We all know that more expensive items tend to be of slightly higher quality, but people are also paying for the status symbol and exclusivity associated with it - Polo, Burberry, Rolls Royce, BMW, etc. But are they really worth the 2x, 3x, ?x markup over products of only slightly lesser quality?
What if there’s no status attached to it? Shoemoney recently made a post containing info from a book called Pinpoint Pricing. This snippet of info showed that an increase in price for an e-book from $19 to $29 (what’s the status in an e-book?) actually increased sales. It could have been an issue of perceived value, or it could have been an issue with the number itself (aren’t you sick of those $19.95 TV Ads?),
Or it could have been a reference point issue: “$19 - that’s like $10, but double!” vs “$29 - that’s like $50, but a lot less!”
Sounds ridiculous? It is. The fact is, humans often act completely irrationally. Take some examples:
Your offered the chance to bet $100, with a 50/50 chance you’ll lose that $100 or win another $100. Studies show most people will choose to risk-averse and not bet. Additionally, theories that suggest that winning $100 isn’t as valuable as losing it because it will create a proportionally smaller change in your current wealth.
You’re offered either $100 or a 50/50 chance to get $0 or $200. Studies show most people will choose to risk-averse and pick the solid $100.
You’re offered the chance to either lose $100 or a 50/50 chance to lose $0 or $200. Most people will actually choose to gamble, despite the fact that this goes against the previous theory (since the second $100 is actually a larger change to your current wealth), and if you reorganize the question slightly:
You lose $100. You are then given the option of winning it back or losing another $100. The results of this question are identical to the previous one, but people, if they were rational, would choose to not gamble again, since this scenario is the same as the first.
Or look at any lottery - if you have a 1/1000 chance of winning $500, and the ticket costs $1, the average return you can expect is $.50. And yet people play lotteries all the time (some with better odds, some with worse), going against all “rational” judgment.
So what can we learn from this? People are never truly rational. Things that may make complete sense may actually be damaging you.
February 28th, 2007
posted in Psychology, Top, Marketing |
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As a psychology major, one of the first lab experiments I did was teach a lab rat some little tricks, like pulling a lever or standing on its hind legs.
That’s kind of cool, but how does it apply to you? Hey, wouldn’t you love to be able to control your visitors like that?
Maybe you don’t want them to pull a lever, and making them stand up is the last thing you want them to do, but what if you can get them to comment, click a link, or do anything else more often?
When the rat pulled the lever, or stood on its hind legs, I gave it a small pellet of food. The rat ate the morsel and then went back to work, pulling my lever for me.
As an offhand note – the rat’s name was Cain. For some reason, my girlfriend thought this was uncute and decided to rename it “Sparklefairy.†In retrospect, she realizes this is an absolutely ridiculous name.
Fortunately, when it comes to training, human beings haven’t evolved much beyond rats. We see examples of this constantly, and we can use it when creating a site design.
There are five “schedules†of reinforcement. All of them are good, but one, the fifth one, keeps people coming back for more, and more, and MORE…
It’s the kind of thing that causes people to get addicted, and who doesn’t want addicted visitors?
Give it to ‘em every time! (Constant Reinforcement)This is the simplest kind of reinforcement. Every time Cain did something that I liked, I gave him a treat. Easy and effective, and he learned his tasks quickly.
Unfortunately, this schedule is much more costly than any of the other methods and you run the risk of satiating your subjects (meaning they’ll be full and won’t pull your lever anymore, because they’re not hungry).
Examples of constant reinforcement are purely information-based websites such as Merriam-Webster or Wikipedia. When you search for information on these sites, you get a result that fills your need, and therefore no longer need to look.
Make ‘em wait! (Fixed Interval)
Sometimes I’d set it up so that Cain would have to wait one minute after he was rewarded before he could get more. No matter how many times he pressed the lever, nothing would happen. Once the minute passed, the first lever pull rewarded Cain, and then he’d have to wait again. Quickly, he learned that pulling the lever right after a reward wouldn’t give him more food, and so Cain stopped working for me for free. Boo, Cain, boo.
This strategy by itself isn’t very useful. Forcing your visitors to not act is counter-productive. However, in conjunction with other strategies, it can have a very positive effect. For example, Yahoo! Answers rewards you for visiting the site once a day, giving you a small incentive to check in and see what’s going on in the site, and maybe answering (or asking?) a few questions. Blingo.com allows you to search ten times a day with a chance of winning a prize each time.
Try and Try Again (Fixed Ratio)
With a fixed ratio setup, I made Cain pull the lever a certain number of times before he received food. Once he learned the setup, Cain would pull the lever slowly after each reward, and then more quickly as it came closer to the last pull – knowing you’re closer to your goal makes you work harder for it. On the other hand, knowing you’re far from your goal may make you put off working for it.
Many pyramid scheme sites employ a fixed ratio reward system – “Get five of your friends to sign up, and get a free iPod!†Many of these types of sites also use points as a midterm reward - a constant reinforcement - to achieve the periodic reinforcement of the end result (an iPod, XBox 360, etc.)
Is it ready yet? (Random Interval)
With this schedule, Cain didn’t get reinforced until a random amount of time had passed since his last morsel of food. This resulted in similar learning to fixed interval, although slightly faster.
Generally, I’d stay away from this kind of reinforcement, as either fixed interval or random ratio is more appropriate and effective for almost any occasion.
Gambling Addiction! (Random Ratio)
Here’s the one I mentioned before – the schedule that gets people addicted. And frankly, what’s better than addicted users? Casinos make money hand over fist. Cigarette companies are still posting a hefty profit even with massive taxes and legal costs. Alcohol is a booming industry in good times and bad. And there’s almost no chance your site will kill people (Digg hasn’t – yet…).
Getting a royal flush in poker doesn’t mean you won’t get a full house on the next hand, so you’ll still try just as hard to win the next, and the bite of the gambling bug is something we’ve all felt at one point or another. At the same time, getting twenty bad hands doesn’t mean you’ll get another bad hand either.
Random ratio is simple in that every lever pull or comment or click will have an equal chance of winning, and often times the system allows you to win far more than you lose. Cain learned the system, and he realized the more and the faster that he pulled the lever, the more food he got. And he started working hard.
Now if you can implement a reward system in which essentially every action has a chance of achieving a (big?) reward, your visitors will be much more likely to do that action in a frenzy. Mix that in with the fact that people overestimate small odds and overrate their chances of winning large prizes, you’ll be able to create a site that people won’t be able to tear themselves away from.
And that means more money for you.
February 6th, 2007
posted in Psychology, Top, Articles, Monetizing, Marketing |
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