Loyalty
Status
We constantly look for ways to improve how others see us
150 students completed a simple task and were split into two groups and given either positive or negative feedback on their performance. They were then shown either a one-off print or a mass-produced one and asked how much they’d pay for it.
Those given negative feedback were willing to pay almost 4x more on average for the unique print than those with positive feedback, showing how we use consumption to heal our sense of status.
There are multiple ways to elevate brand status:
Form strategic alliances with successful others with whom you share compatible goals (Thorndike, 1920), e.g. Go-Pro and Red Bull.
Develop your core purpose to raise your products’ perceived value (Chernev & Blair, 2015), e.g. Patagonia who “use business to inspire and implement solutions to the environmental crisis.”
Create and control new ways of promoting industry excellence. Dribbble, a platform for design teams to show off their work provides paid-for "Pro Business" status badges to distinguish the best from the rest.
Invest in a tiered loyalty scheme to elevate consumers’ status & brand attachment (Nunes & Dréze, 2006), e.g. British Airways Executive Club.
Experience
Certainty Effect
We crave clarity over chance and make costly sacrifices to get it
77 people were asked to choose between an entirely certain win of $30 and an uncertain 80% chance of winning $45.
78% of people opted for the significantly smaller, certain reward, despite the risk-adjusted payout being higher for the uncertain reward (0.8 * $45 = $36).
Certainty is valued highly.
What ways can your business create reassurance or guarantees that make consumers feel safe? How can you use exclusive certainty to reward and foster a sense of status with your brand?
Stick to your promises!
Letting consumers down, even once, will trigger uncertainty in the quality perceptions of your brand. If making claims about being the best at something, don’t ever give consumers reason to question that and turn a selling point into an unsustainable headache.
Reframe uncertain offers to appear certain.
The uncertain frame here requires consumers to calculate proportional savings, but the certain frame removes this by showing certainty of a zero-priced third lemon.
Conversion
Loss Aversion
We feel more negative when losing something than positive when we get it
150 teachers in Chicago were either offered a cash incentive up front or after their students’ math test, with better results leading to more money. Subject to results, the money-up-front group would suffer deductions for unmet targets to create a feeling of loss aversion.
Teachers receiving money up front were found to have much better results than those rewarded at the end.
Increase conversion with trial offers. Though some consumers might not be willing to pay the market price for your product, they may pay the market price to avoid it being taken away.
Offer delayed payments to shift consumers’ judgements from paying to get the product to paying to avoid losing it. For instance, a month delay in paying subscription fees. This means that any extra budgetary cost is then re-estimated as a question of how it can be fitted into an existing budget.
Replace faulty products immediately with an identical or superior model (Novemsky & Kahneman, 2005). Doing it quickly will limit the pain of loss aversion, which builds over time (Strahilevitz and Loewenstein, 1998).
Branding
Self-Expression
We constantly seek out ways to communicate our identity to others
274 people were shown 10 t-shirts, split into 4 groups and then asked to rate the shirts on either likeability, casualness, colorfulness or how much it matched with a cap. They were then asked how fun the task was.
Those given the ability to express their like or dislike rated the task as much more fun than the other groups. Simply, we value ways to express how we feel.
Personalization pays.
Bold, scaleable self-expressive features increase loyalty and sales.
Coca-Cola’s #ShareaCoke campaign - switching out the product name for a person’s name - led to a 10% rise in 2014 sales and a 7% spike in Facebook growth.
An Australian store sold 400,000 customized jars of Nutella for $10 each, becoming their top seller.
Tie it back to emotions.
Though there are successes like Kraft Heinz personalized soup “Get Well Soon ___”, with consumers happy to spend five times more, know that personalization has upper bounds on price and has less impact as it becomes more common.
Like Heinz, the smartest brands will tie personalization to underlying product emotions - care and sympathy in this case.
What emotions do you want end consumers to feel? Use personalization to help express these publicly.
Conversion
Default Effect
We tend to accept the option pre-chosen for us
Faced with a set of options, when we’re not sure what’s the “right” choice, Defaults offer a helpful guide.
They help people avoid expending vast amounts of cognitive energy to decide between what could be a large number of options.
This is especially the case for those who don’t know much about the products or services, where Default options can take away the fear of getting that first decision wrong.
They're also a powerful remedy to any potential Analysis Paralysis, and are particularly helpful when making multiple choices one after the other.
Consider that you’re buying a computer, with a range of possible customisations to various parts.
If there were no default choices set, we’d quickly become overwhelmed with what was the right choice in each step.
If you have complicated product ranges or customisations, are you setting helpful Defaults? If you are, think hard about whether these need improving to reduce effort further.
But also, a word of warning.
Defaults can be terribly misused to force people into decisions that they don’t want.
Take people down the wrong path and you’ll quickly trigger Reactance; an angry feeling where people will want to reclaim their independence, often doing the opposite of what you Default them to.
Ensure that your Defaults have peoples’ own intentions in mind and don’t deviate too far from what people would do of their own choosing.
What Defaults are you setting? How can these be improved to help smooth out decision-making and guide people to better outcomes, either for themselves (e.g. helping them save more money) or for the wider group (e.g. defaulting meeting times to 15 minutes instead of 30).
Defaults are set everywhere. They’re powerful and have a big influence on behavior with little effort.
Faced with a set of options, when we’re not sure what’s the “right” choice, Defaults offer a helpful guide.
They help people avoid expending vast amounts of cognitive energy to decide between what could be a large number of options.
This is especially the case for those who don’t know much about the products or services, where Default options can take away the fear of getting that first decision wrong.
They're also a powerful remedy to any potential Analysis Paralysis, and are particularly helpful when making multiple choices one after the other.
Consider that you’re buying a computer, with a range of possible customisations to various parts.
If there were no default choices set, we’d quickly become overwhelmed with what was the right choice in each step.
If you have complicated product ranges or customisations, are you setting helpful Defaults? If you are, think hard about whether these need improving to reduce effort further.
But also, a word of warning.
Defaults can be terribly misused to force people into decisions that they don’t want.
Take people down the wrong path and you’ll quickly trigger Reactance; an angry feeling where people will want to reclaim their independence, often doing the opposite of what you Default them to.
Ensure that your Defaults have peoples’ own intentions in mind and don’t deviate too far from what people would do of their own choosing.
What Defaults are you setting? How can these be improved to help smooth out decision-making and guide people to better outcomes, either for themselves (e.g. helping them save more money) or for the wider group (e.g. defaulting meeting times to 15 minutes instead of 30).
Defaults are set everywhere. They’re powerful and have a big influence on behavior with little effort.
161 people were told that they’d just moved to a new US state and that here, the default was (or wasn’t) to be an organ donor. They were then asked to accept or change this donation status.
Results showed that only 42% donated when the default was to opt out, but 82% when defaulted to opt in.
Defaults are powerful. They’re chosen because consumers take mental shortcuts (especially when tired) and because there’s implied trust that they’re the ‘right’ choice. Defaults also act as a reference point against better or worse options. (Dinner et al., 2011).
Defaults can be set around anything: from the standard package you offer to new subscribers, to the pre-set top-up amount for your mobile wallet, to whether each order of pizza should come with salad. Each default can dramatically affect conversion levels and behavior.
Get the balance. Ensure your defaults feel natural and in line with consumer aspirations. The more extreme the default you set (i.e. defaulting to the most expensive option), the more effort consumers will expend weighing up the cognitive / emotional costs of not choosing the default, impacting their experience and reducing overall trust.
Pricing
Anchoring
What we see first affects our judgement of everything thereafter
During decision making, anchoring occurs when individuals use an initial piece of information to make subsequent judgments.
Once an anchor is set, other judgements are made by adjusting away from that anchor, and there is a bias toward interpreting other information around the anchor.
For example, the initial price offered for a used car sets the standard for the rest of the negotiations, so that prices lower than the initial price seem more reasonable, even if they're still higher than what the car is really worth.
Studies have shown that anchoring is very difficult to avoid.
For example, in one study students were given anchors that were obviously wrong. They were asked whether Mahatma Gandhi died before or after age 9, or before or after age 140.
Clearly neither of these anchors are correct, but the two groups still guessed significantly differently (choosing an average age of 50 vs. an average age of 67).
During decision making, anchoring occurs when individuals use an initial piece of information to make subsequent judgments.
Once an anchor is set, other judgements are made by adjusting away from that anchor, and there is a bias toward interpreting other information around the anchor.
For example, the initial price offered for a used car sets the standard for the rest of the negotiations, so that prices lower than the initial price seem more reasonable, even if they're still higher than what the car is really worth.
Studies have shown that anchoring is very difficult to avoid.
For example, in one study students were given anchors that were obviously wrong. They were asked whether Mahatma Gandhi died before or after age 9, or before or after age 140.
Clearly neither of these anchors are correct, but the two groups still guessed significantly differently (choosing an average age of 50 vs. an average age of 67).
Participants were asked to quickly estimate - within 5 seconds - the answer to one of two same calculations, anchored either low or high.
Those with the low anchor guessed 512 on average, whereas the high guessed a much higher 2,250. The correct answer was 40,320.
Put the highest price first
This will make subsequent prices appear cheaper in comparison and increase sales.
For instance, on the wine list shown, instead of putting the expensive items at the foot of the list, rearrange them in descending price.
Alternatively, if higher, show your competitors' prices first before revealing your comparative value.
Don’t set your anchor price too high
If you do, the natural inclination to anchor other options against this price will diminish.
Be realistic. Keep it within an appropriate region of your other prices in order for your anchors to be effective.
Audience matters.
Anchoring effects weaken for those with higher cognitive ability (Bergman et al., 2010) and those with prior product-buying experience (Alevy et al., 2011).
Loyalty
Rewards
We change our behavior when given gifts that reinforce actions and goals
58 households in Philadelphia, Pennsylvania had their fruit and veg shopping monitored for 8 weeks. Half were offered a 50% discount reward on all fruit and veg purchased and half were not.
Results showed that the reward increased healthy food purchasing behavior from 6.4 to 16.7 servings of fruit and veg on average per week per household.
Rewards come in two types: Extrinsic and Intrinsic.
Extrinsic rewards are economic: pay, discounts, working conditions, gold stars, healthcare, promotions etc.
Intrinsic rewards are emotional, coming from a sense of achievement through skill and hard work, unplanned verbal praise from authority figures, and peer recognition.
Too much extrinsic will lessen internal motivation as it’s seen as controlling, especially if they’re later removed (Murayama et al., 2010). Ensure that they’re significant enough to motivate against task boredom (Hidi, 2015) and are in line with the market needs of employees / customers.
Focus on rewarding intrinsically - seen as a superior reward (Deci et al., 1999) - with greater levels of trust, choice and freedom to make one’s own decisions. You’ll be rewarded with a more motivated, loyal following as a result.
Loyalty
Limited Access
We place greater value in things when there are barriers placed around them
310 US Amazon Prime customers were split into 2 groups, either on a free trial or on a paid membership. They were then queried about attitudes towards and value perceptions of Prime and its benefits.
Those on the paid subscription reported greater loyalty, perceived value and exhibited a higher monthly spend than those who were on the free trial.
This is driven by two core effects:
1) Sunk Cost Bias where we seek to justify past, non-recoverable costs (of membership access) with our current actions (more spending), even when it’s not in our best interests.
2) A desire to remain consistent with our past commitments - “I’m a Prime customer now.”
Create a members club. Putting a price on entry heightens our analysis of the benefits of joining in a way that we wouldn’t if it were free. Limiting access to certain products or benefits can signal higher perceived quality (Zeithaml, 1998) and an increased willingness to buy.
Amazon entice with convenience (‘free’ one-day shipping), priority (30-min Early Access Lightning Deals) and exclusive choice (a vast music, video and book library). What benefits would your own customers pay for? What feelings can gaining access promote?