Help Bri fundraise for indigenous communities

Like many Australians, I have used a busy life to protect me from contemplating the realities faced by people in our indigenous communities.  

 But now I have the opportunity to do something, and I'd like your help.  

Not-for-profit Indigenous Community Volunteers have invited 14 people on a fundraising trek of the Larapinta Trail in Central Australia in July 2012, and I am pleased to be taking part.  The trekking part is easy - Larapinta is ranked one of the 20 most beautiful walks in the world.

The part I need your help with is raising at least $3,000 for Indigenous Community Volunteers so they can continue to work with Indigenous Australian communities.

The fundraising target has been set because it costs;

• Around $5,200 for ICV staff, volunteers and communities to complete a project
• $355 for each ICV volunteer to attend a cultural awareness workshop before they can work in an indigenous community and
• $180 to hold a community event to bring ICV and the community together to understand what needs to be done 

With each of the trekkers raising at least $3,000 that's $42,000 for ICV to make a substantial difference.  I will be personally funding the travel component of $2,400 and documenting my trip for those who have supported me. 

So are you able to help?  Donating is easy. Just visit my gofundraise.com.au page.

A quick scan of other charity fund raising pages looks like donations range between $100 - $30, but I am most grateful for any contribution. Note that donations over $2 are tax deductible and you will receive a confirmation of your support.  

Thank you, and I am glad we can make a small difference to the lives of Australians in indigenous communities.

Bri

Holiday book reading list

As we head into the Christmas break, I thought it would be worthwhile to note some of the books I have found most helpful on behaviour and behavioural economics.  A word of warning though, once you read these books the Boxing Day sales will never seem the same.

Predictably Irrational: The Hidden Forces that Shape Our Decisions by Dan Ariely

The book that got me started in the field of behavioural economics. Dan has a talent for writing in an extremely accessible, entertaining way and throughout the book weaves illuminating examples of human irrationality.

Upside of Irrationality: The Unexpected Benefits of Defying Logic at Work and at Home by Dan Ariely

Dan’s follow up to Predictably Irrational which looks at the opportunities behavioural economics creates.  Whilst a worthwhile read I found that Upside of Irrationality dealt with benefits quite broadly where I wanted to understand the application of principles specifically to the work issues I encounter. (I subsequently wrote my book 22 Minutes to a Better Business to close this gap.)

Switch: How to Change Things When Change is Hard by Dan and Chip Heath

One of the best change management books I have read and which will have you looking at your stakeholders in a completely different light…as elephants. Deals with the behavioural elements of change by encouraging us to appeal to both the rational and emotional being (and no, that doesn’t mean telling your stakeholder you love them…unless you want to).  If you are looking for new ways of influencing people, this book is very worthwhile.

Nudge: Improving Decisions About Health, Wealth and Happiness by Richard H Thaler and Cass R Sunstein

Shamefully I haven’t yet read this book but do keep up with the blog, and Nudge is widely regarded as the seminal work for breaking behavioural economics away from academia.

Habit: 95% of Behavior that Marketers Ignore by Neale Martin

A pet area of interest for me is how habits form and how you can break them.  If you are in sales, marketing or product development, an understanding of habits is an important element of your customer acquisition and retention plans and this little book is a very interesting read.

Have a great festive season and I look forward to more behavioural blogging in the new year.

Meet Santa, master Behavioural Economist

Just think, a jolly fat man in a red suit gets billions of people to spend billions of dollars on people they may only see once a year to commemorate someone else’s birthday. This guy’s a genius!

If you are looking for an example of behavioural economics, look no further than Santa.  The man himself may be a fiction, but our irrationality is all too real.

Santa, and by Santa I really mean the rituals of consumerism associated with Christmas, influences us to do things that make no rational economic sense such as;

• Buy more food than we can possibly consume

We find ourselves gorging at tables laden with very type of meat and vegetable as hosts delight in showcasing their generosity.  Such is the social construct that serving a normal sized meal just isn’t Christmas.

• Buy Christmas Trees

We drive to a Christmas tree supplier, buy a $30-$60 tree that at any other time of the year we would not even look at and will survive only a few weeks, strap it to the roof of the car, drag it into the house, throw specially bought plastic bits all over, gather around the tree and distribute gifts. The next week, we watch the tree slowly turn brown before cutting it up to fit in the green waste bin.

• Buy Snow

In Australia, in Summer, we (not me of course) buy snow in a can to spray on windows. Brrr!  Meanwhile we listen to special compilation CDs that trill about snowmen, sleigh bells, and white Christmases. Rational on a thirty degree day?

• Buy Wrapping

We buy fancy paper to wrap gifts that are already packaged so that we can watch the wrapping get torn off on Christmas morning.

• Avoid vouchers…unless we really have to

We worry about the stigma of giving cash or a voucher rather than a ‘gift’ even though the voucher may actually be worth more.  Retailers are working hard to de-stigmatize vouchers and experiential gifts like Red Balloon are helping reshape perceptions of these gifts.

• Go to the supermarket…repeatedly

We tend to freak out that the shops close for one day and so pop down to the shops to get extra supplies just in case, forgetting the jammed car park and queues at the check out.

• Boxing Day sales

The news footage should speak for itself but just to remind yourself not to let the thrill of a discount overwhelm your sense of dignity, check out scenes from the Thanksgiving sales in the US where a $2 Waffle Maker provoked a gob smacking, pant splitting frenzy.

Why do we find ourselves behaving this way at Christmas time?

Well, marketing probably has a lot to do with how we behave at Christmas.  "Special" Christmas deals, scenes of harmonious family gatherings and directive suggestions like “buy this TV for your Dad” use reciprocity (give to receive), loss aversion (make sure it’s a fair value exchange by buying expensive gifts), and social norms (everyone is doing it) to incite us to purchase. That our understanding of red-suited and jolly modern Santa is a marketing construct confirms how persuasive marketing can be, but it is more than that.

We are more influenced by how others act; the values and behaviours displayed by our fellow human beings.  That’s why shoppers went into a contagious frenzy for a $2 Waffle Maker, and why the rest of us, from the comfortable distance of our computer screens, feel we can mock them for their irrationality.  But that’s also the great thing about Christmas; a tacit agreement across much of the globe to devote one day to sharing time and tokens with loved ones.  Irrationality at it’s rational best.  Have a good one, and thank you Santa.

Image from: http://www.gdhta.co.uk/wordpress/2009/12/on-the-first-day-of-christmas/laughing-santa/

Should you charge customers an 'explanation fee'?

Retailers are doing it tough. Shoppers are coming in, speaking at length with the shop assistant about what the widget does and does not do, only to then leave the store and buy the widget cheaper online.  What's a retailer to do? How do they provide customer service but not lose the sale?

In his Fairfax piece last week, Terry Lane wrote that JB Hi-Fi has introduced a $30 "explanation fee" to recoup some of the cost of providing expertise to potential customers.  Think it will work?  Before you are tempted to follow in JB's footsteps, here are some behavioural elements to consider.

Customers are just doing what's smart
People do not believe they are doing anything wrong by speaking with one shop's assistant before buying from elsewhere; this is the very nature of shopper research and a deeply ingrained social construct.  It used to be hitting the pavement and going shop to shop.  Now it's research online, visiting a physical store if you need to sight, handle or try on the product, and then back to online to purchase.

Do customers feel guilty about wasting the shop's time? No way. In fact they are more likely to feel they deserve the better online price because they have worked for it through their research efforts.

Further, the customer does not consciously think about the overhead costs to that business.  I don't know about you, but when I wander into a store I do not calculate the cost of the assistant's salary, the electricity, merchandise and marketing that have gone into opening the store that day.  These are all lumped into the mental bucket of "sunk costs" that will have to be paid whether I buy from that store or not, and this protects me from any guilt associated with chewing up the shop's time.

So JB has a bit of an issue. They are introducing a fee for something people don't think of as a service. Now if JB's intent is simply to reduce 'tyre kickers', it may work because the fee most certainly will stop people seeking out their staff.  But in my view, disenfranchising potential customers is not a great move.


How to recoup payment for staff time  
As the nature of retail moves from in-store to online, and shops become more service rather than sales-centric, here are four thoughts about what businesses like JB might do;

1. Promote the benefits of buying in-store
Bricks and mortar stores have one massive advantage over online - stock.  "Take it home today!" should be the mantra because people hate to wait.  By the time they have come to the shop they have likely been thinking about the widget, so talking to them about taking it home and showing their loved ones tonight is a way of closing the gap between shops and online.  Make sure they are handling the widget to encourage ownership as you say "Mr Customer, whilst you might save a few dollars buying online, you can take this widget home right now and get on with things".

2. Spook them about invalid warranties 
As mentioned in Lane's article, people who buy goods from overseas often overlook the fact that the warranty may not extend to their country.  Shops like JB have a great opportunity to use people's aversion to loss to maximum effect by playing on our imagined distress if our widget breaks down.  We succumb to concepts like 'extended warranty' because peace of mind is worth paying a bit extra for.


3. Provide a value-add service 
Rather than calling the consultation an "explanation fee" that sounds condescending and a cost rather than benefit, call the service something like "expert consultation", "widget instruction session" or "how to widget".  Remember that people don't perceive shop assistant service as one that should be paid, so expectations of the service need to be interrupted.  Go to the extent of putting expert staff in a different uniform, position them in a different area of the store and even consider bookings.

The shop may suddenly find it has a whole new income stream generated by tutorial services which may also grow rather than disenfranchise its customer base.


4. Rebate service 
Offer the customer's who use the expert consultation the opportunity to rebate their fee against a product purchase.  So the $30 effectively becomes a voucher for their next purchase.  This will work in a number of ways. First, it will help overcome the objection to the upfront fee because it will feel less like the business is getting the money - it's more like they are just getting a deposit.  Second it will be hard for people to forgo their 'free' $30 so they will be more likely to buy something in store. And third, it means the business has an ongoing relationship with the customer and is more likely to get repeat business.

No doubt retailers like JB Hi-Fi are fed up with customers who take without giving, and in so doing provide online retailers with an even greater advantage through lower overheads and higher margins.  But this is the new world. I think it's great that we are seeing new models like JB's "explanation fee" popping up because it marks an attempt by bricks and mortar retailers to challenge the new online purchase cycle, and whilst this model may not quite succeed, it will at least make the retail sector consider new ways of balancing personal service with fair return.

Image from virtuallyyoursjb.com

How private labels are lulling us into higher prices

There has been quite a bit of press lately about the rise of private labels (house brands) in Australian supermarkets like Coles and Woolworths, and speculation about what this means for brand manufacturers.  An IBISWorld prediction cited in The Age has house brands growing from 23 to 30 per cent share of the $70 billion grocery market in the next five years, and companies like Heinz, De Bortoli and Goodman Fielder are publicly lamenting the dominance of house brands.  As most of us visit a supermarket every week, I thought it was worth examining private labels from a behavioural perspective to understand why we are shifting our consumption to house brands. 

How do private labels work from a behavioural perspective?
Private labels are behaviourally persuasive for a few reasons;

• Rules of thumb - in order to deal with the level of stimulation and choices available to us, we operate on auto pilot a lot of the time, using rules of thumb to guide our decision making. Private labels simplify our shopping experience because they create one simple rule - "buy this brand because it is good value".
• Self-herding - private label branding stretches across multiple product categories. The effect is that if I purchase and am satisfied with one category, I will be more prone to repeat my decision for that and extended categories rather than having to trial an alternative brand.  It's worth noting the risk for the private labels here - a poor experience of one category can poison all others. 
• Relativity - to understand whether something is good value, we compare it with similar items.  Our tendency is to stay away from the extremities - too expensive or too cheap - and settle for something that is somewhere closer to the middle.  Amongst others Woolworths have "Woolworths Select" and "Homebrand" and Coles have "Coles" and "Smartbuy"house brands.  This enables them to use one of their brands as their loss leader, leave the supplier's brand as the most expensive and their second brand as the attractive option in the middle. 

How our behaviour is changing the supermarket industry
By influencing individuals, private labels are changing the market in a couple of ways;

• Short-term bias - we are strongly swayed by the immediate rather than long term, and this has significant consequences for the supermarket industry and why brand suppliers are so worried.  We shoppers are buying for now - selecting items that meet our requirements in terms of utility and budget, and house brands are more than ever meeting this brief.  The risk with this behaviour is that through our actions, in this case buying house brands, we are slowly driving brand suppliers out of the market.  We are being lulled into a future of diminished choice, diminished competition and ultimately, higher prices.
• Drop in the bucket effect - along with our short-term bias, it is hard for us to contemplate how our individual purchase decisions can impact the whole supermarket industry.  We think that our actions are simply drops in the bucket that cannot have a broader implication, and this plays right into the hands of the supermarkets who know that engaging an individual is their path to engaging the mass.  

Lessons for other businesses
The rise of private labels clearly shows that shopper behaviour can be changed and new habits formed.  House brands have gone from being a dirty little secret in your pantry to a sign of 'smart' buying.  For all businesses it means that there are opportunities for growth by understanding how to influence consumer behaviour, and what better rule book than the field of behavioural economics to change the game?  See you at the check out.


(Image from http://www.foodmag.com.au/news/demand-for-private-labels-set-to-double-in-2025--r)

Unblocking the sale

One of the biggest barriers to purchase is fear that you are going to miss out on a better deal.  As consumers we sweat the price, wondering whether we should hold off and wait for the item to go on special. But as businesses, we want to lock in the sale today so how can you unblock your customers to get them to buy?

What's blocking the sale?
A recurring theme in my posts has been how loss aversion shapes a lot of our behaviour. It's where the fear of what we may lose is stronger than our motivation to gain. In this case, it's our fear that we buy the product today and it goes on sale tomorrow.  I know this sounds fairly innocuous, but we are psychologically tormented if we realise we have missed out on a better price. The extent of torment is of course commensurate with the value of the product - buying apples today when they will be cheaper tomorrow won't keep me up at night. But buying a new computer and seeing the same model for $500 less the next week will hurt.


Intensifying the sense of loss aversion is the availability of pricing information.  Thanks to the digital age, consumers have more pricing data available than ever before to ingest before transacting.  Whilst in general terms this is a good thing for the consumer, it can also mean they are so trapped by the search phase that they don't get around to making the purchase.

Unblocking the sale
As a result of information overload, search intermediaries like getprice.com.au, dealsdirect.com.au and myshopping.com.au have popped up to aggregate product pricing and feature information for consumers.  But that is just the start. To move customers into the decision making phase, US based e-commerce startup Decide uses a pricing prediction model to power its "Buy" or "Wait" app that helps consumers know when the product they want is worth acting on. This is a perfect example of how to overcome loss aversion.


However, whilst Decide might be great for them as an intermediary and great for the customer, as a business you want to overcome "wait" and get them to buy today.  Knowing that your customers are armed with lots of pricing data but still prone to inertia, you need to employ tactics to unblock the sale.  Here are three options to consider;

Price guarantees - providing the customer a guarantee that you will match or beat the price of a competitor even after the sale has been made is a very effective way of unblocking the sale.  The customer has nothing to fear and everything to gain by dealing with you because they get the goods today and can enjoy them without continuing to price hunt after the purchase.

Don't ever discount - this depends on your competitive situation, but if you have a product or service that is clearly differentiated you should consider a policy of no discount, ever!  Why? Your customers will never have to worry about which day they shop with you because there is no risk they will miss out on a better deal.  I can buy a product from Apple today knowing that it won't be on special tomorrow.

Trade-in guarantees - a clever tactic to stimulate sales today by guaranteeing future value has been introduced by car maker Hyundai in the US.  The Assurance Trade-in Value Guarantee has been launched to overcome customer fear of what they 'lose' on car depreciation.  According to the press release;


"Purchasing a new vehicle is one of life’s big events. You want to know everything you can about the true value of your options. But at the time of purchase, how can you know the future trade-in value of the vehicle you are considering?


Introducing the Hyundai Assurance Trade-In Value Guarantee. A program that future-proofs the value of your new Hyundai by guaranteeing today exactly how much it will be worth, two, three, or four years from now.


Hyundai: Impressive value today. Guaranteed value down the road." 

Hopefully you are now looking at your business a little differently.  Whilst a lot of our time and thinking as businesses is on how the customer will benefit from our products and services, a big part of our sales process actually needs to be dedicated to overcoming our customer's fear of what they may lose. Tackle that and the sale will follow.


Image from http://www.hsptravel.com.au/uploads/pics/price_guarantee.jpg  

Stop bitching about dull presentations and do something!

Business presentations.  Hands up if you've ever sat through a dull, overly wordy Powerpoint presentation about which all you can remember is the boredom?  If anyone asked you what the content contained you'd draw a blank.  Now hands up if you've ever given one of these presentations?  I'm guessing all you felt was relief that it was over rather than elation that you had moved your audience.  You see as audience we want to be entertained, informed, enticed, provoked and stimulated, and yet as presenters we are terrified of differentiating ourselves. What's the deal?

First let me be clear that I am not talking about the big annual sales presentation, up on stage Steve Jobs style.  For those such events it is generally understood that highly visual, multi media, well paced presentations are appropriate.

I'm talking about the types of presentations where you are informing stakeholders about your business or strategic plan - what you've done, what you need to do and what you need to do it.  Too often these become templated, drone-like dull-fests that waste time and feel more like a homework check-in than articulating a business vision.  After all, matching slide headers does not a consolidated thought process make.

Why do we fall into this trap?

• Status quo bias - our tendency to stay with what's known.  If a templated Powerpoint pack laden with charts and narrative is what the CEO is used to, then that's what gets dished up. No one wants to rock the boat.
• Herding - our tendency to follow others and hide in the pack.  Now, given the invariable inter-company competition that goes on within all businesses, herding can seem counter intuitive - after all, each team is really trying to distinguish themselves as the best.  But our willingness to conform to a specified style of presentation is most definitely herding behaviour - we are choosing to not stand out. 
• Group think - the dynamic where conflicting views are suffocated in favour of the prevailing shared view.  Dissenting voices are not welcome.  The culture of dull-presentations is an embodiment of group think and if you yourself are uncomfortable about presenting in a different way, it's because group think rules.

Fear of losing face
Underpinning our resistance to stepping out of the convention presentation style is our fear of what happens if we do.  We are more frightened of what we have to lose (credibility, promotion, even our job) than gain (engaged audience, insightful questions, endorsement, recognition as a thought leader).

It's cowardice.

Am I being too harsh?  It could be argued that a conventional, templated presentation does it's job because the content rather than the style can take centre stage.  And of course there have been countless examples of sloppy "creative" presentations where the slides have undermined the message.  But I do not agree that slides with four charts and multiple statements does an effective job at articulating your message (unless of course your message is that "I'm really really smart and impressive because I've spent a lot of time on this slide").  These presentations are written to give the presenter comfort rather than sway the audience, and would more appropriately distributed as Word documents.

Tips to make great presentations

By first acknowledging what holds us back we can then use behavioural techniques to make memorable and evocative presentations.

• Vividness - make your core message vivid for the audience. Bring in props, use multi-media, use metaphors and analogies to help crystallise the message.  Ideally, make your presentation three dimensional - by this I mean take it off the slide and give your audience a sensory experience of what you are trying to convey.  If you are losing customers, bring in a tray of eggs and smash them to represent the extent of your customer attrition. If you are trying to stop operational inefficiency, bring in a bucket of water and pour it into a sink to show the money that is going down the drain.  You get the idea!  Your presentation will take on an energy and engagement that the business will be buzzing about for weeks.  
• Saliency - we overweight recent or memorable events, so try to be first or last on the program and use your vividness tactics to differentiate your message from all the bland presentations.  Use group think and convention as an opportunity to cut through by being different.  
• Tension - great movies, TV shows and novels create tension in their narrative before providing release.  Presentations should be no different.  Your job is to create emotional unease in your audience so they are engaged in your story, and when you have them, alleviate the tension by showcasing your solution. Putting all the answers up front in an executive summary means there is no reason for your audience to stay engaged through the story, and you therefore lose control of how the audience understands your plan.

Ultimately it takes courage to overcome the pressures of status quo, but I would hope that you are being paid for your individual talent rather than your ability to herd.  There is only one you, so how about injecting that into your presentation, being inspired by the payoff that comes with risk, and making your audience's day in the process?

For ideas on a similar topic, check out my piece on "Why We Hide Behind Big, Boring Reports".

For some great tips on creating memorable presentations, I recommend Dan and Chip Heath's "Made to Stick" and Nancy Duarte's "Resonate". 

Image from http://nobullets.wordpress.com/category/data-presentation/page/2/

How to introduce a charge for a free service

SmartCompany's exploration the other week week of News Limited's introduction of a paywall included my thoughts on how the newspaper giant could use behavioural economics to transition their service from free to paid.

To round out this discussion, I thought it was worth looking at what makes "free" so alluring in the first place, so that you can consider whether and how to give away products or services without charge.

So let's start by looking at chocolate.

The persuasive power of "free"

In an experiment outlined in Dan Ariely's Predictably Irrational, participants were given the choice of two chocolates: higher quality Lindt or Hersheys.

Through the course of various experiments, the price of each brand was manipulated to see how consumer rationality was affected. In other words, what was the point at which price changed our judgment of what we were willing to experience from our consumption of chocolate. When the Lindt was 15 cents and Hersheys one cent, 73% chose Lindt. Makes sense. We are willing to pay more when we receive a quality experience.

But then life got interesting. Prices were dropped by on cent. Lindt was therefore 14 cents and Hersheys, free. Suddenly Hersheys gobbled up 69% of the custom, reversing the earlier trend. Was it the one cent price drop? No. It was the impact of "free". The majority of participants were now willing to act in spite of the lower level of anticipated pleasure just because the chocolate was free.

It seems that "free" dramatically impacts our assessment of what we are willing to experience.

Ariely goes on to speculate that the reason we are so swayed by "free" is that there is no downside. In most transactions, we weigh up the pros and cons, rewards and risks, but when something is "free", there is only upside.

This is the behavioural principle of loss aversion, where we are wired to avoid loss more than seek gain. In the case of chocolates, participants were unwilling to trade Hersheys for Lindt even when they had only to pay one cent for the lower quality brand. The risk was still too great. Take away that risk by making Hersheys free, and the game changed.

Introducing a charge for a free service

That's fine for chocolate, but what does it have to do with a paywall where News Limited are trying to introduce a fee? After all, it's a bit like charging for Hersheys when we are used to pigging out for free.

It shows how difficult a task News Limited have ahead of them because "free" is one of the most persuasive of forces. So here are some thoughts on how to reverse engineer free in order to transition to a paid service:

1. Differentiate the product – if a brand wants to charge for something that they have previously given away for free, they need to change the product. For chocolate, it may mean changing the ingredients or packaging, or emphasising something new about the product that people didn't know (eg. now from sustainably managed cocoa suppliers). For News Limited, it means re-skinning the online experience, introducing new content and/or features, and new marquee journalists.

2. Reframe the pricing – News Limited customers will be paying between $2.95 and $7.95 instead of zero. These are small amounts relative to most things, but not relative to free, so News Limited needs to contextualise the price for its customers. For example, less than a gym membership, less than a zone two train ticket, less than what you spend on lunch per day to get 24/7 access to real-time Australian news.

3. Introduce decoys – Pricing decoys are a very effective behavioural technique because we assess prices relative to others. At the moment on News Limited's subscription page for The Australian they are offering a digital pass for $2.95/week, digital plus weekend papers for $4.50 or digital plus Monday-Saturday papers for $7.95. Here it would have been helpful for them to also offer a "decoy" seven day print subscription on the same sign up page. Why? It sets a value for the print subscription that makes the print and digital bundles look more attractive. (On The Australian's offers page which is buried a few clicks in they have moved in this direction but made the mistake of making print look the better deal at $2/week).

4. Get it over quickly – the behavioural principle of adaptation means we get over bad news more quickly if we are not reminded of it. News Limited will have to be careful how it treats its customers throughout the sign-up, sign-in and billing process, with the aim to have the pricing recede in the customer's consciousness. They are currently offering a digital pass three month trial. My suggestion would be that the pass defaults to payment as part of the terms and conditions rather than reminding people at the end of that period that they have to pay up.

5. Demarcate the process – anyone who has used iTunes may have noticed that the payment is confirmed a few days after your purchase. Apple are effectively disconnecting the process (purchasing music) from the pain (payment), which means we are less likely to remember that our downloads have cost us. News Limited should likewise consider how it finalises the payment process with the customer.

6. Guilt – don't underestimate how guilt can turn freeloaders into paying customers. Of course there will always be some people who take without giving, but most of us are susceptible to contra-free loading. This is our innate desire to work for reward rather than just get rewarded. Don't scoff. A recent move by the Indiana Museum of Art to move to free entry resulted in a 3% increase in paid memberships.

The key lesson to take away from this discussion of chocolates and paywalls is this; offering something for "free" changes the game. It comes with significant behavioural implications that can work well for your business to stimulate volume, but can also change how your product is perceived. While not impossible to reengineer a free service as paid, it is extremely tricky and therefore should be used with due consideration to your longer-term and competitive goals.

This article was originally published by Smartcompany, 

http://www.smartcompany.com.au/behavioural-economics/20111031-how-to-introduce-a-charge-for-a-free-service.html

Image from http://cdn.besttechie.net/wp-content/uploads/2010/07/paywall.jpeg

Smartcompany interview on News Limited's introduction of a paywall

Last week I was interviewed by Smartcompany on News Limited's introduction of a paywall for The Australian news service.  To put it simply, charging for a service that was previously free is problematic because it requires behavioural change.

Here is the interview and my tips for businesses seeking to change the game.

http://www.smartcompany.com.au/media/20111025-can-you-get-people-to-pay-for-something-they-used-to-get-for-free-behavioural-economics-expert-explains-challenge-of-news-limited-s-paywall.html

I will be following this piece up with a discussion on why 'free' is so persuasive, so stay tuned.

Time we reimagined time?

We have cars to expedite travel, microwaves to speed food preparation, computers to process information, the Internet to provide immediate answers, and smartphones to make answers portable and immediate. So where's the abundant leisure time promised by technology? 

Time and all that it represents is on my mind because last week I watched a "busy families" focus group through the two way mirror.  Given the segment, it was no surprise that claims of being 'time poor' came up as the short-hand label for the state in which they found themselves, so this got me thinking about why we become victims to time. It is as if time is controlling us and we are left powerless to change. And as a marketer, this is why promises of 'time saving', 'convenience', 'simplicity' and 'freedom' are so often trotted out to our stressed and harassed audience.  Buy this and you will be able to live the life you want!

   

So time seems to be one of the most important concepts of the modern age, at least in developed nations, and yet we often do not reconsider what time means. Till now.  Enter two product concepts that caught my eye because both are reimaginings of the very representation of time - the clock.

Progress
The first is the Progress Clock by Brett M Westervelt that uses the behavioural principle of loss aversion as a call to action. As Brett explains,

"Many clocks are circular, conveying the sense that time starts over, or completely digital, giving the current time but not much more. Time is in fact fleeting, and once this day (hour, minute) is gone, it's gone. The Progress Clock is an attempt to help the user not so much focus on the exact time, but on how much time is left; with the hope of inspiring people to take advantage of any given moment."

Progress Clock by Brett Westervelt

The clock is effectively asking, are you making the most of each moment every day?  Unlike an hourglass where time is eroded as sand buckles to the relentlessness of gravity, this clock forces you to consider what you will do with the time you have left in this unique and precious day.  Confronting, isn't it?

The Present
The other is a clock called "The Present" that takes 12 months to complete its cycle. Designed by creative firm m ss ng p eces to keep people in the present by focussing on seasons rather than moments, Fast Company suggests that "...our obsession with small increments of time often keeps us from focusing on the bigger picture. The clock takes a year to complete a single cycle...Different colors represent changes in seasons--the winter solstice (top) is marked by pure white, pure green represents the shift into spring, pure yellow marks sun, and red marks the autumn equinox."  In a sense, The Present deliberately disorients our convention of measuring time in seconds, minutes and hours and as a result racing to complete tasks that are able to measured in such small units, to instead concentrate on creating experiences of real and substantial value.

The Present by m ss ng p eces

 So we have two different reimaginings of the measurement of time, both with the aim of helping us make more of now. The Progress Clock confronts us with how much time is left on the clock at this moment, and The Present focuses us on now in the context of the cycle of life.

Behavioural principles
Both clocks are being used to explore the behavioural principles of;

• loss aversion, where we spend time doing the dishes and managing the routine because we are fearful of the chaos that may ensue if we trade the known for the unknown
• status quo bias, where our current state is what we are used to and hard to break away from
• framing, where convention is that time is displayed a certain, in-exhaustive way that perhaps frames our tendency to be wasteful. 

Will owning either of these clocks help busy families to make more of the present moment?  Probably not because both require contemplation and ultimately, reconsideration of the decisions that are creating the situation of time pressure.  And who has time for that?  But as marketers, can we use what these clocks are attempting to do to move beyond the usual rhetoric of 'time saving'? I hope so because it is important to our market.  Let me know your thoughts.

Keeping abreast of customer lapse

A reminder to us all that a serious message can sometimes be best conveyed using humour; say hello to the "Your Man Reminder" app that has been released by Rethink Breast Cancer to encourage women to check their breasts regularly.

The genius is that the reminder is not a dull outlook alarm or exclamation on the calendar, it's your choice of "hot guy" that will talk you through the process.

According to Rethink Breast Cancer, "Your Man Reminder App includes the following fun features:

• Customize – Update the App to fit your personal liking, with features that let you chose your man, his pose and more.
• Hot Messages – You’ll love the attention your man gives to you, with messages like “Any guy would be lucky to have you” and “Give your breasts some TLC.” 
• Reminders - Tailor your calendar schedule with settings for weekly, monthly or surprise reminders directed by a sexy man of your choice.
• Education - The App includes a special “signs and symptoms” tab to hone in on the importance of early detection. 
• Get Checked – Use a variety of scheduling options such as doctors’ appointments and many more."

There are two key lessons from the Your Man Reminder app.  First, the app is an evocative example of how to overcome inertia by creating an entertaining, enjoyable experience.  And the same technique can be applied to any subject.  Car tyres, taxation, health checks, superannuation...the opportunity is to link typically dull but necessary tasks with something fun or unusual. 
Perhaps a slightly less fun example, but the "Change your clock, change your smoke alarm battery" campaign has proven to be an effectuive way in Australia of triggering a low awareness need (battery replacement) with an event (daylight savings) to overcome inertia. 

For your business, this can make a difference to your cash flow by minimising the risk of customer lapse. Imagine the positive impacts for a car mechanic who gets people to turn up for their annual service rather than procrastinating for 14-18 months (over three years that can mean securing one additional service)? Or a dentist that has clients returning every 6 months rather than every 3 years? 

The second lesson from Rethink Breast Cancer is in how they have structured their donation section to take advantage of our tendency to accept status quo.  Note how the donation is defaulted to monthly rather than once off which would improve their chances of that option being accepted.  They could have taken this a step further and defaulted the amount to $20 rather than $10 to encourage higher donations through our tendency to accept the default terms.  Further, they could have also applied the behavioural principle of herding to influence the amount donated. To take advantage of this they could have shown that the average donation was, for instance $25 (as long as it was truthful of course), and kept a running count of how many people made a donation.  Seeing how many others had donated and what they had spent would have been very persuasive.

So hopefully those clever Canadians at Rethink Breast Cancer have inspired you to use behavioural strategies to tackle business objectives. I am certainly looking forward to seeing more apps like the one they have created. 

For more information on the app (and the guys) check out the clip on YouTube www.youtube.com/watch?v=VsyE2rCW71o

The app is available http://itunes.apple.com/us/app/your-man-reminder/id467911146?mt=8

Getting ripped not ripped off at the gym: Price anchoring at work

I walked away.  Her best offer was $16.50 a week for gym membership, better than the $18 I was already spending as a casual member, and yet I turned down the offer. Why? 

Pricing psychology is such an important part of every business and behavioural economics can go along way towards understanding why customers react to deals the way they do.  Here are eight lessons from how my gym botched the deal.

Over the past few months the gym had sent me text messages offering $18 a week memberships, the same price as my weekly Zumba class.  This was their attempt at winning me over by saying "you may as well because that's what you're spending anyway".  Why didn't it work? Commitment to 12 months. Lesson 1. Don't ask your customer for a commitment without rewarding them beyond what a 'casual' customer would receive.  And because the offer was texted to my phone, any other benefits of membership (better change rooms for instance) were not explained.  If using this strategy, parcel the benefits with the price in each and every communication. A text saying "Unlimited Zumba plus full access to pool, yoga + sauna no add cost" might have been better.

So now $18 was anchored as my membership price expectation.  Lesson 2. Whatever deal your customer first sees is vital because it is the offer against which all others will be judged.  This of course can work very well for a savvy business because it sets an upper limit against which you can offer discounts. 

The other important aspect here is that $18 anchored the price in context.  The $18 for gym membership was seen as relatively expensive and yet I have spent more on that in yogurt in the last 2 weeks. When I was later comparing a cheaper deal to that anchored price, I was judging them relative to gym prices only, not other lifestyle costs. Lesson 3. Take the opportunity to broaden your customer's frame of reference with other price anchors to influence how your pricing is perceived.  And the other anchors don't even have to be relevant! Duke University's Dan Ariely has demonstrated that numbers as random as the last four digits of a social security number can influence the price people are willing to pay for wine. My gym could have cited average costs per week of Internet, train travel or something else just to broaden the context in which I was judging the value of the membership.

The gym next texted me a deal for $16 per week.  Hmmm, that was getting more like it; I would be saving on my Zumba!   Note how I thought about it as saving money rather than spending less money; this is the concept of sunk cost where people fixate on the incremental change (saving $2) rather than the outlay (paying $16).  Lesson 4. Sunk cost is extremely powerful because your customer's mind will be busy calculating the differential value rather than worrying about the actual cost. 

But another week elapsed before I took action and the offer reverted to $18. So I now had an upper price anchor of $18 and a lower price anchor of $16.  This is another useful technique for savvy businesses because you can help your customer understand that the deals are not forever, and they need to act when one crops up.  The concept at play here is loss aversion, where it hurts to lose a potential discount.  Lesson 5. Sequencing favourable and less favourable deals can help drive take up.  Petrol pricing is typical of this behaviour where we rush to buy petrol at its low ebb during a particular day of the week.

So then it came to my next offer. A rep from the gym called me and offered $13 per week.  Well, that was too good to refuse.  I had rejected $18, so this saved me $5, and I had missed out on the great value $16 offer, so I was ready to sign. And the fact that a rep called me rather than texted probably didn't hurt either because it distinguished the deal from others.  Lesson 6. Make sure killer offers cut through as special and close the deal.

Having arranged to meet the rep at a specific time and had that confirmed by him via text that day, I was a bit confused when told he had gone home for the day.  Lesson 7. Customers hate being bounced and it can jolt them from a future focus (I'm going to me a gym member) to current focus (if this is how they treat prospective customers...). Confirming an appointment only to sub in a colleague who does not have full background information gets your customer in a negative frame of mind when you want them to be thinking "yes!".

Fifteen minutes later his colleague met with me with the latest offer.  Here's how our conversation went;

• Gym rep - "For a commitment-free membership we can offer $22 a week. Otherwise, you can take our special deal of $16.50 per week for 12 months"  (Note nice use of anchoring at higher casual rate before mentioning contract rate)
• Me with puzzled expression - "I'm confused. Your colleague offered me $13"
• Gym rep - "I'm sorry, that deal has expired"
• Me - "I wasn't told it would expire, and had arranged with your colleague to sign up for that"
• Gym rep - "As I say, that deal expired and the best I can offer is $16.50."
• Me - "Ummm. Can I think about it?" (when confused, delay)
• Gym rep - "Well unfortunately I can only offer that price tonight"  (Nice pressure. Tapping into my loss aversion") 
• Me -"I'm going to have to think about it" (preparedness to walk away because I felt that I has been lured to sign through misleading representations, but also because I had previously 'walked away' from $16 by not acting on that deal, so I knew I could live without it.)

 So I walked away. 

The gym almost had me, and had used different anchoring techniques to finally get me to a position of commitment. Spooking me with a more expensive deal was a mistake they could have easily avoided by clarifying the deadline for the $13 offer.  

However, the most surprising part of this is that had they come back and offered me a deal somewhere between $16.50 and $13 I would have signed.  Whilst $14 or $15 was more than their best deal, I could have worn the fact that that offer was for a limited time and I was still doing better than $16.50.  What's going on here?  Think back to sunk cost. By turning up ready to sign, I had psychologically 'spent' $13, so anything that was closer to my end of the pricing spectrum ($13) than the gym's ($16.50), was acceptable. Lesson 8. Just because you've anchored the price low doesn't mean you necessarily have to go there to win the business.

In actual fact they called and honoured the $13 deal so I am now a paid up, committed member. Fair to say there were some bumps and turns in how the local gym influenced my decision to do business with them, and it didn't need to be so clumsy. I trust you will be able to apply these eight lessons to engage your potential customers.

1. Don't ask your customer for a commitment without rewarding them beyond what a 'casual' customer would
2. Whatever deal your customer first sees is vital because it is the offer against which all others will be judged
3. Take the opportunity to broaden your customer's frame of reference with other price anchors to influence how your pricing is perceived 
4. Sunk cost is extremely powerful because your customer's mind will be busy calculating the differential value rather than worrying about the actual cost 
5. Sequencing favourable and less favourable deals can help drive take up
6. Make sure killer offers cut through as special and close the deal
7. Customers hate being bounced and it can jolt them from a future focus to current focus
8. Just because you've anchored the price low doesn't mean you necessarily have to go there to win the business

Image from Foster City, and no it's not me!

Time market research got real: How beer and banking show us how

 I don't drink beer. I don't follow rugby. I am not into gaming.  So why on earth have I become addicted to the Heineken Rugby World Cup iPhone game?

Gap between intended and actual behaviour
Sure, addicted is probably putting it too strongly, but my affair with Heineken got me thinking about the gap between intended and actual behaviour   You see had I been invited to a market research group and asked about my gaming, beer and rugby behaviours, there is absolutely no way I would have predicted my own slavish usage of the final product.  I mean, who has the time or interest in pretending to punt a ball over an imaginary goal post?  I just doesn't make rational sense.

And that's the rub for product marketers. We spend a lot of time researching what our market think of our widget or brand, but we often get results based on intended rather than real behaviour. 

Here's where Behavioural Economics comes in. 

Behavioural Economics gets to the truth of behaviour
Behavioural Economics is based on behavioural studies rather than attitudinal ones, so in my scenario the research would have tested the efficacy of different techniques to stimulate download - from memory, I downloaded from an ad on a newsite, the user flow for download, any inhibitors to sign-up (eg asking for date of birth might have been too sensitive), and so on. Traditional market research would more likely have spent time defining the target market (i.e. not me) and predicted take-up based on reported intent.

As to uncovering what would influence me to download the game, common theories would revolve around the creative's call to action, the perceived value of the user benefit, maybe even personal recommendation.  If I had been asked, I probably would have said a combination of these factors. But what really influenced me? Whilst of course I had to see and understand the ad, I could have ignored it like I have every other.  What made me download the App was that I was looking for examples of how brand's were applying social media to engage their customers.  That's right, a virtuous professional reason!  Behavioural Economics would have used tested techniques to influence downloads - herding (doing what others do) and completion (my willingness to step up and kick for Australia) amongst them. 

How Westpac NZ has used behavioural economics

An example that's fast becoming a classic illustration of closing the gap between intended and real behaviour is the Westpac New Zealand Impulse Saver App. Developed on the insight that people have till now had the mechanisms to impulse buy (money, credit cards), but not impulse save, the App allows customers to add money to their savings at the touch of a button. The bank's objective is to grow the penetration of savings accounts beyond 49% of population.  Did the insight come from discussions with a focus group?  I don't believe so. Whilst market research quantified the volume of savings accounts and no doubt other market sizing elements, the key insight was instead based on observation of actual behaviour.  New Zealanders impulse spend $16.1m every day.

Behavioural Economics can overcome short comings of Market research

So am I bagging market research? No, I think the more time we can spend understanding our market the better. But I do believe market research techniques that concentrate solely on intended and predicted behaviours have serious short comings.  Sophisticated researchers use different techniques to try and dig beneath hyperbole (I particularly like image based metaphors to untap emotional and cognitive associations, and there's some merit in ethnographic observation), but behavioural economics can take it so much further by translating insights about actual behaviour into...well, actual behaviour.  And as a marketer, that's our goal!

For more on Westpac's App check out

http://www.bankingreview.com.au/2011/05/acting-on-impulse.html

 

And for the Heikeken game, http://itunes.apple.com/au/app/heineken-rugby-clubhouse/id450375998?mt=8

It's not me it's you: Dropping a customer who doesn't spend enough

We've all been there. That customer who soaks up an inordinate amount of time and energy without spending enough for you to justify the level of resourcing.  And now it's crunch time - how should you move a customer who had face to face sales representation to a less frequent cycle and/or telesales account management without losing their business?  Here are some pointers from behavioural economics to change your service mix.

You don't know what you've got till it's gone...aka "Endowment effect"
You can be sure that the customer took face to face (F2F) representation for granted when they had it - but now that it might be taken away it's seen as a catastrophe. Endowment effect is our tendency to overvalue what we own - in your customer's case, they "own" the level of service they have been used to.

Tell them they can have F2F representation again...but they need to meet the criteria and to do that they can work with their very smart new telesales account manager who will help them get there. Will they like it? Most possibly not because it will be seen as personal affront. But guess what, you're in business and are entitled to treat customers who spend more differently. 

Business Class vs Economy, it's your choice
Procedural fairness explains our tendency to accept a judgment if it has been fairly considered and you know the rules.  If you've ever flown Business Class and then had to go back to Economy, you will know which you prefer, but you also know what it takes to get back to Business Class - money.  Do your customers know what it takes to get F2F representation?  Share the decision and the objective criteria (eg spend more than $5,000 pa...) to help them understand that they are actually in control of their servicing - all it takes is increased spend. 

But I'm special!  I'm an important account!
This type of change reminds the customer that they are one of many, upsetting their sense of uniqueness. Talk to the customer about what makes their business special and why you see a continuing relationship with them, albeit through a different channel.

Don't think about it as losing something
We hate to lose more than we love to win. In this case, the customer may react badly if they perceive the service mix as losing something so do everything you can to frame the change as a gain. Can they get more frequent attention via the phone for example? Do they get the resourcing support of a whole team rather than one individual? Will shorter appointments save them time?  Mark out potential reasons why F2F may not have been the best method of contact from that customer's perspective and consider how to use it in your justification. A word of caution though, the change will most probably be seen as cost cutting, so don't go too heavy on the "it's better for you" angle unless you can actually prove a better service level.

Quick like a bandaid
With unpleasant news, get it over quickly because we adapt more readily if we are not constantly reminded of what has changed. Handover the accounts (and do this properly by thoroughly briefing the new rep and telling the customer) and move on so the healing can begin. 

Still scared to act?
If you are still procrastinating about making the changes, know that you are falling into the trap of loss aversion - you are more fearful of losing the business of some difficult customers than motivated by the gains you can make by having your F2F sales reps concentrate on the accounts with most potential.  And you may well lose some customers.  So to get over this mental hurdle, do some number crunching. How much does it cost you to service those accounts, what's your margin, and what's the opportunity cost between these accounts and the potential accounts your rep could be growing?  Overcome your reticence with a good dose of fear busting.

By no means is changing service mix an easy thing to do, but it is an important aspect of managing your business. If you want to take it a step further and fire a customer, you may want to check out "Firing a Customer - what holds us back?".  Until next time, happy dropping!

Picture from http://www.officialpsds.com/images/thumbs/Roped-off-psd65892.png