29 December 2015

No! You Will Not …

On King Street (main commercial street) in Alexandria VA there was a promotional booth for a (fancy) gym last weekend. The two men promoting the gym’s services approached passers-by and explained how each training program is designed by I don’t know what specialist.

Being in a rather bad mood at the time, my gut-reaction was: You Suckers!

Late December is a fantastic time to sell annual gym memberships at a premium. It is the perfect time to charge a lot for something that will not be used that much. This time of year lots of people make resolutions for the New Year to come, including going to the gym (more often). Coupling this wishful thinking and over-optimism with the large amount of money spent on Christmas festivities, paying 1000$ on a one year gym membership (discounted from 1200$, of course) makes all the sense in the world.

Gyms are full in January and virtually unpopulated starting mid-February.

The filled with optimism final days of any year are a fabulous time to sell, among others, the most expensive clothes racks and dust gatherers. I’m talking about home-gym appliances.

If you wish to get back in shape and restore the look you had in your early 20s, I strongly advise to become realistic. The early 20s look is long gone and will forever be so.

However, the over-inflated optimism can be put to good use for yourself, not for the marketers who sell you things that you’ll probably not use much.

If there’s one useful lesson from behavioral science, that is:

Who controls the context controls the behavior.  

Are you controlling the context? Because for sure the context controls you to a very large extent.

If you want to get in shape, buying 100 gym subscriptions and 10.000 home gym appliances won’t do much good as long as your context is the same as last year. Making changes in your daily context will help you.

Begin by rearranging your kitchen and eating space (Slim by Design by Brian Wansink is a great source of inspiration).

Join a food delivery service such as Hello Fresh and cook!

Walk! And take the long way home, literally! Get one of those activity monitoring devices such as fitbit to motivate you to make a few more steps. You could also try moving to a different home, though that is a bit difficult.

Discover where the stairs are in the building you live or work… use them, they will not bite even if you climb them.

Probably the most effective way of getting back in shape is to go back on the mating market - start dating, fall in love etc. While highly effective, this approach is a bit difficult for people in committed relationships.   

I wish you a good and down to Earth 2016.  

21 December 2015

How to sell a 5¢ product for 1$

You probably know those machines that (allegedly) allow you to win something by grabbing the prize with a mechanical claw. They usually make money by reducing the probability of winning thus for every N plays that cost 1$ they give a prize worth N/Z $ (where Z is always smaller than N).

Last weekend I came across a variant of such a machine that guarantees winning the prize. Only, in this case, the prize is a rubber duck worth probably 5¢ (manufactured in China for probably less than 1¢ per piece).

The nice twist is that the machine charges 1$ and allows the person to play till they win… reframing it, it for 1$ is sells a 5¢ rubber duck + the thrill of winning + making the player work for it, thus making her/ him value the rubber duck more.

Not a bad business idea … 

14 December 2015

How to Overcharge by Giving Discounts Indiscriminately

While Discounts are generally used to increase sales’ volume by decreasing prices and creating “buzz”, I encountered an interesting way in which discounts are used to overcharge one-time-buyers.

Usually promo codes and discounts are used to attract referral clients or in cross-selling. In the pictures above, however, this is clearly not the case. These pictures were taken in a Metro train in Washington DC. Since the promo code is publicly advertised, anyone who buys a ticket can use it to get a 10% discount.

Quite interestingly, anyone can, but not everyone will use the promo code to get the discount. This way, the seller is overcharging some of the buyers.

Assuming you want to sell something for $99, you can say that the price is $110 and then advertise 10% with promo-code XYZ… The bulk of buyers will use the promo code and get 10% of $110 off ($11) discount, thus buying for $99 which was the intended sale price. There will be other (forgetful?) buyers who will not use the promo code and pay the price of $110.

In addition, such spoof discounts might actually increase sales (in volume) because they generate transaction utility. While the term transaction utility might seem too pretentious, it actually means making the purchase seem like a good deal.

Such pricing (marketing) techniques are specific to one time purchases since they strongly rely on people not knowing what the right price is for the item.


7 December 2015

The Self-Defeating Fight against Vaccination Refusal

In reaction to the persisting decrease of vaccination rates in developed countries, public authorities, the media and non-profits counteract with information campaigns. In my opinion, this approach is self-defeating because it ignores the phenomenon’s behavioral realities.

1. Raising awareness is typical for information campaigns.

Articles with headlines such as Wealthy L.A. Schools' Vaccination Rates Are as Low as South Sudan's are well intended, but ignore the effect of social proof. When unsure what to do, people use others’ behaviors as cues for their own behavior. When faced with information on the increasing number of parents who refuse vaccination, others might interpret the message as: it’s OK not to vaccinate your children since others are doing this.

In many developed countries the overall situation is not as dramatic as some headlines indicate. The ideal vaccination rate is 95%+ which ensures herd immunity. The actual vaccination rates are somewhere in the 80-90% range. Healthcare professionals are worried mainly because of the trend and because of the real danger of losing the herd immunity.  As I understand the societal benefits of vaccination are not linear. Simply put, the societal benefit of improving vaccination rates from 80% to 85% is smaller than getting it from 90% to 95% (where heard immunity is achieved).

While from an epidemiological point of view a vaccination rate of 80% is worrisome news, from a behavioral science perspective things aren’t as dramatic. While most news focus on the increasing number of children who are not vaccinated, the upside is that the very large majority of children (in the USA) are vaccinated.

Saying that 20% of children are not vaccinated can be reframed as 80% are getting vaccines!   

In other similar situations, this type of simple reframing proved extremely effective in achieving behavioral change. Just as an example, many people have no problem buying a ham that is 97% fat free, but they would be very reluctant to purchase ham that is 3% pure fat.

Couple this reframing with social proof and you have a nice tool for reaching the goal of increasing vaccination rates.

Whereas headlines need to be dramatic in order to get clicks (or sell newspapers), public information campaigns need to be effective in achieving behavioral change – in this case get more children vaccinated.

Instead of relying on alarmist messages, why not simply say that the great majority (80%) of parents (in USA) do vaccinate their children.

Social proof and reframing of information can be used in even less favorable circumstances. A few months ago, I heard on the radio a commercial aimed at increasing the flu-vaccination rate. Unfortunately, the commercial said something like: “If you are one of the 65% of Americans who don’t get the shot, you can get the flu”.

Beyond the obvious errors in communication (from a behavioral science perspective), the reality of the numbers seems discouraging. When only (approx.) 35% of people get a vaccine, it is hard to leverage social proof – the great majority of people is not doing what is desired.

There is, however, a silver lining: 35% of the US population (311 million) is roughly 100 million people. Very likely, saying that over 100 million people (fellow Americans) get the flu shot is more convincing than 65% of Americans don’t get the flu shot.

2. Doctors are spokespeople in pro-vaccination campaigns.

The use of medical doctors as authority figures (recommenders) in communication has a long history. Doctors (or actors dressed as doctors) have recommended anything from detergent to cigarettes and from pharmaceutic drugs to diets.

While in many commercials using medical doctors as recommenders proved to increase the communication’s effectiveness, in the case of pro-vaccination (or anti anti-vaccination) campaigns is not exactly appropriate.  

Doctors’ presence and messages are reassuring for people who favor vaccination. However, those who are reluctant to vaccination don’t perceive doctors as authority figures, thus the message’s impact is severely diminished.

Simply put, in the eyes of (some) people who refuse vaccination, regular medicine is not trustworthy and so are medical doctors. Maybe herbalists, alternative healers etc. would be more credible.  

3. The rational message favoring vaccination is inadequate for tackling highly-emotional (false) concerns.

Strongly related to using medical doctors as advocates for vaccination is the messaging of pro-vaccination endeavors. Doctors dressed in their uniforms speak about the scientifically proven benefits of vaccination and talk about the serious dangers of not using this simple and effective prevention tool.

Although correct, this rational message is highly ineffective for those who oppose vaccination. Many anti-vaccination arguments have a high emotional load. Nobody (falsely) claims vaccines to cause kidney-failure – a serious condition with a low emotional load / fear-factor. Yet, all anti-vaccination advocates mention that vaccines can cause autism – a condition that has a high emotional component or fear-factor. By the way, vaccines don’t cause autism, but at one point someone made a false claim they did and the research has been proven to rely on faked data and the paper was later retracted. Yet, the legacy of fear left by that paper stands.

4. Vaccination’s benefits are Non-Events & the Availability Heuristic

The benefit of vaccination is very difficult to observe because it is a non-event – something that doesn’t happen. We humans are terrible at understanding non-events and in the case of vaccination things are even worse than in other situations.

Taking a step side-ways, I think we can all agree that a fire-fighter who goes into a burning building and saves a person (or cute puppy) is a hero worthy of public praise.

At the same time, the huge majority ignores other people who (indirectly) save many more lives from fires – the fire-safety inspectors: The bureaucrats who come with checklists and regulations, who generally are grumpy and somehow annoying because they keep insisting on even small features of compliance to fire-safety regulations.

These people save lives not by entering burning buildings, but by ensuring the conditions to prevent fires altogether and / or decrease the damage caused by fires.

The vaccination situation is somehow similar. Preventing a disease is not the same with curing one. A doctor who cured a patient with smallpox will receive many thankyou notes and will be held in high regard, but the nurse who gave thousands of anti-smallpox vaccines, thus preventing the disease, is still anonymous.

Earlier I mentioned that the situation is somehow similar. The high effectiveness of mass vaccination in preventing diseases, in fact, makes it more difficult to see the benefits of vaccination.

Let’s go back to the firefighter – fire-safety inspector illustration. The (paradoxical) reason for complying with fire-safety regulation is that there are enough (?!) fires to make the danger salient in our minds. Either in real life or in movies, fires are frequent enough to remind us that preventive action is needed.

In the case of vaccination things are a bit different. In developed countries recent cases of smallpox, poliomyelitis etc. are extremely rare. Mass vaccination led to having two-three generations free of such diseases and their devastating consequences. While during our (great-) grandparents’ childhood it was common for families to lose one or more children to diseases such as poliomyelitis, nowadays such instances are (almost) inexistent.

This is when the availability heuristic comes into play and distorts decision making on accepting vaccination.

The availability heuristic means that we judge the probability of an event based on the salience and frequency of memories of that event. We know of a lot of killings by firearms and very few suicides by guns, thus we perceive that there are more killings than suicides by firearms. The reality, however, is different: there are more suicides than killings by guns (at least in the US).

Because instances of terrible diseases that are prevented by vaccines are extremely rare and inconspicuous, we erroneously perceive the risk of not vaccinating a lot smaller than it actually is.

Here’s where movie makers can lend a hand. Instead (alongside) of scaring people with terrorist plots, doomsday scenarios etc. they could include more instances of people suffering and dying from poliomyelitis, smallpox etc.

5. Costs are in the present and benefits are in the future
Most people prefer 100$ now over 110$ in one year from now. This is an illustration of a psychological phenomenon called discounting future outcomes.

Vaccinations’ (non-event) benefits occur in the future (1-20 years) and, subsequently, are discounted in the present. The discomforts of vaccination– parents have to take their child to the clinic to get the shot, normal minor side-effects (fever, local swelling etc.) – are in the present.

The false dangers of vaccination allegedly occur very soon after getting the shot (in the present, not in the distant future).  

While it is impossible to change the nature of non-events and to eliminate the discounting of future outcomes, there are several things that can be done.

First, to tackle time discounting we can bring the benefits in the present. Naturally, vaccination’s benefits cannot be brought in the present (more so since they are non-events), but decreasing costs (hassle) in the present could be a great approach. In addition, although it might seem unethical, we could offer incentives in the present for getting vaccinated.

Second, to tackle the issue of non-events, we could try to make the immediate benefit more concrete by offering tangible rewards. As mentioned earlier, we could increase the frequency and salience of the dangers of non-vaccination and movies are the best way (at least in my view).


3 December 2015

Do I Really Need a Financial Incentive to Recommend a Service / Product?

Shortly after my wife and I moved to the USA, I noticed an announcement in the apartment building we live in that said: “recommend a friend to move here and you get 250$ when they sign the rental contract” (citing from memory). From an economic point of view this made perfect sense: you bring a client to a business and you get something in return.

Only later I realized that this type of incentive made sense when I saw it simply because, at the time, we barely knew anyone on this side of the Atlantic. A few months later, two former colleagues from Erasmus University moved from The Netherlands to the Washington DC area and they were looking for a place to live. We wanted to help them and showed them around the neighborhood. They were curious about the place we lived in and they came over to our place. To make a long story short, I got a business card from the leasing office of the building and gave them the information. The leasing officer (a very nice lady) mentioned that the offer of 250$ was still valid, so if our “friends” leased an apartment from them, we would get the incentive.

That was the moment when it struck me that this type of incentive scheme was faulty. Although I wouldn’t mind getting 250$, my motivation for recommending the apartment building wasn’t financial. We can pay the rent and I think, considering market conditions, that we get a reasonably good deal. We wanted our former colleagues to enjoy the same price-quality ratio. Moreover, the prospect of getting some cash out of the whole thing made me feel guilty. I truly, deeply hate the multi-level marketing approach. The relationship with our former university colleagues was social, not economical.  In fact, as someone who recently made the move from The Netherlands to the USA, we knew the costs and inconveniences it involved. If anything I would have preferred for our former colleagues to get the 250$.

Our former colleagues picked an apartment in a different neighborhood and the 250$ never left the real-estate company.

A similar case happened with a meal-delivery service we use. At the recommendation of my friend Arjan Haring (from The Netherlands) we tried Hello Fresh – a meal delivery service. In a nutshell, we pay each week 70$ and we receive a box with ingredients for three meals for two. This (type of) service is fantastic for foodies such as myself and my wife. We enjoy cooking and eating new stuff, but aren’t actively looking for new recipes and ingredients.  For our food experience, Hello Fresh is a blessing.

As we were very excited about this service, we talked about it with our few acquaintances in the US. Most of them seemed intrigued and curious about it.

In the first month(s) of using this service, Hello Fresh had an option for existing clients to “give a box” for free. It was an (a)typical approach for bringing in new business based on (existing) customer recommendations.

A bit later, however, they changed this “give a box for free” approach to a split incentive scheme. Basically, if we recommend the service to a “friend” and she subscribes, we get 30$ discount for our next order and the recipient gets 40$ off their first order.

While there is some economic sense in this split benefit approach, I began feeling uncomfortable recommending Hello Fresh. I wouldn’t mind 30$, but the financial incentive doesn’t match my motivation for recommending the service.

I recommend something because I want others to enjoy the service we think is great, not to make money out of it.

While in the case of Hello Fresh there might be some evidence-based reason for changing the approach to generate leads from existing clients from “give a free box” to split-benefit, there’s a big lesson to learn, particularly for marketers.

If you want to leverage your existing clients’ social relationships for your business, you need to understand their nature: SOCIAL.

Most people make a reasonably good distinction between social norms and market norms. The element that makes multi-level marketing utterly disgusting is that it perverts social relationships into (wannabe) market / business relationships.

Social relationships are based on imitation, reciprocity, status and alliances. Once you understand this, you can properly leverage them for your business’ benefit.

Simply put, if you want me to recommend your service to a friend (acquaintance, colleague etc.) help me enhance my social relationship with her/him. If you allow me to make a gift in the form of a discount, voucher or even allow me to offer them a full experience for FREE, that makes me look good, gain reputation etc. with the person with whom I am having a social relationship. This gain in strengthening my social status or relationship with someone I know (well) is, for me, more valuable than (the relatively small amount of) money you are offering as an incentive.

Marketing & Behavioral Science: www.naumof.com 

2 December 2015

What Is NOT Happening: The Wisdom of the Insect Screen

When we analyze a situation (or simply are awed by it), we look at what is happening and, naturally, try to understand why. When designing something or when working on a new product / service, we focus on what it enables us (people) to do.

This is all perfectly natural, yet it is only (I dare say, small) part of the picture. When analyzing a situation we need to try and see What is not happening. Of course, pigs don’t fly and aliens don’t land in your backyard, but these are extreme examples. Whenever something happens, many (related or not) other things don’t happen. If it is too abstract, it will make lots of sense in a couple of paragraphs.

When designing / working on a new product or service the focus is on what it will enable people to do (better). Very rarely, we focus on what the product or service will prevent people from doing. This is only natural, but, nonetheless, what a product / service prevents from happening is at least (equally) important.

The Wisdom of the Insect Screen

On a personal note: For a long time I had in mind the notion of what isn’t happening and non-events on a very abstract level, but only recently found a great, down to earth, illustration: The Insect Screen.

When my wife and I moved to the Washington DC area (USA), we didn’t fully realize the issue with insects (it was early March and there was snow). Virginia is a warm and humid area – a paradise for bugs. When we picked the apartment in which we now live, we took for granted the insect screens at the windows. For those who don’t know, an insect screen is a fine-metal-wire-grid fixed on the outside of (opening) windows that allows for the circulation of air and prevents insects from entering.

That’s all good and rather simple. It’s not rocket science and makes perfect sense. Moreover, the product – insect screen – does what it is supposed to do: it prevents insects from entering the house. It also enables people to open windows without having to be concerned about flies, mosquitos and other bugs creating nuisance.

The insect screen, however, has further implications. While it was designed to keep insects out, it also makes it difficult for things to get out of the apartment through the windows.

A couple of days ago, a Facebook friend posted that her cat took a dive from the 6th (7th by American standards) floor. While I’m glad that the cat is alive (though a bit shook-up), I have to say that this accident wouldn’t have happened if the windows had (fixed) insect screens.

In my country of birth (Romania), though not only, many people living in apartment buildings have a habit of throwing out trash out the window. While most often this restricts to cigarette buds, shaking out carpets, blankets or table cloths, sometimes it happens to be larger items such as trash bags. Many apartment buildings have small yards around them, but these behaviors happen even in buildings that are facing directly to the sidewalks of large streets and passers-by might get some breadcrumbs on their heads.

These negligent, inconsiderate and even anti-social behaviors would be impossible if windows would have (fixed) insect screens.    

On a more positive note, while insect screens are designed to keep out insects, they also keep out other things such as leaves, flying plastic bags, birds and even large rain drops. Insect screens are impotent when there’s a large rainstorm, but if the rain is mild, you can still keep windows opened without having to worry about moping the floor.

If a banal product such as the insect screen has so many non-event implications, shouldn’t you think creatively on what your product’s non-event implications are?