pricing in s snapp: the psychology of money
TRANSCRIPT
Pricing in a SNAPP: !The psychology of money!
11 June 2015
Divider slide
Divider slide Price is not the same as value
“Price is what you pay. Value is what you get.” Warren Buffe:
Warren Buffett KU Visit" by Mark Hirschey - Work of Mark Hirschey. Licensed under CC BY-SA 2.0 via Wikimedia Commons
Rational calculation or intuitive heuristics?
SNAPP behaviour framework & card game
SIMPLE
NORMATIVE
AVAILABLE
PERSONAL
PATTERNS
SIMPLE
The paradox of choice
Less is more - that means more sales!
Procter & Gamble have found that fewer SKUs can mean more sales. In one case, reducing 24 detergent SKUs to 15 increased total sales by 10%.
Small differences can make a difference when direct comparisons are being made
46#
77#
0#10#20#30#40#50#60#70#80#90#
2#Items,#Same#price# 2#Items,#Different#price#
%"Comple)ng"a"purchase"
Source: Kim, Novemsky & Dhar, Adding Small Differences Can Increase Similarity and Choice, Psychological Science, 2012
NORMATIVE
Follow the crowd
Divider slide
Divider slide Intrinsic motivations are more powerful than extrinsic ones
“Money is very o=en the most expensive way to mo@vate people. Social norms are not only cheaper, but o=en more effec@ve as well.” Dan Ariely, Predictably Irra.onal
"Dan Ariely - PopTech 2010 - Camden, Maine" by PopTech - Flickr: Dan Ariely - PopTech 2010 - Camden, Maine. Licensed under CC BY-SA 2.0 via Wikimedia Commons
“Motivation crowding” at a day-care centre
0
5
10
15
20
25
Wee
k 1
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k 2
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k 3
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k 4
Wee
k 5
Wee
k 6
Wee
k 7
Wee
k 8
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k 10
W
eek
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eek
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eek
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eek
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eek
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k 20
CONTROL TEST
Late
arr
ival
s
Source: Gneezy & Rustichini, A Fine Is A Price, Journal of Legal Studies, 2000
Fine introduced for Test group
Classical economic theory suggests that incentives should increase desired behaviours. However, when fines were introduced for late arrival at these day care centres, the number of late arrivals doubled, as timeliness had previously been based on social norms rather than financial incentives.
AVAILABLE
Keeping top of mind
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Emotions build price elasticity
0
1
2
3
4
5
6
7
8
Rational Only Rational & emotional
Emotional Only
Very
larg
e re
duct
ion
in
pric
e el
astic
ity (3
+ ye
ars)
%
0%
5%
7%
Source: Advertising Effectiveness: The Long & Short of It. IPA UK 1012
Only emotional salience can reduce price elasticity. Rational advertising focusing on features and benefits cannot do the same.
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Strong branding drives brand value far more than strong advertising
Gro
wth
in b
rand
val
ue f
rom
200
5 to
201
5 (%
)
Source: Advertisingx Branding = Growth by The Partners, Lambie-Nairn & Millward Brown, 2015
0%
50%
100%
150%
200%
Poor branding, poor advertising
Poor branding, strong advertising
Strong branding, poor advertising
Strong branding, strong advertising
10 year growth
21% 27%
76%
168%
Salient brand associations have more effect on long-term value than good advertising.
PERSONAL
I’m the boss
How much is a mug worth?
GROUP Price offered Sellers Rp. 72,000 Choosers Rp. 31,200 Buyers Rp. 28,700
Sellers already have a mug and set a price for selling Choosers have the option of a mug or money offer Buyers have to make an offer to a Seller for a mug
Source: Daniel Kahneman, Thinking, Fast And Slow, 2011, pp295-296
Loss aversion predicts that once we own something, it has greater value for us.
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PATTERNS
Expectations shape experience
Divider slide
Divider slide Discounted energy drinks reduce performance (expectations shape experience more than reality)
0
2
4
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12
Low Expectancy-Strength High Expectancy-Strength
Discounted price Full price
Source: Shiv, Carmon & Ariely, Placebo effects of marketing actions: Consumers may get what they pay for, J Consumer Research, 2005
Num
ber o
f puz
zles
com
plet
ed
Which is the best price?
Source: The influence of print advertisement organization on odd-ending price image effects, Keith Coulter in Journal of Product & Brand Management, 2002
$ 5
$ 5
$ 5
We correlate numbers with physical experience, so numbers on the right and top are perceived as “larger” than those on the left and bottom (in most cultures). Bigger fonts are also perceived as “larger” too.
Divider slide
Divider slide Pricing in a SNAPP
• Reduce op@ons to SIMPLIFY choice • Use social NORMS to incen@vize • Make your brand AVAILABLE • PERSONALISE to add value • Use PATTERNS to prime expecta@ons
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SIMPLE
NORMATIVE
AVAILABLE
PERSONAL
PATTERNS
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