Special aisle for blokes? Rethinking the shopping behaviours of your market

A great little story grabbed my attention the other day.  A supermarket in New York had set up "Man Isle", an aisle dedicated to the shopping needs and behaviours of men.

According to the Business Insider, Westside Market created the section containing chips, beer, razors, condoms and beef jerky based on two things; more men were shopping and there were common goods that the guys were shopping for.

What can we take from this?

1. Reduce pain points for an under serviced market segment
Structuring their supermarket around the buyer's experience was a great way of reducing pain points and encouraging habituation.  The signifiant pain point? Overwhelming choice. The Man Isle reduces choices to a minimum and positions complementary items (eg beer and chips) together.  The lesson is always to look at your business from your customer's perspective and ensure you make doing business with you as easy as possible.

2. Target a Profitable segment
Westside had researched the trend toward male shopping and determined the segment was worth targeting. This is important - it's only worth customising the experience if you expect to gain a return on your investment through market share, volumes or margin.  Part of the consideration should of course be any impacts on the rest of your market. For instance, if Westside had been very aggressive in its targeting of male shoppers it may have inadvertently disenfranchised female shoppers, so striking a balance in how it catered for different shoppers was vital.

3. Give it a try
The team at Westside created the aisle on the basis of insight, observation and throwing a list of ideas together.  They knew what they liked shopping for, so that was the basis of how they stocked the aisle and they are willing to test and learn on the basis of market response. We can sometimes forget that our own expectations of customer service are a great source of knowledge for how our customers like to be treated - after all, we are all consumers, and that the main thing holding us back from growth is fear of failure.

Westside have differentiated themselves by rethinking how their business can better serve customers.  I hope 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.

(Image from http://www.businessinsider.com/inside-the-man-isle-2012-7?op=1)

Don't underestimate the impact of fees on consumer behaviour

Imagine you are at an ATM withdrawing cash. Before you do, a message comes up reminding you that there will be a $2 fee for accessing your money through an ATM that is not part of your bank's network.  Do you proceed or do you cancel the transaction?

If you were an economist with the Reserve Bank of Australia (RBA), you would have predicted that most would proceed with the transaction. After all, it's only $2.  We lose that behind the couch.

Well, much to the chagrin of RBA financial wizards, they didn't count on the impact of consumer 'irrationality'.  Instead of consumers banking like they had in the past, when the fee for a foreign ATM withdrawal was buried in terms and conditions and you only found out when you looked at your account statement, consumers have turned away from using these ATMs. 

What can you learn from the behavioural economics of ATM fees?

Red rag to a bull
People are more likely to adapt to a new price if they are not constantly reminded of it - it's like a red rag to a bull.  In this case, there was no choice for the ATM owners - the communication of the fee was mandatory, but in your business you may have more flexibility.  If you can, parcel the fee in with the price point and/or change once and not every time the customer pays.

I'm buying the good not the service
In previous posts I've talked about delivery fees.  For instance, order through Amazon and you pay less for the book but get hit with shipping.  Order through Book Depository and you pay more for the book but shipping is 'free' (ie included).  

People hate service fees so much because they decouple the value of the good from the service in getting it to them. Why? Because you retain the product not the service. Your opportunity is to gain  advantage by offering to wipe the cost of service (ie offer "free delivery" or "free installation") because 'free' is extremely persuasive and 'free' on a hated cost of service even more so.

Choose your number 
Was the fact that the fee is $2 the issue?  I think it did have something to do with it.  A lower fee structure, say 50 cents or 90 cents and more customers would have proceeded with their transactions  because dollars and cents are psychologically different.  If I told you that you are entitled to a $2 discount after you've purchased $30 worth of groceries does that hold more or less appeal than me offering you 4 cents off a litre of petrol (which works out about $2 a tank if you are lucky)?  Judging by our slavish devotion to petrol vouchers, 4 cents is extremely persuasive.  As a business you therefore need to consider the number context of the fee or discount you are using.

The big lesson out of the RBA experience is that people's irrationality should not be underestimated. Where something looks inconsequential on paper, it can have dramatic behavioural impacts. Your job is to make sure irrationality works in your favour, and behavioural economics is your guide to knowing how. 

To find out more about what happened with $2 ATM fees, read Peter Martin's article "Banks' $2 fee has big effect"in The Age. 

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.


(Image from http://www.bikyamasr.com/69294/india-launches-first-talking-atm-for-blind/)

Customer refusals: The difference between "I don't" and "I can't"

When talking a customer through their objections, how much attention have you been paying to the way they say no?  A recent study looked into the differences a "don't' vs "can't" can make to behaviour, so let's tune our ears into the implications for business.

I Don't vs I Can't signal different motivations
Imagine you are trying to eat more healthily.  You are offered a piece of cake.  Do you say "I don't want it" or "I can't eat that"?  According to Patrick and Hagtvedt's "I Don't" versus "I Can't": When Empowered Refusal Motivates Goal-Directed Behaviour" (2012) you will be much more effective in dodging temptation if you use "I don't"and this is because it provides you a stronger sense of underlying empowerment.  In essence, you are more resolved to say no as an extension of who you are.   If you say "I can't"you are really externalising your refusal, inferring that you would except that you can't for some external factor.

However, Patrick and Hagtvedt also discovered that there are times when "I can't" can be more effective then "I don't".  The difference is in whether the motivation behind the goal directed behaviour is internal (it's who I am) or external (it's for a specific reason eg wedding).  Therefore, if I was eating more healthily to lose weight for a wedding, saying "I can't eat cake till after the wedding" will be more effective in the short term than "I don't eat cake (because this is who I am").  The stronger impact of "can't" in this scenario was due to it shifting from simply being an impediment to something the person "must not do", signalling accountability for any breach.

Overcoming your Customer's refusal
So where does that leave you when handling your customers?

Turn I Don't into I Might
A customer who uses "I don't" is likely to be internalising the decision.  No doubt it is scary to have them state "I don't need this widget...", and you may feel it is all over.  Your best bet to talk them around is to address how their sense of self is going to be affected by your product/service.  Appeal to them as a smart decision maker, as someone who is looking for the best outcome.  To get on the right wave length, imagine your customer saying "I am someone who decided to buy this widget"; what would it do for them in terms of status, authority, esteem, and/or profile?

It is extremely important in this scenario to give them easy ways out of their "I don't" commitment so use language like  "similar clients have opted to test using our widget so they could be sure they were getting the best value from their current supplier."  Shifting them from "I don't" to "I might" is at least a change in the right direction.

Turn I Can't into I Will
For customers using "I can't", you may need to delve a bit deeper to understand if they are giving you the "I can't (but I really can if you talk me into it)" or "I can't because (external reason)".  Probe them on what is preventing them from proceeding - is it just an impediment that you can overcome (I can't because I haven't budgeted for it) or are they at serious risk of breach (eg I can't because I am currently contracted to another supplier).  Your goal is to get them saying "I will" because this infers you are both  working to a future state where they have overcome whatever is holding them back right now. 

In relation to what is probably the most common objection in business, "I can't because I just don't have the budget", you will know yourself that money can usually be found if the desire is there.  It's therefore your job to flame the desire whilst mitigating budget issues (through payment options, timing, pricing and so on).

So are your ears better tuned into your customers now?  Remember to pay attention to the words they are using to communicate their refusal so that you have the best chance of changing their minds.  You can do it.

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.


(Image from http://www.imsmigration.com.au/content/Visa_refusal)

Three tips for influencing your buyer

Decisions, decisions. If you are in the business of influencing buyers to buy then you have lots of decisions to make about how best to communicate your message to secure the behavioural outcome you want.  Here are three tips to get started.


1. Eliminate barriers to buying

The Red Box eliminates a barrier

Often we get stuck by convention, and it's only when a new market entrant pops up that we see opportunities for doing things differently.  For instance, a few short years ago it was convention to buy clothes from a bricks and mortar retailer, and now that has been changed with the emergence of online. The barrier of "what if it doesn't fit?" has been mitigated by free return policies.


And convention has been that you have to wait for your dry cleaner to open their doors to drop off your clothes right?  Not in a suburb of Sydney where The Red Box allows its customers to get on with life according to their schedule, not the shop's.

Tip: Look for any barrier to the buyer doing business with you.  Opening hours, location and trading policies (eg payment options) are a great place to start.

2. Reduce choice regret 
Part of your buyer making a choice is assessing whether they will regret their final selection. Buyer's will try to avoid putting themselves through any pain of regret which means they may defer their purchase unless you help them over the hurdle. 

Coles' My5 forces choice

On the subject of choices, I think one of the failings of the Coles' FlyBuys program's "My5" is that it forces people to make a choice about which items they will buy most often and commit to that as the basis of their discount.  The risk is that whenever they buy things other than those nominated they regret their decision - creating an unhappy psychological tension that will dilute the 'loyalty' proposition.


Tip: money back guarantees and/or price match guarantees can reduce choice-regret.


3. Normalise the behaviour
We all want to be normal.  I know, I know, you are above average but for most of us we are greatly persuaded by what others are doing and we seek social acceptance. Why else would be buy ridiculously expensive cars and use Facebook?  If you can tap into the desire to be normal through your marketing communications you will increase your chances of success.

Rexona ad uses normalising

One of my favourite advertising examples is Rexona deodorant's "Do you sweat more than normal?". This works because no one really knows what a 'normal' amount of sweat should feel like, we just know how we sweat.  The ad plants the seed of doubt that we are not normal and provides a solution to that tension. 


Tip: Use "most popular" and "best selling" to help guide your buyer's choice but be selective and authentic - buyer's will be able to smell if you are lying.


Communicating with your buyers in an effective manner is a deceptively complicated task. Set yourself up for success by being clear on what behaviour you want from the buyer, eliminate any barriers to buying, reduce any risk of regret and use the desire of the buyer to be socially accepted to influence their decision.

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.

Loading the dice in the game of business

Last week, together with around 100 others I rolled the dice as part of Leverage: The Game of Business, a facilitated business fundamentals board game.  Yes, a board game.  I'd never heard of this product before, and it struck me as a novel way of educating small business operators about key concepts like conversion, average sales value, turnover and margin as well as expanding thinking about what strategies are possible.

Game time
Tables of 5-6 people sat around a board game that resembled many others in that we moved our pieces in a clockwise direction according to our roll of the dice.  When we passed the square called "Profit" we collected money from the bank, and our objective was to invest in business strategies that would increase this amount.  Our other objective was to invest in business leverage strategies that enabled the business to function without our involvement, such as developing a recruitment strategy to ensure attraction and retention of talent and securing a robust and accurate bank transfer system to optimise cash flow.


Yours to own
Each player was randomly given a business to run, for instance mine was a menswear retailer, another was an engineering firm.  This is a great idea because it taps into what is know as the "endowment effect" - in other words, we try harder if we feel we are invested in something.  Sure, they could make this more effective by getting each player to write a slogan or choose their business rather than having it assigned, but it is much better than not characterising what you were playing for.

By the way, if you've ever been frustrated that no one, staff included, is as passionate about your business as you are, get over it.  You can't expect others to feel like you do unless they have been deeply involved in developing the character of the business and feel they have skin in the game.

Distorted reality

The game's chief objective is to educate business people about key business concepts, getting used to the language and mathematics involved, so my next point might be a little harsh.  A shortcoming of the game is that is predicated in the positive, so every strategy - from an advertising catalogue to product line extension - resulted in either an increase (1-10% gains), or at worst, status quo.  You couldn't fail.  

This is far removed from the reality faced by every business owner, where it’s our fear of what we stand to lose that holds us back.  Where does this fear come from? Uncertainty about what our customers, our suppliers and our staff will do in response to our decisions. Yes, I can run a campaign to existing customers to grow sales but what if I stuff it up and annoy them so much they churn?  What if I raise my prices and my customers turn to my cheaper competitor?  How do I find the time to document every system and process when my major concern is keeping the lights on?

Behavioural strategy to load the dice

Running a business is undeniably challenging, and like the board game illustrated, you have to keep dozens of plates spinning in the air.  The good news is that by using behavioural science in your business, you can reduce your uncertainty about what people will do in response to your choice, increasing your odds of success no matter what you do. In a way, you can make your life more like the game's distorted reality.  Every choice you make - an ad campaign, recruitment strategy, customer service policy, pricing decision - can be tweaked in your favour simply by using behavioural economics. Time you loaded the dice in your favour?

More information about Leverage: The Game of Business is available http://www.actioncoach.com/games


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.

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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