Tag Archives: sales

Using Charity to Increase Voluntary Payments

If a business is experimenting with voluntary pricing (‘pay-what-you-want’ pricing), to increase sales and profits give a portion of voluntary payments away to charity (and advertise the fact, naturally).

That’s the conclusion from a study by researcher Ayelet Gneezy comparing a number of pricing plans involving–in various combinations–voluntary payments, fixed prices and charitable donations:

At a theme park, Gneezy conducted a massive study of over 113,000 people who had to choose whether to buy a photo of themselves on a roller coaster. They were given one of four pricing plans. Under the basic one, when they were asked to pay a flat fee of $12.95 for the photo, only 0.5% of them did so.

When they could pay what they wanted, sales skyrocketed and 8.4% took a photo, almost 17 times more than before. But on average, the tight-fisted customers paid a measly $0.92 for the photo, which barely covered the cost of printing and actively selling one. […]

When Gneezy told customers that half of the $12.95 price tag would go to charity, only 0.57% riders bought a photo – a pathetic increase over the standard price plan. […]

But when customers could pay what they wanted in the knowledge that half of that would go to charity, sales and profits went through the roof. Around 4.5% of the customers asked for a photo (up 9 times from the standard price plan), and on average, each one paid $5.33 for the privilege. Even after taking away the charitable donations, that still left Gneezy with a decent profit.

The researcher calls this “shared social responsibility” (in comparison to plain old corporate social responsibility).

Prevention of Attainment Increases Desire, Decreases Attractiveness

Being prevented from obtaining something we desire simultaneously increases our desire for the item and decreases its eventual attractiveness. That’s the counterintuitive result from a study that shows the various surprising effects of “being jilted”.

We show how being “jilted”–that is, being thwarted from obtaining a desired outcome–can concurrently increase desire to obtain the outcome, but reduce its actual attractiveness. Thus, people can come to both want something more and like it less. […] In Experiment 1, participants who failed to win a prize were willing to pay more for it than those who won it, but were also more likely to trade it away when they ultimately obtained it. In Experiment 2, failure to obtain an expected reward led to increased choice, but also negatively biased evaluation, of an item that was merely similar to that reward.

It seems that by being unavailable our expectations are raised to an unreasonable degree and we eventually become disappointed. I guess this is a warning for those thinking of scarcity marketing.

The Influence of Sold-Out Products

Sold-out products create “information cascades” where we infer that the next-best item must also be of a similar high quality and value for money: sold-out items ‘validate’ similar products, persuading us to purchase more readily.

“Sold-out products create a sense of immediacy for customers; they feel that if one product is gone, the next item could also sell out. […] Research shows there’s also an information cascade, where people infer that if a product is sold out, it must have been good and therefore a similar available product will also be desirable.”

The study […] found 61 per cent of shoppers would buy a particular five-hour ski pass for $20, but that figure rose to 91 per cent when they thought a 10-hour ski pass for the same mountain slope for $40 had sold out.

A similar study of merlot wines found 49 per cent of consumers would buy a bottle if they had one choice, but when they thought a similar wine had sold out next to it on the shelf, nearly twice the number of shoppers would take home the available bottle.

The researchers note that for common ‘stock’ items a sold-out status breeds contempt, whereas new and sold-out products signal an unanticipated demand for a quality product.

It goes without saying that the sold-out items didn’t necessarily have to exist, right?

Selling Premium Goods

In a short profile of ‘luxury sales consultant’ Jean-Marie Brücker, we discover a few psychological techniques he teaches to his clients on how to sell high-end luxury goods:

  • Describe an item in terms of its ‘value’ rather than it’s ‘price’ or ‘cost’.
  • Sell a story (‘romance’ and ’emotions’) rather than ‘products’.
  • The macaroon technique: sandwiching the price “between the product’s more romantic benefits”.
  • Harbour and elicit positive emotions–they sell (e.g. compliment your customer on their existing items, even if they’re from your competitors.
  • Don’t discount. Gift instead (discounts get forgotten, free gifts don’t).
  • Create contrast between old, existing items and new ones.
  • Suggest ‘sorry-gifts’ for those who may lay guilt on the purchasing party (e.g. their partner)

As ever with these things, I believe you could summarise it as: play on and exploit a customer’s emotions (happiness, guilt, etc.) while using subtle linguistic tricks to disguise the price.

These happen to be key tenets of casino marketing, which revolves around flattering men, distracting their wives, and keeping them around as long as possible; the longer they stay, the more likely they are to spend money. But Mr. Brücker was never disdainful of customers—in fact, he championed the need for better, more thoughtful service that makes the customer sense caring and quality —the stuff of luxury.

“You’re selling pure emotion,” he said. “That’s why I love this job.”

The Transformative Power of a Narrative

Can a narrative attached to an everyday object increase its objective value? That was the question posed by Rob Walker (author of The New York Times‘ Consumed column) and Joshua Glenn (author of Taking Things Seriously) when they started the Significant Objects Project—an experiment designed to test whether a series of stories created about an object will increase its selling price.

After buying 100 “unremarkable” objects with an average price of just under $1.29 each, the two advertised them for sale alongside narratives created by volunteers. They then sold for a total of $3,612.51—more than 28 times their original price.

Dan Ariely of Predictably Irrational discusses the project and its findings:

The results may seem surprising, but this is actually something we see all the time. It’s the basic idea behind the endowment effect, the theory that once we own something, its value increases in our eyes. […] But ownership isn’t the only way to endow an object or service with meaning. You can also create value by investing time and effort into something (hence why we cherish those scraggly scarves we knit ourselves) or by knowing that someone else has (gifts fall under this category).

And then there’s the power of stories: spend a fantastic weekend somewhere, and no matter what you bring back […] you’ll value it immensely, simply because of its associations. This explains the findings of the Significant Objects Project, and also how other things like branding works.