What are the key differences between how the fee increase - the price rise - was positioned?
The first scenario used the principles of behavioural economics and change management to motivate the affirmative vote. Let's step through the principles;
- Shrink the change - $0.20 a week seems a lot less burdensome than having to pay $10. The mere mention of $10 conjured in my mind all the things I could spend it on, so by visually holding up a 20 cent piece the president was bumping an abstract image from my mind with a tangible representation. I couldn't even remember the last time I had used a 20 cent coin, so of course 20 cents a week wouldn't be a problem.
- Adaptation - don't assume your customers are consciously aware of the benefits they already receive, so the president in scenario 1 was right to remind me of our common love of bushwalking and all the services the club provided. The Adaptation principle tells us that people get used to good things and can forget the value they extract along the way. The joy of a pay rise quickly fades as it becomes the usual. And Adaptation also helps us get over the pain of a price change. Remember the last interest rate rise? I certainly remember the media hype but I can't remember what it has meant to my mortgage because I have adapted. So Adaptation also tells us that the club was right in both scenarios to charge the amount as a once-off rather than by instalment. We get used to prices rises as long as we are not reminded of them (aka the 'quick like a band-aid' rule).
- Executive Mind - a fee increase engages the executive mind which looks for logic and value - it's provoking the Rider when the Elephant has been happily trotting along*. Don't engage this type of processing with a price rise unless you couple it with the value argument, otherwise the Rider will yank the reins and march that elephant right out of your shop. However, the big trick here is to not just base it on logic. Like me, I'm sure you have seen many logical arguments fail because they did not appeal to the Elephant as well as the Rider. In scenario 1 the president not only illustrated the scale of change (Rider) but why we needed to contemplate this. Safety, shared love of bushwalking, the number of members which illustrates the thriving nature of the club all got our Elephants stampeding for the affirmative vote. In scenario 2, instead of reminding us of why we were members in the first place, it was inferred we were an insurance risk and communication burden that had to be covered. The unhappy Elephant was thinking 'Yes, I logically get why you need to put up fees but I really resent it. Why am I part of this club again?'
- Clarity - Detail is great as long as its accurate and meaningful, but clarity is much more important. In scenario 1, the president was clear in the amount of increase ($10) and what this meant (equivalent of $0.20 per week). She also cleverly introduced it as an anchor (20 cents rather than 10c or 50c) so we inferred that it was not too little or too much. In scenario 2, the $10 was clear but not in terms of why - what was the context around the amount, and what was it paying for?
So when you are contemplating a price rise in your line of business, remember it's the customer churn resulting from your decision, the lost advocacy for your product, the Elephants that may have voted one way in the room but now walked out of it that you need to worry about. We all know that prices rise - that's the easy part - it's how you get people to vote for it that is your job.
* For an explanation of Riders and Elephants, please refer to previous posts such as http://bri-williams.blogspot.com/2011/01/normalising-ethical-shopping-with.html