70% of Germans are willing to pay a premium to receive green energy instead of conventional electrical power in their homes, yet only 3% do it. In the city of Schonau in the German state of Baden-Württemberg though, 99% actually pay the premium for green energy! How is this possible? It turns out, that Schonau, as opposed to the rest of Germany, has an opt out clause. So the people of Schonau needs to specifically say they do NOT want green energy, while the rest of Germany needs to specifically say that they DO want it. This is our status quo bias at work and can be seen with retirement plan options, organ donation and a wealth of other areas, where we ask people to make a decision on something, that is a bit complex and often not top of mind.
We recently had a discussion with the leadership of one of the Danish political parties around the ethics of such work. Our argument is that you CANNOT NOT communicate. If you make for example green power the default, then people will accept, unless it is very important to them and they have an actual opinion about it. Conversely, if you make conventional power the default, then people will also accept. So you have to make a decision as the elected officials on what is the better for the world – either way you are nudging people in your direction, so you better make it the right one.
This is the last article of five this time focused on the Promotion part of the classic 4P marketing parameters – in business this is the home turf of behavioural economics and we hope you will recognize many of the examples. You can read the previous articles here:
Scarcity … just… works!
Ferrari is not in the business of selling cars. It is is in the business of selling merchandise such as Ferrari branded T-shirts, caps and mini cars, which is how they generate a profit on the loss giving car production. The way they do this is by creating artificial low supply of their cars, generating a feeling of exclusivity (that is scarcity), and people (with a slightly bigger wallet than ours) simply line up for years. Scarcity is a classic move and we are used to seeing offers for all sorts of products underlining that it is a limited time offer or a limited edition. This is how you sell luxury items in general and most of strategy is devoted to creating a differentiated offering – in essence creating a limited supply situation.
What is not so recognized is that if you are holding on to two offers – say two different vacations – then depending on whether you are forced to either book or keep on hold just one of the two options, you will react differently. If you are forced to keep only one on hold, then your risk aversion kicks in and you take the safe bet with OK beaches, hotels, weather and food. But if you are forced to book only one, then you will be more willing to take risk and pick the one with fantastic beaches and hotels but horrible weather and food. But the two choices are in essence the same!
The power of social norms
When large book stores whether online or classic brick & mortar create bestseller lists, they are not necessarily bestsellers just yet. But putting them on a special table in the front of the store with a big bestseller sign, will tab into the power of social norms and quickly ensure that the prophecy is fulfilled!
There is a famous case, where the people living on two streets are asked to put up a big sign in their front lawn (like “slow down to protect our kids”). On one street less than 10% of the people agree, while on the other – right next door – about 90% put it up! What is the difference between the neighboring streets? Well, on the second street, people were asked the previous week to put a small postcard similar to the sign in their window – the next week they were told that the small postcard did not work, but could they instead put up this big sign…? Despite our irrationality – or maybe because of it – we want to seem consistent to the outside. So if you can get people to make a smaller commitment, then it is so much easier to get them onto something bigger later and the effect persists long after. To get the maximum impact the commitment should be voluntary, public, active and and in writing.
Another way this works is through the use of authority. Ever wonder, why your doctor or lawyer put every single qualification on the wall or don a “uniform”? They automatically become the alpha with the right to command. This also works with a “Best in test” sign and authority even works by transfer: Imagine you walk into a jewelry store to buy a ring and a clerk tells you to “talk to Jane the other clerk, because she is a ring expert”. You know that the first clerk cannot be unbiased as part of the jewelry store, but you still inclined to believe it and listen more carefully to the “expert”.
Now, you need to be careful how you word your communication. When the Brazilian authorities discovered the extent of stolen wood from an area of the Amazon forest, they put up a sign to shame people into compliance: “14 tons of petrified wood are stolen every year”. Unfortunately, people took the large number as a cue, that it must then be OK to steal and the problem grew. The sign reinforced the deviant behaviour! This is also what you see in hotels with “people reuse their towels at least once during their stay”, which increase the likelihood of reuse by 26%. More interestingly though, if you are to say the same for the particular room, they stay in, the number grows to 33%. So basically, the closer it feels to them personally, the more powerful it is…
Perception is reality
“Excuse me, I have five pages. May I use the Xerox machine?”. When Psychologist Ellen Langer ran an experiment, where a person jumps to the front of a line at a photocopy machine, 60% would comply to this request. When she added a reason to the request, it jumped to a staggering 94%: “Excuse me, I have five pages. May I use the Xerox machine because I’m in a rush?”. But the really interesting part was, when she slightly tweaked the excuse to complete rubbish, the results remained the same (93%): “Excuse me, I have five pages. May I use the Xerox machine because I have to make some copies?“. It is pretty obvious that the person would like to use the machine to make copies – just like the other 20 people in line. But it turns out that just by using the word “because”, anything that comes after people are hardwired to simply accept, unless they are really paying attention. You can imagine this applied to sales: “Will you sign the contract, because I really need the commission?”.
Basically, our perceived reality can easily be distorted. There is no essential difference between a 20% fat steak and a 80% fat free version, but sales differ substantially. A menu card reading things like “Seafood Fillet” sells substantially worse, than one reading “Succulent Italian Seafood Fillet”. Nobody listens to campaigns talking about how cigarettes kill – in fact if anything they increase consumption, but you can talk to peoples emotional side and get substantial results. Watch this short clip for an insight into recruiting the parents such a campaign:
Design a powerful choice architecture
Hospitals and public sector services struggle with missed appointments and have experimented with rational solutions such as fees etc. You may be familiar with the kindergarten in Israel, where the late pick up by parents was eventually met with a demand for USD 1 for late pick up. The reaction? Suddenly everyone was late! When they tried to reverse it by taking away the USD 1 fee, people kept being late but now there was no longer any additional income! What essentially happened, was the kindergarten substituted a social punishment for an economic one – the economic one was far too low to make a difference and once you go down that road, it takes a long time to come back.
What some doctors have done is experiment in the social sphere with some interesting results:
- If patients verbally repeat the appointment, it will decrease missed appointments by 4%
- If patients both repeat the appointment AND fill in an appointment card, missed appointments go down 18%
- If patients repeat the appointment, fill out the appointment card AND they are informed how many patients made the appointments, the result is 31% improvement
But beware the power of social norms! If you do 1+2 and inform how many patients did NOT make the appointments, your result is zero.
Another great example is one of the global gym brands, where they experimented with the membership structure. In the most powerful version, they offered a fairly expensive USD 600 annual gym membership BUT it came with a USD 400 reward, if members would complete 3x30min per week for 4 months. The result? Increased number of people joining AND improved retention – a dream sales scenario and obviously good for the members as well, who got more out of it.
Generally, make sure your choice architecture lives up to EAST: Easy, Attractive, Social and Timely, then you are onto a great path.