity of a website. Text that is easier to read or easier to remember is usually more Fluent. For example, using italics is a good strategy for drawing attention to a specific word, but italicized words are also harder to read. Thus, writing a whole blog post in italics would make the entire piece less Fluent. Similarly, rhetorical devices such as rhyming makes information more memorable, and thus more Fluent.

15-bubblesSo what?

Why should you care about the Fluency of information? To start, it has several important consequences for customers’ choices and confidence, and can make the difference between whether they believe you or not. A great deal of research has looked systematically at these effects of Fluency (see here and here for reviews).

The most robust finding is that people tend to believe Fluent information more than they believe Disfluent information (e.g. information that is harder to understand). For example, Rolf Reber and Norbert Schwarz published a 1999 study that showed people are more likely to believe a false statement (such as “Lima is in Chile”) when it is easier to read (such as using dark blue text on a white background) than when it was harder to read (such as light blue text on a white background).

15-peruThe fact that consumers think Fluent information is more true is extremely important, and suggests that they are more likely to believe and acknowledge advertisements and product descriptions when they can understand them more easily. But while Fluency increases consumers’ certainty that information is true, it also increases their confidence that they have understood and learned the information. For example, a 2003 study found that people were more likely to think they could remember words when they were presented Fluently.

More interestingly, a 2007 paper by Adam Alter, Daniel Oppenheimer, Nicholas Epley, and Rebecca Eyre found that people were generally more confident that they had understood product information about an mp3 player when it was Fluent versus Disfluent, resulting in a few interesting observations:

15-@techbiz

  • First, participants exposed to a source of Fluent information often did not understand the information as well as those who saw the Disfluent information: they only thought that they understood it better. In other words, although simplicity helps understanding, it also can lead customers to overestimate how much they understand.
  • This lead to a second important observation: participants who saw the Fluent information were more susceptible to nudges in their environment (such as the Foot-in-the-Door or the Decoy Effects) because they were not thinking as carefully about the products. In other words, they were overconfident, and it hurt their ability to override their immediate decision-making intuitions.
  • Finally, when participants were more confident that they understood the product information, not only did they think it was more true, but they rated the products more highly.

This last observation suggests an even more important effect of Fluency, namely that Fluent information is also more attractive to consumers. A 2005 study by Petia Petrova and Robert Cialdini found that consumers overvalued products (specifically vacation packages) that they had an easier time imagining. In other words, when their beliefs about a vacation were more Fluent, they liked that vacation more. The authors also found that they could make consumers value the vacations more both by describing them in more vivid detail, and by simply telling consumers to imagine the experiences.

15-vacayMore starkly (and more surprisingly), a 2006 paper by Adam Alter and Daniel Oppenheimer found that stocks with more easily pronounceable ticker symbols tended to perform better in the short run because investors preferred them over less Fluently named stocks. In one of their studies, they looked at the stock performance of companies 1 day, 1 week, 6 months, and 12 months after they had been posted to the NYSE:

To emphasize just how successful investing in fluently named stocks would be, we calculated how much a $1,000 investment would yield when invested in a basket of the 10 most fluently named shares and the 10 most disfluently named shares. The fluent basket would have yielded a significantly greater profit at all four time periods: $112 after 1 day, $118 after 1 week, $277 after 6 months (all Ps < 0.05), and $333 after 1 year (P < 0.10).

In other words, new companies’ stock prices benefit from having a more Fluent ticker symbol, although the effect does go away in the long run.

Make it Fluent

Based on the research I’ve described here, making information more Fluent for your customers will make them believe it more, make them value it more, and make them use it more. So how do you make something more Fluent?

As I alluded to at the beginning of this post, one of the most important (and obvious) things you can do is to make sure customers’ environment (e.g. the website) has a simple design, is easy to use, and provides as little friction as possible at all stages of a purchase. On a more detailed level, make sure that the information to which you want customers to pay attention is printed cleanly and clearly, and you could even downplay the Fluency of information that you don’t want customers to see (such as by making it harder to read by putting it in italics or a faded color). Don’t forget that while less fluent information may just be downplayed in the presence of more Fluent information, sometimes it can also make customers feel like they don’t understand something, which reduces their confidence.

On a semantic level, you can also play with how easy it is to understand advertisements or product descriptions. Poetic and rhetorical devices make things more fluent, as does using more simple vocabulary. For example, many electronic products will have specs that the average consumer doesn’t understand, meaning that this information is Disfluent. Finding a way to rewrite these specs in a way that looks and feels more accessible will make customers more confident that they understand the information, and this can lead to greater interested in the product.

15-speakersFluency is very important because it affects how we form our first impressions of the information we learn, and first impressions are extremely important. However, there are actually many more ways Fluency can affect consumers’ decision making, for example, it also affects how familiar, famous, typical, and reliable products are perceived to be. Lastly, if someone’s writing is easier to process, readers tend to think the writer is smarter, so I hope you though this post was Fluent!

Takeaways

  1. The Fluency of information is important. It makes information seem more true, makes customers more confident, and makes them value products more.
  2. You can influence Fluency by making information easier to process, read, understand, or memorize.
  3. Bottom line: make things simple and memorable, especially the information you want customers to act on.

Guest post by Stanford’s Alex DePaoli

Follow him @AlexDePaoli.

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The Blemishing Effect

It’s rare that a purchase has no downside. Even if the product is exactly what a customer is looking for, there may be some feature that doesn’t measure up as well to rival products. How bad is it if your customers are taking stock of the cons as well as the pros of your products? New research suggests that, as long as you manage how the negative information is encountered, it may actually be a good thing.

14-badnewsBlemishing leads to Blossoming

In a series of experiments, Danit Ein-Gar (of the University of Tel Aviv), Baba Shiv, and Zakary Tormala (both of Stanford Graduate School of Business) examined what happened when they presented consumers with a small bit of negative information about products they were already evaluating. This negative information ranged from actual negative product attributes (e.g. “only two” color options for a pair of hiking boots) to sources of inconvenience (e.g. a set of champagne glasses that didn’t come with a hard box) to very minuscule or irrelevant details (e.g. the box for a pair of shoes was scuffed).

14-boxThe authors found that under certain conditions (see below), having that little bit of negative information actually made consumers more likely to buy the product! In other words, telling customers that there was something mildly bad about the product made it more attractive. The authors call this the “Blemishing Effect.”

14-bootsWhy would customers like a pair of hiking boots more just because they were given a small piece of negative information about them? The authors suggest that it may be a byproduct of the way we evaluate information, and (more importantly) how we always like to be right.

Blemishing leads to Bolstering

The first and most essential thing to take into account about the Blemishing Effect is that it only works when the negative information is encountered after some stronger positive information. In other words, if you present the negative information first, or if the negative information is too negative, the effect goes away (and you may be worse off than if you had just never mentioned the negative at all).

14-scalePositive information needs to come first thanks to the Primacy Effect: arguments that customers encounter first will be more persuasive to them. This means customers can be made to develop a positive impression based on the initial positive information. Next, when they encounter a (minor) piece of negative information, it will lead them to very briefly reevaluate their impression of the product. Because the positives still outweigh the minor negative, their opinion won’t change, but the mere process of thinking about it and coming to the conclusion that the product is still good will make them like it more. When people arrive at a judgment on their own, they hold that belief much more strongly.

To illustrate how this process works, consider a 1979 paper by Charles Lord, Lee Ross, and Mark Lepper. The authors had 151 Stanford undergraduates read two studies about the effectiveness and merits of capital punishment. One of these studies “proved” that capital punishment was effective, while the other “proved” it was not. The authors had identified ahead of time which students were pro- or anti-capital punishment, and they used this information  to determine whether students would first read the study that agreed with their beliefs or first read the study that differed from their beliefs.

Their most important finding was that students did not treat both studies equally. Instead, they would use the study with which they already agreed in order to concoct arguments to undermine or discredit the study with which they did not agree (a demonstration of the classic Confirmation Bias). Furthermore, despite the fact that they had read one pro- and one anti-capital punishment study, they tended to emerge from the experiment with a stronger belief that they had been right the whole time. In other words, seeing arguments from both sides only made them double-down on their initial beliefs. The authors call this “Attitude Polarization” (and note that this is a heavily simplified version of their results).

14-confbiasWhat does this have to do with product evaluations? Essentially the Blemishing Effect works in the same way as Attitude Polarization: because customers need to think about the product, and decide that the minor negative information is not as important as the positive information, they will reinforce their positive beliefs.

Limitations

Recall that I said the Blemishing Effect only arises under certain conditions. Here they are:

  • The positive information must outweigh the negative information.
  • The positive information must come before the negative information.
  • Consumers should not be too invested in the purchase decision.

As we’ve discussed, the Blemishing Effect arises because of natural biases in how customers evaluate information. However, this means that if they are willing to invest the time and cognitive resources to think carefully about the purchase, they can override these biases and the effect will go away (this is similar to many of the ideas in Daniel Kahneman’s book Thinking, Fast and Slow). If the negative information is very minor, this just means that you won’t get a boost from adding the negative (e.g. a scuffed shoebox won’t stop someone from buying shoes), but if it is more substantial, then it can actually hurt you (e.g. having a limited number of color options is undesirable).

14-RuffwearpngBlemishing leads to Buying

This suggests that the Blemishing Effect needs to be applied very carefully in the real world, and you may not expect to see the Blemishing Effect for products that people need to evaluate carefully. In other words, large, expensive, or otherwise important purchases probably won’t be helped by a Blemishing Effect. However, small or routine purchases might benefit from listing a small negative attribute (even if it seems irrelevant). Additionally, anytime you expect customers to be in a rush or otherwise distracted or depleted are times when you would also expect to see the Blemishing Effect arise.

Other than listing product attributes, there are two ways to blemish a product. One strategy is to call attention to a (mildly) unflattering product comparison. For example, having “two colors” as options for a pair of hiking boots is not necessarily seen as a negative until it is relabeled as “only two colors.” The second and perhaps simplest approach is by scuffing the packaging, or (in the case of an online retailer) you might experiment with the unintuitive strategy of using lower quality or less professional product photos.

14-boots2While Blemishing is a relatively delicate effect, some of takeaways from the research are still universal to all kinds of products. Notably, most products have features or attributes that are less appealing than others, so the research suggests that you should always list these attributes after you have listed some strong positive attributes. Putting the positive information first will still have the effect of making your customers’ first impression be something good.

Takeaways

  1. When listing pros and cons, always make sure you start with some strong pros before mentioning the cons. This will lead to customers advocating your product to themselves.
  2. If you have a product about which customers won’t be thinking too hard, include a small con (even if it’s irrelevant) in order to bolster customers’ positive evaluations of the product.

Guest post by Stanford’s Alex DePaoli

Follow him @AlexDePaoli.

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Freshplum Covered In Forbes

Thank you Adam at Forbes Magazine, for your insightful look at how Big Data, coupled with Machine Learning, is changing the way retailers can better target their shoppers. One of the ways that Freshplum is providing this technology is by selectively targeting shoppers based on purchase intent. The results of this technology are clear, as evident from Ric Kostick, co-founder of retailer 100% Pure:

“’Kostick signed up. He knew some people flinch at paying $18 for an 8-ounce tube of shampoo. Perhaps occasional discounts would help. After three months using Freshplum’s selective promotions, online sales increased as much as 13.52%’, Kostick said.”

At Freshplum, we believe that Big Data can provide a richer experience to the customer by personalizing and targeting messages catered to their behavioral intent. By doing this, retailers can more easily convert shoppers when they’re browsing the site.

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Have you ever felt that you have less self-control at certain times of day? It turns out the science of self-control and willpower has a lot to say about that. Understanding how consumers’ self-control works (and when it doesn’t) can actually allow us to predict what time of day people are more likely to indulge the urge to splurge.

Ego Depletion

The most popular scientific model of self-control and willpower is that of a limited resource. In essence, whenever you choose to exercise self-control (for example, by choosing to skip dessert or to read a book instead of watching a TV show), it uses up some of your “cognitive resources.” This means that the more you exercise your self-control, the harder it will be to exert your willpower later on. If you choose to eat healthy instead of unhealthy all day, and to exercise instead of sitting around, you’re more likely to lose the self-control battle to a piece of cake later that night. And because willpower is a single resource, this also means you’ll have a harder time resisting a tempting impulse purchase.

13-saladcakeThis idea of self-control was originally championed by Roy Baumeister, and he refers to this process of draining your cognitive resources as “Ego Depletion.” As consumers make choices, they experience Ego Depletion and subsequently have a harder time exercising their self-control. However, cognitive resources can be replenished: taking a rest, eating a meal, having fun, or being mindful of your depletion can all help restore your cognitive resources.

13-muscleIn order to better describe this idea of a limited but refillable resource, Baumeister often compares willpower to a muscle. The more a consumer flexes their willpower muscles, the more fatigued the muscle gets. However, this fatigue is only temporary. Also not unlike a muscle, it is possible to strengthen one’s willpower with practice.

Weakening Willpower

When customers are depleted, they are more likely to indulge and more likely to make a purchase. They are also more susceptible to nudges in their environment, so they will experience things like the Foot-in-the-Door Effect, the Decoy Effect, or the Primacy Effect. As marketers, this leads us to ask: when and how do customers become depleted?

Most obviously, any time a customer must use their willpower to make a choice that sacrifices short-term enjoyment for the sake of a longer-term goal, we can say that they have exercised self-control and will experience some Ego Depletion. However, there are actually many things that can drain a person’s cognitive resources, most prominently feeling physically exhausted, experiencing negative emotions, or doing something that is cognitively taxing.

13-dilbertThis last point is especially noteworthy. Essentially, when people need to think long and/or hard, it will use some of their cognitive resources. This means that if consumers see your ads while they are doing something that requires a lot of mental work, they will probably be more open to your message. In a retail setting, this means that if customers are asked a series of questions that make them think, they will be more Ego Depleted by the time you ask them if they want to buy a product (which is very similar to a 2009 study run by Bob Fennis, Loes Janssen, and Kathleen Vohs). There are a couple of ways this could be done in an online context.

One opportunity is to present your visitors with gamified choices requiring them to make difficult product trade-offs by presenting them with a pair of products and asking them which they like more. Not only could this build engagement while leading to Ego Depletion, but it may allow you to run some real-time market research. Alternatively, similar to the Fennis, Jansen, and Vohs (2009) study, you could ask them relevant survey questions that they can answer if they wish. Using metadata, you can tailor these survey questions to increase the level of interest for individual customers, and thus increase the likelihood of them spending the cognitive resources necessary to answer.

13-zapposTiming

13-clockOne especially interesting result of Ego Depletion is that it allows us to predict that consumers will (in general) have less self-control later in the day. In other words, rest is one of the factors that effectively replenishes willpower, so people tend to have good self-control in the mornings. However, as the day goes on and they make decisions or engage in work or thinking, they experience Ego Depletion, leaving them with fewer cognitive resources later in the day. The obvious conclusion is that your potential customers will be more interested in your products (or at least more likely to buy them) later in the day.

13-snacksThere is an important caveat to this assumption, namely that eating a meal can also serve to replenish willpower. A 2008 study by Roy Baumeister and E.J. Masicampo found that blood glucose levels tended to be positively associated with willpower, meaning that in a very direct way, eating a meal serves to restore cognitive resources.

In an even more stark demonstration, a recent article by Shai Danziger, Jonathan Levav, and Liora Avnaim-Pesso looked at Israeli court decisions in which a single judge would listen to several appeal cases back-to-back. They found that judges who recently had something to eat were far more likely to listen to a defendant plead their case, and that the judges’ patience (and willingness to consider the individual facts) dropped off dramatically between meal or snack breaks.

The graph below shows these findings. Note how the proportion of favorable rulings are highest at three points: after breakfast, after lunch, and after an afternoon snack (indicated by the circles). Also note that, as we predicted earlier, judges’ willingness to consider the cases goes down dramatically from the morning to the afternoon.

13-levavSo when are consumers most likely to have low willpower? The research suggests that it will be later in the day, before a meal, and when they have been working or thinking hard. While each piece can be used to target different parts of the day, taken together we would predict that the end of the workday is when people are most susceptible to the urge to splurge.

Takeaways

  1. Self-control is like a muscle: if customers use it too much, it gets exhausted and they are more likely to indulge.
  2. Consumers’ self-control can get exhausted when they make a lot of choices and when they think long and/or hard about something, effectively using up their limited cognitive reosurces.
  3. Customer self-control will be strongest early in the day and right after meals.

Guest post by Stanford’s Alex DePaoli

Follow him @AlexDePaoli.

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Shopping Momentum

Here at the Freshplum Blog, we’re big advocates of giving gifts to your customers. Whether to promote a sense of reciprocity or to create a feeling of endowment, getting something in your customers’ shopping carts is a great way to encourage them to shop with you. However, it turns out there’s an even better way to get the ball rolling than by giving gifts: make your customers pay instead.

Shopping Momentum

Normally we think of getting customers to buy something as the end goal rather than the starting point, but just putting your customers into the mind-set of buying rather than browsing is incredibly powerful. Illustrating this, a 2007 article by Ravi Dhar, Joel Huber, and Uzma Khan (of the Yale, Duke, and Stanford business schools respectively) documented an effect they dubbed “Shopping Momentum.”

12-momomentumThe Shopping Momentum Effect describes something that most impulse buyers may already suspect to be true: consumers who choose to make a purchase are subsequently much more likely to make another, unrelated purchase. In one of the authors’ examples, participants first chose whether or not to buy a light bulb, and then chose whether or not to buy a keychain. If they did not buy the light bulb, there was a 31% chance that they would choose to buy the keychain, but if they did buy the light bulb, then the likelihood of them buying the keychain more than doubled to 67%!

In another example, the authors compared the effect of Shopping Momentum to the effect of giving customers a gift. Participants were either given a pen as a gift or asked if they wanted to buy a pen, and then they were given the chance to buy a keychain. If they received the pen as a gift, 53% chose to buy the keychain, which is not bad at all. However, if they had the opportunity to buy the pen, 78% chose to buy the keychain!

Implementation Mind-Sets

Why are customers more likely to buy something after buying something else? Conceptually, this is similar to a Foot-in-the-Door Effect, namely that once your customers overcome the hurdle of buying their first product (or opening an account or at least placing something in their cart), they are much more comfortable buying another one.  However, according to the Dhar, Huber, and Khan paper, the story is a little bit more interesting.

Building on work by Peter Gollwitzer, they propose that there are fundamentally two ways customers think about potential purchases:

  • They can be in a deliberative mind-set, in which they evaluate the product and think about its pros and cons
  • They can be in an implementation mind-set, in which they think about what they need to do in order to actually make a purchase

If your customers are thinking about your products and your deals in a full implementation mind-set, then they are focusing on the “when” and “how” of the purchase instead of the “why”, and this makes them much more likely to buy something.

12-thinkdoHow does this relate to Shopping Momentum? The authors show that when customers buy the first item, it pushes them out of a deliberative mind-set and into an implementation mind-set, making it more likely they will buy other products too. More interestingly, they showed that by simply putting consumers into an implementation mind-set using an entirely different method, they could produce a Shopping Momentum effect without the participants even making an initial purchase. For example, if participants were asked to write down the steps they would need to take in order to buy a new car (which got them thinking about implementation), then 66% of them opted to buy a keychain.

Building Momentum

The Shopping Momentum Effect can be applied to retail strategy at two different levels.

The first strategy is to apply Shopping Momentum as simply the effect of buying something. Deals, promotions, or strongly tempting loss-leaders can serve as ways to get customers to buy something, which in turn will make them more likely to buy something else. Offering little things for a dollar that you could have otherwise given to them as a gift might also work, although the uptake will probably not be high.

In addition, anything you can do to reduce the friction customers experience during the buying process will be very helpful. They are much more likely to follow through with that initial bait purchase if the process of buying and paying is very easy (such as with Amazon’s One-Click functionality). And of course, once they have made a purchase it needs to be easy for them to see and buy other products.

12-1clickThe second strategy is to play with the underlying cause of Shopping Momentum, namely the implementation mind-set. One way might be to highlight the steps needed to purchase a product in the space where customers might normally expect to see product information (with that information moved further down the page). By putting this implementation information front-and-center, your customers will be more likely to start thinking in these terms.

You could do something similar to the study, namely ask your customers to consider the process they need to follow in order to buy something (they don’t necessarily need to give you an answer), or more subtly, ask them more innocuous implementation questions such as “When do you need this by?” or “How do you plan to pay?”

12-demo

This ties in nicely with research demonstrating that one of the most potent ways to encourage people to follow through with a behavior is to encourage them to think about a plan of action. Beginning with a 1965 paper by Howard Leventhal and colleagues, this same idea is now frequently applied by political campaigns to encourage constituents to go to the polls. Likewise, any wording that encourages your customers to think about how they can buy your product may make them more inclined to do so.

Takeaways

  1. Your customers are much more likely to buy something if they have already bought something else.
  2. This is because they are more likely to buy something if they are thinking about following-through with a purchase rather than thinking about the pros and cons of a purchase.
  3. Encourage your customers to start thinking about how to buy your products.

Guest post by Stanford’s Alex DePaoli

Follow him @AlexDePaoli.

 

 

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Crafting a compelling message can be one of the biggest challenges in marketing. How can you motivate your customers with only a few words in an ad or just a few phrases in a product description? While there are countless approaches, one universally useful tip comes out of the study of the psychology of goal pursuit: to make a strong appeal, you need to match how consumers expect to use a product to the “direction” of their motivations for using it.

11-apav“Get Excited” or “Don’t Miss Out”

Suppose you are marketing athletic apparel, and you want to appeal to customers’ desire to go to the gym. The average person wants to go the gym for weight-loss and/or fitness reasons, but they may think about their goal(s) in different ways. On one hand, a customer may want to get fit, while on the other hand they may want to lose weight. These may be effectively the same thing, except one of them is presented as gaining fitness, while the other is oriented towards avoiding fatness.

This distinction is based on the long-running research of Columbia University’s E. Tory Higgins (this paper from 2000 offers a nice overview), who has suggested that people tend to be motivated either through a Promotion-focus (e.g. “how can I achieve a good outcome?”) or in a Prevention-focus (e.g. “how can I avoid a bad outcome?”). The endpoint of these two approaches is the same (for example, “to go to the gym”), but the motivations are opposite (to “be fit” or to “not be fat”). Basically, if customers are hoping to reach a positive outcome, then they are in a Promotion-focus (“I want to win!”). If they are concerned about getting away from a bad outcome, they are in a Prevention-focus (“I don’t want to lose!”).

11-shirtHiggins refers to the adoption of a Promotion- or Prevention-focus as a person’s Regulatory Focus, and when a product or advertisement fits with a customer’s Regulatory Focus, they are more interested in it and more motivated by it. For example, if people want to “get fit,” then they are more motivated by ads that are phrased in terms of potential achievement, while people who want to “not be fat” will be more motivated by ads that emphasize worst-case scenarios.

When there is a mismatch, consumers tend to be more skeptical or otherwise less interested. For example, if someone thinks about going to the gym as a way to “get fit” (or is accustomed to athletic wear ads that are inspirational or otherwise Promotion-focused, such as Nike’s “Just Do It” campaign), they may be confused or even offended to encounter a Prevention-focused ad that stresses “don’t be fat.”

11-nike

Promote or Prevent?

What determines which Regulatory Focus a customer will have? In general, some people are more inclined to think about their goals with a Promotion-focus while others naturally tend to adopt a Prevention-focus. However, more often their Focus is context specific, either because people tend to think about certain products in a certain way, or because you can actually influence how they feel.

11-welchsAngela Lee and Jennifer Aaker (co-author of The Dragonfly Effectdemonstrated that if you know whether your customers tend to view your product as Promotion- or Prevention-focused, then you can increase engagement by tailoring your message to fit their perspective. In one of their studies, for example, they had participants read about the benefits of drinking grape juice. Half of the people read about how juice provided a boost of energy that helped you do whatever you wanted (a Promotion-focused attitude towards the product), while the other half read about how juice helped prevent cardiovascular disease to keep you healthy (a Prevention-focused attitude). When asked to evaluate an ad for the juice that was phrased either as “Get Energized!” (Promotion) or “Don’t Miss Out on Getting Energized!” (Prevention), people liked the ad a lot more when it matched their current focus. In other words, if they were led to believe that the juice was meant to energize them, they wanted to “Get Energized!”, but if they thought the juice was meant to keep them safe and healthy, then they didn’t want to “Miss Out on Getting Energized!”

Just about any product goal can be presented as achieving something positive or avoiding something negative, and both can be strong motivators. For example, products as diverse as acne medication to clothing can be billed as “Look beautiful” or “Don’t miss out on being beautiful!” Product or app upgrades can be described as “improving performance” versus “fixing bugs.” Cell phone carriers can claim to have “More coverage!” versus “Fewer dropped calls!” Even a microwave could be sold as “Hot food in seconds!” versus “Never eat cold leftovers again!”

11-clothingadDetermining how how your customers tend to think about your product (or how you want to present your product to them), and then matching their expectations in your product’s presentation, can help you increase interest and engagement.

You’ve got to Focus!

The first step to applying Regulatory Focus is to simply ask (either yourself or your customers): what does this product do? More specifically, you want to know what is the most natural (or most common) way to describe the effect of the product.

Does it make the most sense to think about the product as helping customers get something positive or good? Do they want it in order to achieve or to fulfill a goal? If this is the case, then using a Promotion-focused message (that emphasizes approaching or reaching positive outcomes) will resonate better with your customers. For example, people tend to buy junk food because they want to gain the enjoyment of eating it, not to avoid some consequence of not eating it. This may be why Coca-Cola sticks to slogans like “Open happiness” or “Life begins here,” while not mentioning anything Coke might help avoid or fix (such as “thirst”) since 1939 (“Coca-Cola has the taste thirst goes for”).

11-cokeAlternatively, does it make sense to think about the product in terms of helping customers avoid negative outcomes or pain points? Do they want it in order to avoid or resolve a problem? If this is the case, then using a Prevention-focused message (that emphasizes avoiding or counteracting negative outcomes) will resonate better with your customers. For example, people tend to buy medications while sick or injured in order to get rid of an unpleasant feeling, so it is no surprise that Tylenol has the slogan, “Feel better.”

11-tylenolIdentifying how your customers think about your products (or perhaps how you want them to think about it) can inform how you promote and advertise. Aside from slogans, product features can be rewritten in order to reflect or appeal to the target Regulatory Focus, and advertisements can be worded to reflect this as well.

Recall that Regulatory Focus can be context specific. A more risky idea might be to actually use your Promotion or Prevention descriptions to create your own psychological manipulation. According to a 1998 paper by James Shah, E. Tory Higgins, and Ronald Friedman, Regulatory Focus interacts with Loss Aversion: if you have  a Promotion-focused message, suggest that the customer is getting a great deal because they are gaining the quality or the value of the product, whereas if you are using a Prevention-focus, suggest that the customer is getting a great deal because they are saving a lot of money or reducing a lot of risk.

Takeaways

  1. People are either motivated to achieve positive outcomes or to avoid negative outcomes. Match your message to your customers’ motivation to increase interest.
  2. If customers are in a mindset to achieve positives or avoid negatives, this focus carries over to how they evaluate your ads, your products, and your deals.

Guest post by Stanford’s Alex DePaoli

Follow him @AlexDePaoli.

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