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

Ts & Cs: Necessary? Yes. Evil? No

You've nailed the value proposition, the product's packaging looks clean and inviting, the artwork is evocative and visually stunning. Customers will love it! Then then you pass it through your legal team...Terms and Conditions, the bane of a marketers life. 

Now by no means is this piece meant to denigrate the important work undertaken by legal practitioners who, quite rightly, are seeking to minimise risk of future claims.  But how can the need for Ts & Cs be balanced with the objectives of the marketing communication? 

Let's first walk through the purchase process so that we can understand what happens when Ts & Cs are introduced.

Imagine an iceberg.

The Behavioural iceberg

At the very top, poking out from the icy water is observable behaviour. This is what you can actually see your customers doing.  This is the moment of elation when they pass over their credit card or sign on the bottom line. But it's also the moment of disappointment when you see them walk away from your sale. When they empty their shopping cart, close their web session without transacting, tell you that they'll need to think about it.  In terms of Ts & Cs, this is when their face scrunches up as they troll through paragraph 7.2 sub point (a)(ii).  It's also when they click the "Read and Understood" Ts & Cs in your online site .025 seconds after it pops up.

Below the surface there are a couple of processing layers. Closest to the surface is what has been called by Neale Martin the "Executive Brain" - also called the Rider by Jonathan Haidt, Heath brothers and others. This is where the conscious decisions are made.   "It was the best value for money". "It met my criteria".  With Ts & Cs this is where they are processing the content of the terms and conditions and starting to weigh it against their rational justifications for purchasing your product.  This is the point of danger for your sale.

Below this, welcome to the Habitual Brain, also known as the Elephant. Here is where the gut takes over and processing information in a way of which we are not even consciously aware.  "Just doesn't feel right".  "I don't know why but I absolutely love this...".   This is where concepts of brand trust and credibility play out because at this level people are determining the degree to which Ts & Cs are important to their purchase decision.

Now that we have been acquainted with the layers of processing that are going on with your customer, let's look at what happens when terms and conditions are introduced into the process.  It's usually just at the point of 'money down' - like when you are about to or just have entered your credit card details or been presented with the contract of sale.

Throughout the purchase process we use conscious & unconscious processes

Up until this point, your customer has been processing the product at mostly a Habitual Brain level.  As Gladwell writes in Blink, the "thin slice" assessment.  This is why the marketing communication and the product's packaging are so essential. How can you create the best the first impression so that the customer's gut will respond positively before the executive brain even realises?  How can your sales rep be so well prepared with the value proposition that they will capture the customer's Elephant?  Apple do this brilliantly through design and marketing.   It has even been suggested that much of the iPod's appeal lies in the unconscious connection between it's design and the clean lines of bathroom faucets (see The Ipod and the Bathtub by Luke Williams).  In other words, the product's innate familiarity appeals to us for a reason we could never hope to consciously explain.  These are the hard yards of product and marketing (and stuff that you would unlikely uncover in traditional market research where people are asked to rationalise their intentions and decisions).

So marketing has done its job. Your customer is ready to purchase. But before they do, "just read these for me and initial that you have read and understood the terms and conditions".  Agghhh.  Brakes on.  Suddenly the momentum you had with the customer has been interrupted and you are in a perilous situation. How can you get them over the line? Do you rush them through the Ts and Cs? Do you try to distract them with banter? Do you deliberately write them so as to dull the customer into submission?

What's happened here?  In simple terms, by introducing the Ts and Cs into the situation, you have jolted the customer from state of unconscious processing to Executive brain function.  You've elevated the sale to the Rider when the Elephant was happily trotting in your direction.  And the impact?  Once the Executive brain starts to question, it starts to question everything.  Do I really need this? Is this how I should best spend my money?  How will I justify this to my boss?  I should probably see what the competition has to offer.

Now, Ts and Cs are an important, and often mandatory part of the transaction. They mean that both seller and buyer are clear on the terms of exchange.  But how can you minimise the disruptive impact of Ts and Cs on your sales momentum?  Three ways

• Integration - Have the customer understand and agree to concepts within the Ts and Cs throughout the sales process so they don't come as a surprise in the transaction stage.  Meaning? Why not use Ts and Cs as part of the feature set you are using to sell your product. For instance,  "Our Customers receive a monthly offers catalogue from us so that they get first dibs on priority deals" might be less of a shock than "By signing this contract you agree to receive promotional offers". 
• Language - Modify the language so that your legal messages are not inconsistent with your brand.  Why not a statement that helps them understand the impacts of their behaviour such as "We know you'll want to wear these earphones all the time, but promise you won't drop them in the toilet or sink or wear them in the shower because you'll be warran-teed off when we can't replace them" rather than a dull warranty statement?
• Congruence - Customers are looking for congruence between the proposition and the terms of sale.  Consistency will see the Elephant and Rider happily complete the transaction. Inconsistency will see a tumultuous tussle between them and will leave you in a situation of hope for the sale rather than assurance. How does this play out?  A relationship based on trust will be undone by onerous and explicit Ts & Cs.  A relationship based on customer service will be undone by ill written and unintelligible Ts & Cs.  A product which promises happiness and simplicity will be undone by Ts and Cs that are dull and complicated.

So there you have it. When it comes to your terms and conditions, be mindful of jolting your potential customer from their habitual to executive mind by taking steps to mesh the contractual necessities with the enjoyment of the purchase process. Happy marketing!