How a Freemium site got me to upgrade

I've been in the market for webinar software and came across Anymeeting.com via a search engine.  A few elements of their business model appealed as examples of behavioural techniques in play.

Freemium model
Adopting an increasingly popular model for online providers, Anymeeting offers both free and premium options for its online meetings and seminars.  The catch with the free option is that you and your participants will see advertising.  Given I will be charging for my webinars and therefore don't want advertising interfering with the experience of participants I have decided to ditch the free service in favour of a subscription.  A couple of advantages of this tiered system; buyers get to trial the service before committing to payment (building confidence and familiarity) and Anymeeting diversify their revenue model by having paid subscribers and advertisers.

Free version with ads 

Upgrade path alleviates pain point

Outcome oriented CTA

We are used to seeing language like 'upgrade to experience benefits...' on sites, but what I liked about Anymeeting was how they expressed it in their call to action (CTA).  Rather than 'upgrade now' or 'subscribe', Anymeeting have gone with "Remove ads", a simple, outcome oriented CTA.  Aside from removing any doubt as to what would happen by clicking through, this CTA also tapped into the behavioural principle of loss aversion where we are more motivated to avoid pain (poor reaction by paying audience to seeing ads) than seek gain.

Helpfully, they also provided a comparison of what your users see in both free and paid versions of the site.

Ads vs None visual

Anchoring and influencing choice
Anymeeting do their best to upgrade buyers from the time they first visit.  Notice how the three program levels are displayed, with the Pro for Meetings package deliberately shaded green to stand out.  If they wanted to minimise free option sign-ups they could have taken things further by choosing a more muted CTA for this program (eg dark grey) to shift buyer attention to the paid alternatives.

Program comparison

You'll also note the use of price relativity between the Webinars program ($69.99) and the Meetings option ($17.99) which would encourage take up of the latter.





Payment terms 
The thing I didn't like?  The payment process for upgrading to a subscription defaulted to a monthly recurrent charge and was not sufficiently clear on how I could stop the payment.  Supporting the buyer at the point of payment with this type of information is important to overcome risk aversion. Sure some buyers (like me) will proceed, but dropouts become more likely and undermine the effort its taken to get them to the point of sale.  Providing money back guarantees is good, but letting the buyer know how they can escape is powerful too.

Lessons for your business
Lessons for your business?  Consider a Freemium model to get people started, rethink how your call to action can be expressed as an outcome, take the lead in how you structure the options you sell and finally, cover off last-minute payment nerves with guarantees and explanations.

(As with all my blogs I have written this piece based on my experience as a customer and have not been commissioned by Anymeeting.)
 
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Behavioural lessons from one of the best websites

My heart began to race.  It was the last one and I knew there were four other interested buyers.  No time to muck around, I better go in for the kill. Where's my credit card?

Welcome friends to the world of booking accommodation online, a goldmine of examples of behavioural economics applied to the customer experience.

Let's look at just three of the techniques used by one of the best exponents, Booking.com.

Sample listing from Booking.com

Create a sense of urgency
No surprise, but part of getting customer commitment is a sense of urgency.  Urgency comes from our fear of missing out, so this is how Booking.com use it;  

• Notice that the number of rooms left is displayed next to the City View room deal. Trust me, when it gets down to 1 you jump pretty quickly.  Chances are you will even stop looking for reviews in your rush to secure the room - the overall rating will do.

Create a sense of normalcy
As much as we deny we are persuaded by what others do, we are.  Being a normal part of the 'herd' is core to our functioning, so here's how Booking.com use it;

• There are 6 other people looking at this hotel - good, because it means I have great taste. But worrying that there are six people looking and only three of the city rooms available!  Urgency strikes again.
• Last booking - others have trusted this hotel enough to book
• Guest reviews - whilst the impartiality of reviews may be questioned, they do carry psychological weight because they are ostensibly written by people like us

Create a sense of value
We need to make estimations of value whenever we are looking to buy.  If the business doesn't control how its price is contextualised we will rely on whatever's in our head - dangerous for any business.  You must therefore anchor the prices relative to others. For example, carry more expensive options to encourage sale of the cheaper option, and always list your original price along with its marked down amount.  Booking.com;

• Notes that the price for the City View room has been marked down, and obviously so.  No good just showing your 'sale price' if you don't also show the original because your customer may not understand how great a deal this is.

I've booked a lot of accommodation over the years and whilst there are many sites - Lastminute.com.au, Expedia.com, Wotif.com amongst them, I keep being drawn back to Booking.com for its interface and communication of information.  Let me know if you agree that it is one of the best, and whether you have used similar behavioural techniques in your business.

PS Why not join the People Patterns mailing list?  Every month you'll receive a short wrap-up of top news from the behavioural sciences and other nuggets of goodness from me. Click here to sign-up.

Lessons in behavioural economics from a small business owner

"Find your happy place" is what my photographer kept telling me as he snapped away for my website head shots. Well, I want you to find a happy place too by learning about how my photographer Con intuitively used behavioural economics to persuade me to buy his services.


1. Present services as clustered packages
Con offers three packages for professionals, Start-Up, Professional and Entrepreneur.  By packaging up the options Con was doing a couple of things.  First, he was creating a perceived value gap between them to support the price ladder, and second he was reducing the complexity of the decision. Contrast this with a longwinded and overwhelming conversation where the customer has to define their requirements such as number of shots and intended use - packaging options is a much smarter play. 


2. Include special offer pricing

Con uses anchoring in his package pricing.  Anchoring is where we fixate on the pricing information first presented, and then judge other prices in relation to that.  Every business can and should use anchoring to help their customers contextualise value. In fact as the price tag image showcases, retailers use this technique all the time to make the sale price seem like great value compared with the Recommended Retail Price (RRP).


In this case, the most expensive package was presented first on the page to anchor me with the other two below, helping to persuade me that they were reasonable.  


Then, under each package was quoted the "Regular Price" followed on the next line by a "Special Offer" price in larger font.  As an added bonus the amount saved also specified.   Now not only was I anchored to differences between packages, I was primed to work out how to qualify for the significant savings.  By this stage, I had mentally accounted for the Special Offer price, triggering my behavioural intent to avoid paying full price before even knowing how to qualify for the discount.


Whatever you do with your pricing, do not underestimate the power of the pain your customers will feel by missing out on the discount.  Intellectually I know that the RRP and the 'amount saved' is a fabrication, but that doesn't mean it does not persuade me.  


3. Use payment terms to your advantage
The Special Offer price was related to the payment options. The first option was to pay 50% on booking with the balance on the day. The second option and "by far the most popular" according to the collateral was to qualify for the special offer by paying 100% upfront at the time of booking.  Cash flow is king for small businesses, so locking in payment ahead of the work is a great strategy.  Note the "most popular" is a clever way of using social norming to influence adherence to Con's preferred option.


4. Up sell once the cost is sunk
Having elected for the most frugal package before the shoot, I was then caught when the number of photos I liked exceeded my allocation.  No problem, I could pay extra on the day.  This is a great way for businesses to drive some extra revenue for two reasons. One, I had already worn the cost of the initial outlay so it was a 'sunk' cost, and two, I had by that stage engaged in the process and so it was harder to walk away. Known as the 'endowment effect', we find it harder to let something go when we've had a hand in creating it.


So there you go. As a small business operator Con was effectively using behavioural principles such as anchoring, social norming, loss aversion, endowment effect and choice architecture to guide buying behaviour.  Con's found his happy place, so you can too.  


PS Why not join the People Patterns mailing list?  Every month you'll receive a short wrap-up of top news from the behavioural sciences and other nuggets of goodness from me. Click here to sign-up.

Pricing pain at the petrol pump: Why $1.60 hurts

Petrol prices are on the rise and so too hysteria about what this means to Aussie households.  So why does petrol fuel such intense consumer reaction? Let's see whether Behavioural Economics can provide an answer.


Price sensitivity but demand inelasticity

In Melbourne, petrol moved from around $1.40 to $1.60 overnight last week which is a 14% increase. Some media outlets are joyfully speculating that we'll be paying $1.65 over the Easter break, stirring outrage amongst their readership. The price hike means that a car with a 60 litre tank will be paying around $12 more for one fill.  Ouch.

According to ANOP research cited in the 2007 Australian Competition and Consumer Commission (ACCC)'s review of petrol pricing, 70% of consumers are price sensitive when it comes to petrol.  The 30% who are insensitive are largely those with company vehicles, meaning the rest of us are paying attention to whether petrol is higher or lower than it was yesterday.  

Our sensitivity comes despite petrol being a largely inelastic purchase; we have to buy when the tank is empty regardless of price.  It is this sense of powerlessness that I believe drives our desire to try to 'beat the system" by trying to anticipate price rises, and slavishly handing over our 4 cents off a litre shopper dockets.

Petrol is like the stock market; we think it's about knowing when to buy 

In some ways, buying petrol is like the stock market.  There is unforeseen variation brought about by mysterious offshore forces, and inevitable speculation about the right time to buy. And just like those in the stock market, we all have theories on when the price will move (school holidays, long weekends, Thursdays etc) because we can't help but look for patterns in things. And yet, as Nassim Taleb writes in his book The Black Swan, we fool ourselves into thinking we know more than we do.  There really is no pattern to petrol pricing, and even if for a time Tuesdays seem to be cheaper, the following week that may change.

Here's are some of the behavioural forces at play with petrol pricing.

Adaptation

Consumers generally cope best with undesirable change like price rises when it is done quickly, we can adapt and life can move on. The challenge with petrol pricing is that it seems to change day to day, keeping us guessing.  But here's the peculiar thing; we are so used to price fluctuation that we have adapted to not adapting.  Just like the price of fruit and vegetables, consumers expect there to be change in petrol. 

But, it seems consumers adapt to petrol price variation within a certain tolerance range. Changes a few cents up or down seem fine, and incremental price changes are tolerated, but leaping $0.20 is beyond the usual cycle. 

Anchoring
An anchor is the information on which a consumer relies to establish a sense of value for a product or service.  In the case of petrol, the huge price signs are blatant anchors, and drivers scan these as they assess whether they should stop to buy. In Melbourne we had been anchored around the $1.40/litre mark for a few weeks.  When $1.60 suddenly appeared, it interfered with our sense of value and created newsworthy confusion about why it had changed so significantly.


The interesting thing of course is that $1.60 is the new anchor, so if petrol drops back to $1.40 or even $1.50 it will seem like a better deal.   Remember it was only 2005 that we punched through the $1/litre psychological and price barrier, and from there on we have been continually re-anchored to higher price points. If you were visiting from New Zealand, by the way, $1.60 would seem like a bargain because they are paying nearer to $2/litre.



Loss aversion
Consumers hate the possibility that we will drive past the bowser only to see the price jump up when we need to fill the tank.  If only we'd stopped in the morning!  The sense of having 'lost' the lower price torments us because it reflects a poorly made decision. In the case of normal price variations, this may mean the difference of only a couple of dollars on a tank, so intellectually we should not be concerned.  But emotionally, we feel like we've lost.


Loss aversion is why price guarantees are such a popular behavioural device; they make us feel comfortable about committing to the purchase without fear of finding the product cheaper elsewhere. Loss aversion is also behind the success of fuel discount vouchers.  It is too painful to give up the fuel discount so we instead drive with purpose to particular outlets to save around $2.  


Lessons for businesses

Petrol pricing reminds us that pricing is as emotional as it is intellectual. As fuel discount dockets have shown, consumers will change their behaviour to save a couple of dollars.  Whilst this may not make rational economic sense, Behavioural Economics shows that we are all subject to forces that influence us to act in irrational ways.  For your business it means you must consider how your price is anchored, how you will help your customers adapt to a price rise and methods of supporting your customers to overcome their aversion to loss.  You have the power to positively control the response to your pricing with help from Behavioural Economics. Happy driving.

PS If you like my blog, I'd love you to consider supporting my fundraising trek of the Larapinta trail. Many have supported the trek already so to find out more, visithttps://www.gofundraise.com.au/page/BriforICV Thank you!

Will the carbon tax change business behaviour?

Thank you to those who emailed me about how the Australian Federal Government's proposed carbon tax would be viewed by behavioural economics. Political views aside, here's the run down;

Is a tax on emitters better than an incentive to drive behavioural change?
Absolutely.  We are more driven to avoid pain than seek gain, so in this case an incentive such as a rebate for organisations who reduce emissions (gain) would be less likely to change behaviour than the introduction of a penalty (pain).  The behavioural principle at play is loss aversion, where we are motivated to avoid a situation where we lose something.  The government is hoping to stimulate the large emitters to change their behaviour because otherwise those businesses will face significant cost.   As a more personal example, think of the following. Would you be more likely to join up to health insurance if you were paid an incentive of $400 to do so, or were taxed $400 if you did not? The proof is in the fact that in Australia we have compulsory health insurance because too few of us were taking proactive action to insure our health.


If the tax is simply passed on to consumers, is it really changing emitter behaviour?
Yes.  Whilst many businesses may adjust their pricing to pass on the cost of the carbon tax, we are all motivated by margin.  Just as with any tax, businesses will be motivated to reduce the amount payable because that helps the bottom line.   Again, it is loss aversion that motivates businesses to take steps to eliminate costs, and now emissions are part of that equation.

Can the carbon tax be used to charge higher prices?
Invariably the tax will be used to adjust pricing, and consumers will expect that. But here is the opportunity for you; by resetting expectations and having a publicly justifiable reason to change, new price levels will be anchored in the market.  Think back to when petrol was under $1 per litre.  Whilst  that now seems like a dream, as consumers we have had our expectations reframed and have been able to adapt to the new pricing levels. What about bananas? With supply of bananas contracting after Cyclone Yasi and the Queensland Floods, prices have skyrocketed ($13/kg in Melbourne). Whilst not everyone can afford to buy bananas now, once supply returns you can be sure that the normal average cost per kilo will be higher than it was before expectations were anchored at the higher price.

A side note on price anchoring. The federal Opposition and the Greens both played a role in helping the Government gain psychological acceptance of the carbon price of $23 per tonne. How? The Greens had asked for a $40/tonne price and the Opposition had jumped on Treasury modelling at $30/tonne.  This meant that by the time $23/tonne was determined, it hardly raised a whimper.

So in sum, the carbon tax will change the behaviour of businesses, but so too would any new impost.  No surprise that it will force businesses to look for new ways to reduce cost and improve margin, but it just so happens that this may help the planet in the process.

As always, let me know if you have an issue on which you would like a behavioural economics perspective. Email peoplepatterns@gmail.com or tweet @peoplepatterns. Until next time, happy taxing.

This post also appeared in http://www.smartcompany.com.au/blogs/20110726-will-the-carbon-tax-change-business-behaviour.html

End of the world as a S.M.A.R.T. goal?

In amongst Charlie Sheen's latest antics and the latest football scores, you may have noticed that the world was meant to (begin to) end yesterday, 21 May 2011.  That's why I held off posting till now.

The good news is that the 21 May was only judgement day...the end of the world is actually slated for 21 October 2011.  Five months to count down people.

The man behind this prediction is a preacher called Harold Camping who stated that on 21 May those worthy would be taken to Heaven by Jesus whilst the rest would be left to endure the end of the world over the next 5 months.  The prediction was based on some...interesting...mathematical gymnastics (see below for the calculation).

Now, rather than dwell of the religious aspects of this prediction, I thought I would instead dig into both the behavioural and goal setting aspects of this event.  What techniques did radio station owner Camping use to grow his subscriber base stimulate worship?

Behavioural principles
Loss aversion: We have an aversion to loss and will be motivated to take steps to avoid it.  In the drive for members, Harold Camping was putting the mother of all losses up for consideration - the loss of your life.

And to ensure he helped people over the line, Camping applied an old favourite marketing technique across a reputed 2000 billboards; "Judgment Day 21 May, 2011. The Bible Guarantee's it".

Anchoring: Camping used a specific date to fix people on his prediction.  The specificity of the date (and the 'complicated' calculation) gave it a marketing and media focus that it otherwise would not have gained.

Herding: Camping created two distinctive groups through this activity; the worthy and unworthy.  Appealing to the sense of pack behaviour, Camping was forcing us to decide between being a part of the Rapture or not (or indeed, between being part of his cult or not).

Status quo bias: Inertia is our default state. In order to tip people out of the status quo, Camping had to come up with something powerful and dramatic.  What better than the end of the world through earthquake and natural horror to convince us to pray?

Goal setting
The Camping prediction can also be used to illustrate one of the classic business tools - S.M.A.R.T. goals.  The theory is that you will maximise your chances of accomplishing your goal if it is specific, measurable, actionable, realistic and timebound. 

Specific: a date (21 May 2011), a name for the activity (Judgment Day), and details of what would happen to those who did not repent helped the prediction gain traction.

Measurable: Camping provided the calculation for the both Judgement Day and the End of the World.

Actionable: Having a deadline is great, but you need to know what you need to accomplish - in this case` it was to pray and listen to Camping.

Realistic: well, this can be debated. However, by quoting scripture, providing crazy date calculations and pointing to real-world events as evidence of the prediction's veracity, Camping convinced many of the realistic nature of his prediction.

Timebound: specifying the dates of judgment and end of the world certainly qualify as timebound.

The ethics of what Camping did aside, you would have to agree that if his goal was to grow his member base through stimulating consideration of his preachings, then it probably worked (albeit temporarily).  Camping's combination of behavioural principles and goal setting created world wide interest in his church and his radio stations.  And whilst this is certainly no lesson in establishing credibility or an ethical or sustainable business model, just imagine the possibilities for your business if one crazy pastor can generate behavioural change in so many. Suddenly that product launch doesn't seem so hard.



The Camping 'calculation'
From wikipedia: Camping taught that the world would end May 21, 2011^[17] using the following reasoning:

1. According to Camping, the number five equals "atonement", the number ten equals "completeness", and the number seventeen equals "heaven".
2. Christ is said to have hung on the cross on April 1, 33 AD. The time between April 1, 33 AD and April 1, 2011 is 1,978 years.
3. If 1,978 is multiplied by 365.2422 days (the number of days in a solar year, not to be confused with the lunar year), the result is 722,449. (This, however, is a rounded number; taken precisely, the figure is 722,449.0716)
4. The time between April 1 and May 21 is 51 days.
5. 51 added to 722,449 is 722,500.
6. (5 x 10 x 17)² or (atonement x completeness x heaven)² also equals 722,500.

http://www.ebiblefellowship.com/outreach/tracts/may21/

http://www.businessinsider.com/end-of-world-may-21-2011-4

Buying a vote for 20 cents

What can you buy for $0.20 vs $10?  A vote at the local bushwalking club.

Two scenarios are outlined below, both with the objective of securing a $10 increase in the annual club membership, from $40 to $50.  The story illustrates how the positioning of a price increase can impact much more than whether it goes through or not.

Scenario 1

"Welcome to our monthly meeting, I am Jane Smith, your club president. As you know, you are one of over 500 members, 200 of whom are here tonight to discuss and vote on the plan to adjust annual membership fees by $10.  As you also know, what brings us together is our love of the outdoors and bushwalking, so I am really looking forward to sharing our plans on how we can do even better than last year.  Our plans mean that we can support up to five different walk locations every single week rather than the current three, we can continue to provide our monthly newsletter via your choice of post and email, but most importantly, we are all protected through accredited safety training and our insurance policy. It also means we can at last buy 2 satellite phones to use on our most remote walks. And to make this the best year yet, all it will take is one of these (holds up a 20 cent coin) per week. But let's go through the detail so you know why it's 20 cents and not say 10 or 50 cents, and then I can open the floor to questions."

Scenario 2

"Welcome everybody.  Now tonight as you know we need to vote on the proposed increase in membership fees.  These were outlined in the newsletter. We've got the figures in a spreadsheet up on the screen behind me (gestures to excel file that is a bit too small to read from the back of the room). It's $10 for individuals, from $40 to $50.  Does anyone want to say anything before we vote?"  (Member takes the microphone and asks what the financial health of the club was and whether a sizable sum should be used to offset the fee increase rather than sit untouched. President hands over to Treasurer and it quickly resolves into a discussion on the detail of how much a newsletter costs to print, including paper, printing and post. 30 minutes later the President calls for a vote. I meanwhile had plenty of time to work out that $10 on $40 is 25% increase which was much steeper in relative terms than the $10 on top of the $60 family membership).

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? 

I mentioned in the introduction that the positioning of a price rise can impact much more than whether it is implemented.  If you haven't already guessed, Scenario 2 was the situation I and my fellow club members endured.  Did the fee increase go through? Yes.  We voted for the $10 increase and the committee can say that it was a successful outcome.  I think many of us voted just to get it over with and we had justified to ourselves that $10 wasn't worth another 30 minutes of awkward discussion.  Instead of the fee change being viewed as a positive sign of growth for the club, we have come away with a nagging sense of incredulity, and that's a shame for a club with such hard working volunteer committee members. 

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