And sadly, they’re on the bleeding edge of research.
You might have heard about all those little tweaks government officials have thought about implementing in order to make you healthier and save more. You could have companies automatically enroll employees in a 401(k) plan, rather than have them opt in, for example. Companies that have implemented that little change have seen 401(k) participation jump to 93% from 76%.
But, of course, the very best behavioral economic “parlor tricks” aren’t all used for good. In fact, it’s often the marketing departments of consumer goods companies that implement new research the fastest. Here are a few to look out for.
“On sale”, “50% off”, and anchoring
I got painfully close to buying a web marketer’s extremely expensive online course just a few weeks ago. I didn’t end up buying, and this isn’t a commentary on the quality of that course—who knows, it might have been worth $1,000. But a few moments after my decision not to buy, I went back to see how he almost got me. After all, I don’t even know the guy. I don’t have any friends who took the course and could recommend it. And yet, I almost bit.
One clever strategy the marketer employed was to set his course price extremely high in the beginning, but offer a seemingly steep discount promotion after a couple weeks. The course started at $1,000, but by the next month, it dropped to $500. Since I, and his other targets, already thought of his course as a $1,000 investment. Five hundred seemed like a great deal.
The technique is called anchoring, and it’s one of the older tricks in the book. You give the target a “reference point”, and then negotiate around that reference point to achieve your desired effect.
To better understand the trick, imagine what my feelings would have been had he started his pricing at $250 and later e-mailed to say the price had increased to $500. I would have laughed in his face.
Drip pricing: Pile on the little charges after the decision to buy
Ever bought a car? Maybe you negotiated hard down from the sticker price (probably already facing anchoring bias). But after the dealer shook your hand and said “We have a deal”, the extra charges started to pile up. Water-proof seat treatments, a delivery charge, rust-proofing…you name it. The charges didn’t seem big relative to the overall purchase, but they probably added up to several hundred dollars.
You see, the best time to hit someone with nasty surprises like that is after they’ve already decided to buy. Once that decision is made, the target starts to think as if he already owns the car. Even though no money or product has been exchanged yet, it’s hard to back away from that decision in the face of new information.
In the U.K., the Office of Fair Trading, which is in the business of consumer protection, played several marketing tricks on students, to see which they were most likely to fall for. Hitting them with a shipping fee first and then a handling fee was the most likely to confuse them as to what was a good deal.
So why don’t we get it? Two things could be going on. First, even though you don’t own the product, once you make the decision to buy, you start to feel some of the pleasure that goes along with owning it. That sporty red car feels like yours, even though you haven’t bought it yet. So making a decision later not to buy it can be a painful loss.
But second, we also tend to have trouble with “complex pricing.” Unless it’s added up for us, we don’t make the connection that a $500 purchase—with $15 S&H, a $40 warranty, and a $50 required battery charger—is actually a
$595 $605 purchase.
Creating a sense of urgency
This was also something the guy with the $1,000 course employed. “This course becomes unavailable at midnight. I’ll probably never sell it again, but if I do, the price will only go up.”
Of course, that was a few days before he cut the price in half, but putting that aside…
Loss aversion also extends to a perceived lack of availability or exclusivity of a product. On T.V., you’ve probably seen dozens of products “not available in stores.” The Nintendo Wii stayed hard to buy for years after its debut (though Nintendo would argue that was because they couldn’t keep up, not because they wanted to create a sense of urgency to buy).
Right now, it’s very in vogue for tech start-ups to only allow a small number of subscribers to try a product at first, before expanding to the general populace. Remember when Gmail was available by invite only? Somehow, I doubt they did that just to avoid a stress on their massive servers.
Unfortunately, I don’t think it’s ever going to be possible to completely avoid this marketing tricks. Sometimes, it might not even be advisable. I remember when I got my early-adopter Gmail account. It actually felt really good to have something that other people had so much trouble getting. And while ephemeral, that nice feeling still has value.
But next time you’re faced with an experienced salesman or see an ad on television, try to picture the training and thought that went into that advertisement. I guarantee you that any company worth its salt is using all of the great behavioral knowledge we’ve developed in the last couple decades to squeeze your wallet.