Opportunity knocks: getting your buyer to answer

In the past week I've had two door knockers - those poor souls who have to go door to door to peddle their wares - attempt to win my business.  One succeeded and one failed, and here's why.

What was the product offer?
Door knocker one, let's call her Sally*, represented Energy Makeovers who on behalf of the Victorian government, are installing free Embertec 'smart switches' to reduce energy consumption.  Door knocker two, let's call him Bruce*, was from Fairfax, offering a free trial to The Age newspaper print edition together with a bonus copy of The Good Food Guide.

Some background on me.  I don't leave my appliances on when they are not being used, so I don't really feel like I am wasting much power and I do read The Age online and buy it occasionally on the weekend.  If you were segmenting me by my usage patterns, things would look shaky for Sally but encouraging for Bruce.

Then why did Sally succeed in getting me to agree to a smart switch where Bruce failed to get a paper in my hand?  The behavioural approach they took.

Day and Time: Beware depletion effects
Sally called on my house around midday on Saturday, whereas Bruce came by at 6.30pm Wednesday night.  This made a difference to me because by Wednesday night I had already made a lot of decisions in the course of my day.  As Jonathan Levav of Stanford and Shai Danziger of Ben-Gurion University examined in their study of over one thousand parole judges, when we get mentally depleted we tend to opt for status quo. In this case, my status quo was not to have a newspaper delivered so it was easier to say no than think about saying yes.

Sally on the other hand caught me at lunchtime on Saturday - fewer complex decisions had been taken leaving more mental room to face the task of hearing the offer.

Vividness: Help me see the outcome
When Sally came to my door she had the switch in a box, ready to go.  This made a difference because I could see the unit - it was real.  Whilst I had never bothered to respond to direct mail or marketing flyers about the switch, here was one on my doorstep with someone ready and capable of installing it.  We are enormously influenced by what happens in the immediate term and by the vividness of the what is being proposed, so having the units on hand and on display had impact.

Bruce came to my door with what looked like a script and holding a copy of The Good Food Guide.  Nice try - having the book there was a good idea.  But, the guide was not the core proposition, the printed newspaper was.  Why on earth did Bruce not have copies of the newspaper to give out?  Show me what I'm signing up for, don't distract me with 'steak knife' bonuses.

The catch of Free
Both Sally and Bruce had a 'free' product for me; a free power switch and a free trial.  There is no doubt that 'free' is the most persuasive price point you have at your disposal - it can definitely change behaviour because it wipes out the economic risk on the part of the buyer.  But with 'free' comes the invariable question, 'what's the catch?' which is the buyer's attempt to assess the social and psychological risk involved in the transaction.

Whilst Bruce may have been offering the newspaper for free, I was busy calculating the psychological trauma of getting out of a contract once the trial period concluded as well as the social implications of having a newspaper delivered.  Bruce's offer came with a commitment that I didn't want to make.

By contrast, Sally's free switch was also free of obligation.  If I didn't like it, I could remove it.  The psychological and social costs of the transaction seemed low so I  didn't feel that there was a hidden catch.

Treat reasons given for decision with caution
Having worked as one I couldn't help but think of the product managers back at HQ assessing the performance of their door knocking strategy.

Embertec would have been pleased because my house had one of their units installed.  They didn't ask me why I agreed to the unit so I can only hope that they know the transaction was won in large part by having the product in the hands of their representative.

Fairfax would have been disappointed to have missed an opportunity to convert a digital reader.  To his credit, before I closed the door Bruce asked me why I didn't want to take up the offer.  I told him that I read the paper online - which is true - but I did not tell him the real reason was I couldn't be bothered with the process; that I was midway through preparing dinner, the last thing I was thinking about was a newspaper and I was mentally fatigued.  When Bruce reports back to Fairfax, the results of this self reported behaviour will invariably influence the decisions they take in future even though it was not accurate.  Fairfax will never know that they could have won my business if the door knocking process had been different, and for product managers that is immensely frustrating.

Lessons for your business

• Make your product or its outcome vivid so that it is real to your buyer
• Segmentation can be meaningless if you don't carefully design the behavioural interaction
• Remember that free has a psychological and social cost that you also have to manage
• Reasons cited for a decision must be treated with caution
• Place greater emphasis on observation of behaviour to identify what elements of your offer work

* Names are fictitious

PS Did you know I can audit your website or marketing materials for behavioural effectiveness?  Just email bri@peoplepatterns.com.au to find out how.

PPS Why not join like minded colleagues by signing up to the People Patterns mailing list?  Every month you'll receive a short wrap-up of behavioural tips for business. Click here for the 20 second sign-up.


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Learning from a botched loyalty program request

I was at a well known tea retailer the other week, at the register ready to pay.  "Would you like to join our loyalty program?" asked the sales assistant.

Here's how it went down...

• Assistant: "Would you like to join you loyalty program?"
• Me: (exasperated sigh to infer my purse was already groaning under the weight of loyalty program cards). "What's involved?"
• Assistant: "You just need to provide some information."
• Me: "How much information?"
• Assistant: "All of it."
• Me: "What's all of it?"
• Assistant: "Name, address, phone, email..." (she went on but I'd closed off long ago)
• Me: "And what do I get?"
• Assistant: "10% off once you reach $500."
• Me: "No thanks"

Pretty simply this assistant and/or the store's policy had botched the opportunity to engage me in their program because effort exceeded reward. The effort/reward equation is one I've flagged before as a useful distillation of what you are requiring of your buyer compared with what they receive.

Both effort and reward should be assessed on financial, psychological and social terms as well as time and physical commitment.

In this scenario I was being asked to complete a seemingly endless registration form (time & cognitive effort) for a distant and insignificant payoff (10% after $500).  Note the significance on the payoff is scaled in terms of effort.  Had I been automatically granted 10% discount on the day for nothing more than an email I would have been rapt.

Here's how it could have gone down (because as my purse attests, I have been known to join such programs);

• Assistant: "Would you like to join you loyalty program?"
• Me: (exasperated sigh to infer my purse was already groaning under the weight of loyalty program cards). "What's involved?"
• Assistant: "I just register your name and email and as a thank you I can take 10% off today's purchases"
• Me: "OK sure. My email is..." (immediate benefit, negligible effort)

From there, the company could and should send me a welcome email from which point they can establish a relationship and ask me for more personal information.

It's easy to go wrong when seeking to engage your buyer, so remember to keep effort/reward in balance and you'll see your conversion improve.

PS Why not join the People Patterns mailing list?  Every month you'll receive a short wrap-up of behavioural tips for business. Click here for the 20 second sign-up.

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Using time to heal payment wounds

Ever noticed those print and billboard ads for expensive cars that tell you how little per week you have to pay to own the latest model?  Welcome to "duration neglect", our tendency to ignore the time period over which we would need to repay and concentrate instead on the size of the repayments.


Short-term bias
Lurking behind duration neglect is the behavioural principle of short term bias.  In effect, we can better understand the impacts of something in the short rather than longer term. That means I can more easily make an assessment of the impacts of the repayment on my financial circumstances in the coming weeks and months, but I can't readily comprehend the impact having to make the repayment every period over the term will have on my lifestyle.  Added to that, I can easily see the benefit the product I am buying will have, but I will be fuzzy on whether I'll still be enjoying it in two years time.

Big ticket items like cars and mortgages use duration neglect to great effect. For example, say I was going to buy a fancy car for $89,000.  Weekly repayments over 12 months would be $1,700.  Let's spread that out over 24 months instead. Wow, now only $856.  Seems obvious, but that doesn't mean every business is using this "duration neglect" to best frame their costs.

1. Soften the blow
As all shrewd business folk know, when a customer baulks at the price it is sensible practice to reduce its impact.  Whilst discounts are an obvious strategy, breaking the payments down into time periods is another useful tactic, for instance marketing the weekly or monthly value with greater prominence than the yearly value*.  Phone companies are masters at this. I mean, who would want to pay over $1,700 for an iPhone for two years? Much more tolerable to pay $72 a month.

Remember that having a conversation with a customer about what the total value means when you think of it over a daily, weekly or monthly period is different from actually marketing, contracting and structuring your payment terms this way.  The first is helping the customer contextualise the amount they will spend by using smaller units ("it's like two coffees a week"). The second is this plus a contractual arrangement that has implications for your business cash flow.

(*Please confirm your legal obligations as they relate to disclosure of the full value over the contract period.)

2. Consider the peak-end rule
The peak-end rule in behavioural economics effectively means that people judge the experience based on the highest/lowest point and the conclusion.  Now if they receive the goods immediately and pay the balance later, this will obviously be a high point. For that reason I'd suggest getting as much money at that point as possible, when excitement is at its peak.

But what if my customer is cash-strapped? Fair enough, and "buy now, pay later" can be a very effective inducement. In that case, better to have instalment options so the customer doesn't get slugged at the end.  Paying a big sum for a couch that now has stains and dog hair on it will hurt.

If they are layby-ing (paying by instalment) and receive goods at the end, you can consider making the final payment the largest to again couple it with the benefit of the product.

So the key lesson for businesses from duration neglect is to consider how best to discuss and structure your costs. Of course, I would also caution you to consider the financial circumstances of your customer and comply with your legal and ethical obligations.


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.


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Being a devil: Influencing your buyer's willpower

We are really good at tricking ourselves into acts of indulgence.


Take a study by Chandon and Wansink (2007) for instance that found that when people visit a 'healthy' restaurant, they tend to underestimate the calories they are consuming.  In effect, the restaurant's healthy 'halo effect' mucks with our ability to assess our behaviour.


And similarly, a study by Wilcox, Vallen, Block and Fitzsimmons (2009) that found that the mere presence of healthy items increased the likelihood of an indulgent item being selected.  In other words, we trick ourselves into thinking we have done the right thing by our mental calorie account through merely considering the healthy item and as a reward, select the indulgence.  McDonalds seem to be playing on this through their healthier options, luring us with salads and wraps but then bombarding us with burgers and fries once there.


As the researchers write 

"Results demonstrate that individuals are, ironically, more likely to make indulgent food choices when a healthy item is available compared to when it is not available... Presence vicariously fulfils nutrition related goals and provides consumers with license to indulge".

What do these studies mean?  Context is crucial and can lower our rational defences.  And as a business, you can and should influence that context.


Business implications
For businesses there are some opportunities to consider;

• If you are marketing healthy options, you need to contextualise your product.  Presenting salads amongst pies and sausage rolls may not be as successful as segmenting healthy and less healthy choices.  
• If you are marketing indulgent options, consider the role healthy products can play in stimulating choices in your favour.  Desserts tucked in amongst fruit and vegetables might be worth pursuing.  

And for businesses not involved in food, the lesson of context still holds. Do they see your product as an indulgence or a necessity?  Help them feel like they've earned a reward to promote purchase of indulgences and if your product is more utilitarian in nature, try keeping it clear of distracting 'goodies'.


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.

Getting buyers to buy more often

Getting your buyers to buy more often by helping them know they need to is something every business should be doing.  Relying on your customers to design their own re-purchase cycle is leaving yourself open to forgetfulness, delay or worst still, substitution.


Here are three things you should consider implementing.


1. Build in cues of product redundancy
If you have a perishable product, most of your work will be taken care of by nature and health standards.  "Use By" and "Best Before" dates are examples of cues that are designed to protect the health of the consumer.


But what if your product's life cycle is not so obvious?


Take your pillow for example.  Every night you rest your head on a pillow you purchased maybe years ago, never thinking that it too has a useful life.  Not a great re-purchase model for pillow manufacturers.  Enter Tontine and their ingenious date-stamped pillow that reminds the customer that the pillow should be changed every two years, and serves as a cue every time the pillow case is removed.  Suddenly after the pillow's "expiry" you are not sleeping so well, worried about what pillow gremlins have been unleashed in the depths of the night.  For Tontine, whether people buy a new pillow immediately or just sooner than never, they have created a sense of product redundancy and improved their chances of repeat purchase.


So the question for you is whether your product has a life cycle, real or perceived, that you can highlight to your customers?


2. Activate re-purchase by providing a cue
Smart manufacturers give their consumers advanced warning of the need to take action. Examples include;

• Tissues that change grade and colour as you near the bottom. You know when your white tissue turns pink and scratchy that the good times are over.
• Rolls of cling wrap that include a reminder sticker to buy more when you near the end of the reel
• Car dashboards that signal when your service is due

And here is an interesting idea for food.  A recent study into self-control saw chips coloured red with food dye inserted at intervals in the Pringles-like packet. Whilst the objective of the study was to interrupt over-eating patterns, it shows that there are ways to include cues without interfering with the quality of the food.  


The lesson here is that you can help your customer avoid running out of your product by providing them explicit cues.

3. Make the cue transportable

It's great that you have created a need to re-purchase through redundancy and triggered the need to re-purchase, but there's still a long way to go between home and the cash register.  You need to help your buyer be reminded to buy your product in the context of purchase.

For example, ever had the experience of being out and enjoying a bottle of wine so much that you sometime later look for it in the bottle shop?  If only you can remember what it was called! Clever wine makers have closed this gap by providing a transportable cue in the form of a perforated, take-away tag on the wine label so that the customer can rip it off and keep it handy for their bottle shop hunt.


QR codes can likewise be used to close the gap between product use and repurchase...if only anyone used them.   But code scanning technology aside, mobile phones are definitely the key linkage between home and the retailer because they are with your customer in most contexts and used as a source of information and reminder.


The question you should be asking yourself here is how are you physically helping to remind your buyer to buy your product?


Repeat purchase is something that businesses hope for but often don't invest enough time and thought into.  Challenge yourself to look at how you can cue the need for re-purchase and you might be pleasantly surprised at the influence you can have over your buyer's cycle.


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.



Images

Best before image: http://www.ers-online.co.uk/files/products/options/images/3879_26x12%20best%20before.jpg
Tontine pillow: http://cdn.mumbrella.com.au/2010/10/tontine-pillow-350x185.jpg
Wine label: http://themarketingguy.files.wordpress.com/2010/06/wine-label-1.jpg

What business are you in?

If I asked you what business you are in, what would you say?  Consulting, retail, manufacture, accounting, health...Well you're wrong, kind of. You see I think you are in the business of behavioural change because everyday you are influencing people to do something.  Buy, sell, read, write, talk, type, click, swipe, walk, run, turn up.  Each of us everyday has the task of influencing others to move from one state to another, and that's why behavioural economics is such an opportunity; it's a playbook on what you need to do.


Lessons from the fitness industry
Let's take some guidance then from one of the most challenging behavioural changes that we can make - getting ourselves or others into shape. The difficulty has always been sustaining the change once initial enthusiasm has worn off, and this is due to the potency of the outcome (looking better, feeling better) not being as forceful as the immediate attraction of other choices (lazing on the couch, staying in bed or eating the wrong foods).  After all, you can experience the benefits of the chocolate now, but the benefits of not eating the chocolate are distant and ambiguous. 


Given this challenge it is therefore no surprise that a range of websites and Apps have been developed to help people sustain the behavioural change of a healthier lifestyle.

GymPact App

One that garnered a lot of attention last year was GymPact because it charges you if you don't follow through on your commitment.  The concept is that our desire to avoid a penalty will be enough to push us towards fronting up at the gym when we would otherwise have been able to talk ourselves out of it. The App is clever because it creates activities in the short term to keep us on track as we inch toward to longer term benefit.

Another site that works for any type of personal commitment is StickK. Here you are required to make public your commitment contract and even put money on the line that goes to a recipient of your choice if you fail.  

A more recent example is SlimKicker.  I first heard about the concept last year when it's creator got in touch to discuss how behavioural economics could be incorporated to help keep people motivated and accountable.  


According to SlimKicker developer Christine Chu, the site is designed to maintain motivation and emotional engagement by rewarding and reinforcing progress.

"I think the main problem with being healthy is motivation. It's an abstract, overwhelming goal. I think the best way to counter this is to turn it into winnable games and small victories.

 So... my app makes living healthy, and fitness into a RPG game, where users earn points, and "level up' as they accomplish their health goals.

Everytime they add something healthy like veggies to their diet, they earn points. Everytime they complete a workout, they earn points. As they achieve more and more, they'll level up and unlock badges, and discounts/coupons to  rewards like spas, health foods, etc."

A few of the clever elements of SlimKicker include;

• Levels - people move through different fitness levels, collecting points and rewards along the way which breaks the task of 'getting fit' down to goals that are attainable. (Overcoming behavioural short-term bias.)
• Progress -  Throughout each level the user can see how far they have come and have to go. (Using behavioural principle of completion to secure continuation once started.)
• Inspiration feed - a sense of community has been created through users sharing how they are feeling about their successes and slip ups. (Uses social norming to influence behaviour.)

By far my favourite part of SlimKicker is the Challenges section. You can sign up to participate in challenge (for instance, no snacks after dinner) and be rewarded with points upon completion.  What's great about this is that you can see at a glance "who's in" and how many others are giving the challenge a go.

SlimKicker's Challenge

There are some areas of SlimKicker that can be further improved, for instance showing how many points are needed to complete a level, clearly stating that the website is free to join and explaining
how the site is financially supported but I think they are doing a great job of tackling behavioural change.

Applications for your business
Getting people to exercise and eat healthier is really no different to the challenge of getting people to buy something today when the benefit is not immediate.  Examples include building a house, securing investors for your proposal, ordering something online where you have to await delivery, signing up for a course, contracting a consultant and paying insurance. You need to overcome the pain of now whilst keeping your customer's 'eye on the prize'.

• Make the benefit vivid:  Draw it, mock it up, make a model...do something that ensures the customer can see what they are working towards.
• Use milestones: stage the process so that your customer feels like things are progressing.  Think of it like FedEx parcel tracking where your customer can see how far the parcel has travelled and how far it has to go.
• Keep the connection: communicate with your customer throughout the process so they feel comfortable that things are progressing.  I ordered a new iPhone cover through a Kickstarter project in December last year for expected delivery in January. Today I received project update number 18 advising me where they were up to in production, so whilst it's a long time to wait, I have been taken on their journey throughout thanks to their frequent and transparent communications.

It's easy to think we are  simply in whatever business we spruik on our business card or website, but always remember we are behavioural change experts and it is up to us to support our customers going from one state to another.  What better guide than Behavioural Economics?


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.

PPS A short presentation I have put together on why every business should know about behavioural economics is available on this website and has been viewed over 1,200 times since being posted.

"From-To" image from http://www.rachel-levy.com/wp-includes/wp-content/uploads/From_To.jpg

The Top 10 Slap Down: Why you need Behavioural Economics

Strap yourself in for my top ten reasons why you need to know about Behavioural Economics.  More slap down than count down, prepare to be insulted!

You need Behavioural Economics because...

1. You're arrogant
You think other people succeed because of the situation but you succeed because you're ace.  But when things go wrong, it's the situation for you but a deep personal flaw in others.  After all, you never cut people off in traffic, but get cut off all the time.   (a.k.a. Actor Observer bias)

2. You're lazy
When you don't know what to do, you do nothing.  Inertia is your friend and default is your home. The easiest position is to stay with what you know. That's why you haven't changed banks...car insurance...partners yet.  (a.k.a Status Quo)

3. You take short cuts
Who can be bothered with all that thinking? Do what you've done before or just make some assumptions.  If you remember seeing that brand advertised, then it must be reputable.  If one product is more expensive than another, it must be better.  You'll order wine from the middle of the price range because you don't want to look stingy.  (a.k.a. Heuristics or Rules of Thumb)


4. You delude yourself
You love your thinking so much that whenever you look for evidence to support your point of view you can find it easily. (a.k.a Confirmation bias)

But when someone else puts forward an idea, it always seems to have more down sides. (a.k.a. Not Invented Here Bias).

5. You're a sheep
When you don't know what to do you follow what other people are doing.  Ever lined up in a queue without knowing what it was for?  Gone to a restaurant because it always seemed busy? Bought ill-fitting fashion?  An SUV?  (a.k.a Herding)

6. You're scared
Losing is scarier than winning. Bird in the hand and all that.  Safer to do nothing (as per point 2) or demand over the top guarantees before you'll make a move.  Stayed in a job too long?  Held on to an investment even though it was tanking?  Gone to a petrol station out of your way because you want to  save $2 with your shopper docket? (a.k.a. Loss aversion)

7. You're superficial
You operate most of the time at a superficial, top of mind level.  Listing 3-5 reasons you like or dislike something is easy because but beyond that gets tricky. It causes you a bit of mental anguish because you start to second guess your 'gut' feeling.  (a.k.a. Availability bias)

And you want rewards NOW!  Just like Veronica Salt in Willy Wonka (I want it now Daddy!) you hate to wait because you are not very good at imagining what the future will be.  (a.k.a. Short term bias)

8. You're not in control of your own mind
You set the alarm and then hit snooze. You intend to go to the gym but stay glued to the couch watching the Big Bang Theory.  You know superannuation is important but somehow can't find 10 minutes to read the brochure.  You are constantly fighting with yourself as your mind processes intent and actual behaviour.  This inner turmoil exhausts you so you revert to short-cuts (see point 3) and status quo (see point 2). (a.k.a. System 1 and System 2 thinking)

9. You fall for obvious tricks
You buy the yogurt that is 97% fat free instead of the yogurt that has 3% fat.  You pay for broadband plans with data quantities you will never reach.  You buy the shirt because it is marked down to half price.  You know you know that you are being tricked by the way something is communicated, but you can't help falling for it.  (a.k.a. Framing)

So that is you.  But don't worry, it's you and me and everyone else because we are beautifully complex, emotional and cognitive beings and being irrational is what we do.  The important lesson for anyone in business is that you need strategies and systems geared around this irrationality so you can best meet the needs of your market.  It's pretty clear that many businesses have not yet come to terms with the opportunity Behavioural Economics presents, so it's your chance to shake off your status quo bias, squash your fear of losing and instead grab on to a field that can deliver significant competitive advantage.

Oh. I almost forgot.


10. You need completion
You see a gap and you need to fill it.  A list of 10 with only 9 items becomes annoyingly distressing.  Failing to finish means you miss out on the entirety of the experience, so you go through with it even if there is no point.  (a.k.a. Completion)

Happy irrationality.

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

Should you charge customers an 'explanation fee'?

Retailers are doing it tough. Shoppers are coming in, speaking at length with the shop assistant about what the widget does and does not do, only to then leave the store and buy the widget cheaper online.  What's a retailer to do? How do they provide customer service but not lose the sale?

In his Fairfax piece last week, Terry Lane wrote that JB Hi-Fi has introduced a $30 "explanation fee" to recoup some of the cost of providing expertise to potential customers.  Think it will work?  Before you are tempted to follow in JB's footsteps, here are some behavioural elements to consider.

Customers are just doing what's smart
People do not believe they are doing anything wrong by speaking with one shop's assistant before buying from elsewhere; this is the very nature of shopper research and a deeply ingrained social construct.  It used to be hitting the pavement and going shop to shop.  Now it's research online, visiting a physical store if you need to sight, handle or try on the product, and then back to online to purchase.

Do customers feel guilty about wasting the shop's time? No way. In fact they are more likely to feel they deserve the better online price because they have worked for it through their research efforts.

Further, the customer does not consciously think about the overhead costs to that business.  I don't know about you, but when I wander into a store I do not calculate the cost of the assistant's salary, the electricity, merchandise and marketing that have gone into opening the store that day.  These are all lumped into the mental bucket of "sunk costs" that will have to be paid whether I buy from that store or not, and this protects me from any guilt associated with chewing up the shop's time.

So JB has a bit of an issue. They are introducing a fee for something people don't think of as a service. Now if JB's intent is simply to reduce 'tyre kickers', it may work because the fee most certainly will stop people seeking out their staff.  But in my view, disenfranchising potential customers is not a great move.


How to recoup payment for staff time  
As the nature of retail moves from in-store to online, and shops become more service rather than sales-centric, here are four thoughts about what businesses like JB might do;

1. Promote the benefits of buying in-store
Bricks and mortar stores have one massive advantage over online - stock.  "Take it home today!" should be the mantra because people hate to wait.  By the time they have come to the shop they have likely been thinking about the widget, so talking to them about taking it home and showing their loved ones tonight is a way of closing the gap between shops and online.  Make sure they are handling the widget to encourage ownership as you say "Mr Customer, whilst you might save a few dollars buying online, you can take this widget home right now and get on with things".

2. Spook them about invalid warranties 
As mentioned in Lane's article, people who buy goods from overseas often overlook the fact that the warranty may not extend to their country.  Shops like JB have a great opportunity to use people's aversion to loss to maximum effect by playing on our imagined distress if our widget breaks down.  We succumb to concepts like 'extended warranty' because peace of mind is worth paying a bit extra for.


3. Provide a value-add service 
Rather than calling the consultation an "explanation fee" that sounds condescending and a cost rather than benefit, call the service something like "expert consultation", "widget instruction session" or "how to widget".  Remember that people don't perceive shop assistant service as one that should be paid, so expectations of the service need to be interrupted.  Go to the extent of putting expert staff in a different uniform, position them in a different area of the store and even consider bookings.

The shop may suddenly find it has a whole new income stream generated by tutorial services which may also grow rather than disenfranchise its customer base.


4. Rebate service 
Offer the customer's who use the expert consultation the opportunity to rebate their fee against a product purchase.  So the $30 effectively becomes a voucher for their next purchase.  This will work in a number of ways. First, it will help overcome the objection to the upfront fee because it will feel less like the business is getting the money - it's more like they are just getting a deposit.  Second it will be hard for people to forgo their 'free' $30 so they will be more likely to buy something in store. And third, it means the business has an ongoing relationship with the customer and is more likely to get repeat business.

No doubt retailers like JB Hi-Fi are fed up with customers who take without giving, and in so doing provide online retailers with an even greater advantage through lower overheads and higher margins.  But this is the new world. I think it's great that we are seeing new models like JB's "explanation fee" popping up because it marks an attempt by bricks and mortar retailers to challenge the new online purchase cycle, and whilst this model may not quite succeed, it will at least make the retail sector consider new ways of balancing personal service with fair return.

Image from virtuallyyoursjb.com

How private labels are lulling us into higher prices

There has been quite a bit of press lately about the rise of private labels (house brands) in Australian supermarkets like Coles and Woolworths, and speculation about what this means for brand manufacturers.  An IBISWorld prediction cited in The Age has house brands growing from 23 to 30 per cent share of the $70 billion grocery market in the next five years, and companies like Heinz, De Bortoli and Goodman Fielder are publicly lamenting the dominance of house brands.  As most of us visit a supermarket every week, I thought it was worth examining private labels from a behavioural perspective to understand why we are shifting our consumption to house brands. 

How do private labels work from a behavioural perspective?
Private labels are behaviourally persuasive for a few reasons;

• Rules of thumb - in order to deal with the level of stimulation and choices available to us, we operate on auto pilot a lot of the time, using rules of thumb to guide our decision making. Private labels simplify our shopping experience because they create one simple rule - "buy this brand because it is good value".
• Self-herding - private label branding stretches across multiple product categories. The effect is that if I purchase and am satisfied with one category, I will be more prone to repeat my decision for that and extended categories rather than having to trial an alternative brand.  It's worth noting the risk for the private labels here - a poor experience of one category can poison all others. 
• Relativity - to understand whether something is good value, we compare it with similar items.  Our tendency is to stay away from the extremities - too expensive or too cheap - and settle for something that is somewhere closer to the middle.  Amongst others Woolworths have "Woolworths Select" and "Homebrand" and Coles have "Coles" and "Smartbuy"house brands.  This enables them to use one of their brands as their loss leader, leave the supplier's brand as the most expensive and their second brand as the attractive option in the middle. 

How our behaviour is changing the supermarket industry
By influencing individuals, private labels are changing the market in a couple of ways;

• Short-term bias - we are strongly swayed by the immediate rather than long term, and this has significant consequences for the supermarket industry and why brand suppliers are so worried.  We shoppers are buying for now - selecting items that meet our requirements in terms of utility and budget, and house brands are more than ever meeting this brief.  The risk with this behaviour is that through our actions, in this case buying house brands, we are slowly driving brand suppliers out of the market.  We are being lulled into a future of diminished choice, diminished competition and ultimately, higher prices.
• Drop in the bucket effect - along with our short-term bias, it is hard for us to contemplate how our individual purchase decisions can impact the whole supermarket industry.  We think that our actions are simply drops in the bucket that cannot have a broader implication, and this plays right into the hands of the supermarkets who know that engaging an individual is their path to engaging the mass.  

Lessons for other businesses
The rise of private labels clearly shows that shopper behaviour can be changed and new habits formed.  House brands have gone from being a dirty little secret in your pantry to a sign of 'smart' buying.  For all businesses it means that there are opportunities for growth by understanding how to influence consumer behaviour, and what better rule book than the field of behavioural economics to change the game?  See you at the check out.


(Image from http://www.foodmag.com.au/news/demand-for-private-labels-set-to-double-in-2025--r)