Marketing Sherpa published an interview with Dan Ariely, Professor, Behavioral Economics, Duke University and author of Predictably Irrational: The Hidden Forces That Shape Our Decisions. He points out that most people don’t have a good handle on their decision making and often their environment dictates the decision. He lists seven insights (some of which are less obvious than others):
- Expectations modify experience
- People are uncertain of a product’s monetary worth
- People place increased value on their own items
- People hate losing things
- Don’t put too much value in focus groups
- Reach consumers at the right time
- Look at customer communication areas
I found #4 to be the most interesting. I recall the idea from a seminar on negotiation that everyone has a “utility graph” that describes how a specific person feels about gaining or losing. A gambler, for example, would be willing to incur the pain of losing a few hundred dollars for the chance to win thousands. For that individual or segment, the upside thrill outweighs the downside pain and this tradeoff can be described in a mathematical graph. Professor Ariely points out that most people would rather spend money than lose something – even if that something is just a perception. The interview points out:
Marketers can apply this concept to bundling. When trying to sell customers a bundle of products, don’t let customer assemble products on their own. First, present a complete bundle and ask customers to remove the items they don’t want.
When you frame it as "giving stuff up," Ariely says, customers will likely buy more items than if you asked them to gather the items they wished to purchase into their own bundles.
This is great opportunity for e-commerce providers to anchor customers on a premium packages or suite and sell down. Of course, this can backfire if the prospect can’t afford the premium price and decided that the pain of purchasing a “sub standard” package undermines too much of its value.