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 greaterloyalty, 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?
• It started with a bowl of cashews at a university dinner party. After Thaler’s friends thanked him for removing the addictive nuts from the table, he wondered why people felt happier that they now had less choice; it contradicted economic theory around more choice being better! A curious anomaly…
• 1979 He saw that Kahneman and Tversky's Prospect Theory better predicted human behavior. Their finding that we use shortcuts to make decisions that lead to biases motivated him to turn his own stories into experiments…
“Creating a reputation as a “sludge-free” supplier of goods and services may be a winning, long-run strategy”
- Thaler (2018) The Evolution of Behavioral Economics
• 2004 Designed the ‘Save More Tomorrow’ program with Shlomo Benartzi to help people save more as their wages went up, using Defaults + Foot In The Door to get savings from 3.5% to 13.6% after 5 years, next to 5% without help.
• 2008 Wrote ‘Nudge’ with Cass Sunstein, defining nudges as interventions to help people make the choice they'd have made if informed and rational, happening within a ‘Choice Architecture’: the environment in which people make decisions, like a menu in McDonald’s or on your iPhone screen.
• 2018 Found, from looking at Swedish pensions, that default-based nudges last for many years, even when risk goes up! He’s since spoken out of the misuse of nudges in industry, calling them ‘sludges’.
• 2021 'Nudge - The Final Edition' was updated with new examples and a deeper dive into sludge.
• It started with a bowl of cashews at a university dinner party. After Thaler’s friends thanked him for removing the addictive nuts from the table, he wondered why people felt happier that they now had less choice; it contradicted economic theory around more choice being better! A curious anomaly…
• 1979 He saw that Kahneman and Tversky's Prospect Theory better predicted human behavior. Their finding that we use shortcuts to make decisions that lead to biases motivated him to turn his own stories into experiments…
“Creating a reputation as a “sludge-free” supplier of goods and services may be a winning, long-run strategy”
- Thaler (2018) The Evolution of Behavioral Economics
• 2004 Designed the ‘Save More Tomorrow’ program with Shlomo Benartzi to help people save more as their wages went up, using Defaults + Foot In The Door to get savings from 3.5% to 13.6% after 5 years, next to 5% without help.
• 2008 Wrote ‘Nudge’ with Cass Sunstein, defining nudges as interventions to help people make the choice they'd have made if informed and rational, happening within a ‘Choice Architecture’: the environment in which people make decisions, like a menu in McDonald’s or on your iPhone screen.
• 2018 Found, from looking at Swedish pensions, that default-based nudges last for many years, even when risk goes up! He’s since spoken out of the misuse of nudges in industry, calling them ‘sludges’.
• 2021 'Nudge - The Final Edition' was updated with new examples and a deeper dive into sludge.
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