Predictably Irrational Offers Rational Pricing Ideas

Would you like choice A or B?


Human beings, when given a choice between: A or B
will choose the better of the two... or will they?

According to the research by Dan Ariely, author of  "Predictably Irrational", and an academic, people will actually not always make the right choice if influenced by a number of conditions.



For example, when presented with a slightly flawed "decoy" choice, which Ariely calls -A, the person will choose the choice that does not have the precondition flaw:

So A or B when presented with a slightly flawed "decoy" choice, such as A- or B-  when stacked together as A, A-, or B, the person chooses B, because A was presented with a flaw.

Or, when presented with the choice of subscribing to a journal and offered:

Choice #1:
A. Hardcopy subscription $29
B. Online Subscription $59

In choice #1, people typically choose "A" but when presented with:

Choice #2
A. Hardcopy Subscription $29
B. Online Subscription $59
C. Online Subscription + Hardcopy Subscription $59

In the second choice, people choose C considerably more than in the first example. In this case, choice "B" in the second option is obviously flawed, but people will choose C more often because they get something for nothing, in their mind (the hardcopy, in this case).

This is the argument and fascinating case study work shared in the book Predicably Irrational, by Dan Ariely.

The use of a "decoy" in pricing is critical if you wish to drive success of a higher-priced item.

This is also true if you set a precondition of a certain number in the suspect's mind prior to offering a series of numbers, they are more likely to think that number is "acceptable" as a price.

In addition, the use of zero cost items is essential in promoting a lessor quality item. Offer two of them with one free, and you drive sales.

So, in your pricing, are you offer just ONE price? Or, are you offering comparisons. Because, you see, people will buy based upon the COMPARISON guidelines YOU set. In addition, if you state a RANGE of VALUE prior to offering your price, the person buying will be associating value in that value range, and thus be more apt to offer or buy the pricing within a discount from that value.

For example, if you said "an offer like this, at our normal rates, would cost between $10,000 and $12,000" ut for this day only, you can buy at these special rates:

A. Offer A for $5,000
B. Better Offer B for $8,995
C. Both A and B for $9,995

In this instance, we're using three of the theories put forth in Predictably Irrational TOGETHER and thus, driving up both the likelihood that you'll sell the higher priced options B or C and also driving up the likelihood of prospects choosing option C - your highest profit offering. This is using the THEORY of FRAMING EXPECTATIONS with the THEORY of RELATIVE PRICING with the THEORY of DECOY PRICING. Another theory (not mentioned in Predicably Irrational but still a good pricing theory) is the THEORY of LIMITED AVAILABILITY. If people know they can only buy something TODAY, they rush to get it. It is like when K-Mart would run "Blue Light Specials" where the blue lights go on, everyone rushes to buy that item. It creates an "in-store" sensation that increases the odds people visit that store to get good deals. In this instance, it increases the odds they'll buy TODAY.

While some of these pricing strategies are already part of Cold to GoldTM, I'll be adding additional examples of ways to price products in the bonus "Marketing Maven Mashup" guide as we get closer to the online launch of Cold to Gold. Stay tuned...!
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Product and Service Innovation Team-Building

Are you innovating in a vacuum?

When you read this question, the knee-jerk response is to say “Hey, Scott, I don’t innovate in a vacuum. I always ask several of my friends and close advisors their opinions of my new (product/service/website/store layout/etc.).

If you’re focusing efforts on innovation, I’ve got a question for you:

Who are you involving in the process?

Some people think that by involving a bunch of other people means that you’re got a “team” approach to innovation. I beg to differ. I conceptualize that you need different personalities to make sure you’ve evaluated the full spectrum of personalities and perspectives on the product or service you’re innovating. Who do I think ought to be on your team? Check out this list:

The 7 Core Critical Innovation Team Players

1. Idea People.

If this isn’t you, find a couple. I’m fortunate, in that I’m able to “get on a roll” when I start brainstorming. I’ll throw out one idea (which might suck) and that leads to another idea (which might be good). If you’re like me, and think of ideas, then great. Otherwise, get someone like me on your team!

2. Designers.

The next people you need on your team to innovate are designers. Notice, these aren’t operations experts, family members, or other people you might have claimed were your “A-Team” before reading this. Nope. Designers think differently. They stop verbalizing and start DRAWING. Designers think visually. I love designers, because designers think differently than the average person. Designers are visual. A designer will take a concept and immediately start drawing it or combining random objects to visualize, physically, what you’re describing. I’m not talking about a PROFESSIONAL designer. Many people with design thinking aren’t even considered design professionals. Several qualities good “design” thinkers possess include: (a)”can-do”attitude, (b) think and draw simultaneously, (c) simplify complexity, and (d) consistency in performance. Designers also help you make sure your outcome is visually more attractive. Always have one designer – if not more – on your innovation team.

3. Logistics Experts.

By logistics, I don’t mean a nay-sayer, but someone who can think through the critical process of discovering an obstacle – finding a workaround – creating a solution type thinkers. Logistics Experts understand operational process, and quite good at constructing things. These are the engineers, the builders, and also include people who can reverse-engineer. Find one or two of these people to add to your team, and you’ll eliminate problems in functionality.

4. Marketing/Copywriter.

You’re going to need someone who knows how to spin your pitch. Make sure you’ve covered your basis. Don’t try to write your own copy when an expert will help you sell 10x whatever you might otherwise. Tighten your pitch and get good copy. You’ll be thanking me later.

5. Legal adviser.

You will need legal on your innovation team for trademark search and filing when you’re creating a new name. Make sure you don’t get the whole product or service designed, labeled, and shipped and then find out your trademark is in violation of someone else’s name. This will save you money down the road.

6. Accountant.

Make sure you can produce your design or service economically. When you ramp to scale, you do need a bean-counter on the team to make sure your ideas will be profitable.

7. Test-users.

I’m always surprised how few people conduct field-testing before rolling out a new service, a new product, or other innovation. If you haven’t tested people’s reaction to (a) your pitch, (b) product/service, (c) name/slogan/copy, (d) buying process, (e) usability, (f) customer experience, and so forth, you’re leaving a loophole that kinda matters: what people who buy your product/service actually THINK about it. Without that data, how are you ready to release? Make sure you test FIRST. It’s like the old carpenter cliché: “measure twice, cut once” and it applies to your innovative team, too.

So, that’s the core critical 7 team members of who I believe you need on your innovation team. Do you have other people or personality types you’ve found useful to develop innovative products and services? If so, share your comments below.

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Sales Lesson Learned From Radio

Today, I was listening to my local public radio show. While listening, I realized they were off their "regular" programming for a pledge drive. I listened to their requests for money, and realized that these guys are MASTERS of SALES COPY! I'm not kidding. I wouldn't be a bit surprised if their phones were ringing off the hook. Here's the sales lesson I think anyone paying attention could have learned from them:

Sales Lessons Learned From Radio:

Lesson #1: Ask for the business (but don't specify how much).

When you ask for a donation, don't ask for a specific amount. They weren't asking for $500 per person. They were offering suggestions of $50, 20, 5, 500 - whatever people were comfortable with. What they were going for was a NUMBER of DONATIONS. All they wanted was 1,600 donations. I suppose they already ran the math on average contribution, and knew they'd reach their goal if they had more donations than normal. So, rather than end the drive at, say, 1,500 donations, they'll end it at 1,600. Not a bad idea, huh? Ask for the business, just make sure you don't try to direct which plan people buy or how much money they give you. They know what their form or proposal said. They'll make the best choice given their situation if you've led them to buy properly.

Lesson #2: Two Magic Words: CALL NOW (or BUY NOW).

These guys knew how to sell. Rather than say "call us when you're ready", they said these TWO magic words: "CALL NOW." Ah. Nice. See, they knew that if you didn't call now, you may not ever. They were looking for the instant conversion. Why not go for the money? If you're going to go for the money, the best time is almost always to go for it NOW, while the buyer is in front of you!

Lesson #3: Three more magic words: SIMPLE AND EASY.

Then, rather than say, you'll be on hold for 3 minutes, then we're going to ask you for a bunch of information, no, instead, they said these TWO MAGIC WORDS: Call now. they said THREE MORE magic words: It's SIMPLE AND EASY. I just love that phrase. SIMPLE AND EASY is a phrase that simply sells. Nobody wants anything complicated. No matter what you're selling, you always ought to use this phrase: our service is simple and easy.

Lesson #4: Instruct HOW to BUY.

What follows SIMPLE and EASY? Ask for the order. For example: It's SIMPLE and EASY to PLEDGE. Just dial 1-888-555-5555 and make your pledge now. They could just as easily have said "Just click this form. Just put your name here..." etc. Demonstrate that it truly IS simple and easy to buy, and the prospect will likely do it.

Lesson #5: Use FEAR OF LOSS as a motivator.

They threatened the fear of loss. Instead of saying "we know you love this show so please support it", which would sound like a beggar, they said, "If you enjoy Democracy Now, you need to act now to keep this show on the air. Your pledge is what brings this show to you every weekday at this time." See, they threatened the end of the show if the listener didn't pledge. It's a fear tactic. How would you feel to lose your favorite show? Probably pretty bad, right? They probably knew this. Their copy writer also probably knew "fear of loss" is one of the biggest motivators.

Lesson #6: Use HOPE FOR GAIN as the other motivator.

Next, they offered a GIFT. I couldn't have written a better idea in there at this point, myself. Gifts usually represent a "HOPE FOR GAIN" to the prospect. For example, a sweepstakes, grand prize, special discount if they call now, etc.; these are all hope for gain tactics. Frankly, if you want to win customers, offer a gift. After all, you can't just go around threatening the fear of loss without giving a chance to win MORE back by doing what you suggest. Thus, offer the HOPE FOR GAIN in the form of a gift. People will almost always sign up for a gift. Here's how they positioned it: "If keeping Democracy Now on their air isn't enough for you, then pledge over certain thresholds and we'll include a gift as a way to thank you for doing the right thing with your pledge. At $50, we'll include a boxed set of CDs.. at $150, we'll include the wine package from ABC Winery (can't remember the winery name), and at $500, we'll include tickets to the Symphony, the wine package, and the CD's - all for simply supporting a show you want to listen to and pledging like you'd probably do anyway, and best continuing to enjoy Democracy Now."

Lesson #7: They EXPRESSED GRATITUDE.

They THANKED THE LISTENER. How many times do we forget to thank the buyer? Make sure you don't make that mistake. I tend to send thank you's to every person who buys a product or service from me. I just think it's good form. George H. W. Bush sent "thank you" notes all through his career. Sometimes, he sent as many as 500 "thank you" letters a month. Do you think it helped him succeed? Whether you agree with his politics or not, you can't fault his sales follow-up strategy of saying "thank you". My Dad still has a letter from his son on his refridgerator. Clearly, it worked for Dad, who bragged that he got a "letter from the President" later that week. Expressing an attitude of gratitude is likely to help our sales "lift-off" to higher success.

Lesson #8: Follow-up the VERBAL with WRITTEN and gain UPSELL opportunity.

While we're at it, you ought to say thank you often - when you're in front of the client, and after the fact, through email and the mail. If you're not grateful for their business, your competition might be. But say you're grateful through a written letter. Of the first three jobs offered to me after college, every single one of them said they hired me in part "because you were the best who followed up with me with your letters and phone calls." Yes, say "Thank You" and follow-up your sale. Do it often, too. So, follow-up the VERBAL thank you with a WRITTEN thank you which might also set-up a future referral or additional sell. The best time to sell someone something is when they just bought, so they could also offer me a letter in the mail thanking me for purchasing, and offering a bonus gift if I included three referrals of friends who might pledge, or something else like that.

So, that's the lesson learned from the radio station. It gave me a reminder of what to say in some copy I'm working on right now. In addition, it reminded me to send a "thank you" letter to one of my recent clients. If you're stuck selling, try paying attention next time you hear people asking for money or selling something. After all, you just might learn something new that you can use in your bag of sales tricks.

Happy selling.
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Copyright © 1999-2008 by Scott Andrews, CEO of ARRiiVE Business Solutions. All Rights Reserved.

International Copyrights

International Copyrights: Part I

Global Copyright Theft: Is Anyone Else Concerned?

I'm investigating what rights American and English companies have in the increasing global marketplace regarding copyrights and trademarks.

Relating to this topic, I just came across this quotation today, and had to share it with you:

What is going to happen when China makes the full leap to playing on the Internet and competing with American, English, Australian, and Indian ideas? China does not have the ethic or moral that "stealing" ideas is wrong (not that all American, English, Australian, or Indian's do, either) but certainly there is a looming concern about what happens to intellectual property when there is no respect for it?

“China’s failure to police intellectual property, in effect, creates a massive global subsidy worth hundreds of billions of dollars to its business and people. Seen another way, China’s vast counterfeiting schemes act on the rest of the world the way colonial armies once did, invading deep into the economies of their victims, expropriating their most valued assets, and in so doing, undermining their victims’ ability to counter. As China grows into a great power, the wealth transferred into the country by stealing intellectual property will propel it forward.” - China, Inc., Ted C. Fishman

Personally, I've already had an audio program pirated by unscrupulous individuals in Malaysia. It happens to big companies and individuals. Make sure you take the steps you need to take to safeguard your intellectual property. As the world flattens and everyone in all countries are sharing with each other in this "small world" that we are progressively living in, it is important that you nurture, grow, and protect the ideas that propel your business success.

Here's a couple of resources for you to better understand international trademark and copyright law and your rights, which I provide for your entertainment purposes:

http://www.symbus.com/

http://www.trademarksovernight.com/int_trademark.html
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Copyright © 2008 by Scott Andrews, CEO of ARRiiVE Business Solutions. Quote by China, Inc. copyright China, Inc. No infringement intended.

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