Fewer Choices

To Catch a Customer, You Must Think Irrational

To catch a fish…think like a fish, not a fisherman.

Unlike most people, I actually enjoy going to the grocery store. The whole process — cutting coupons, making a list, and going to the store — is sort of like a game to me and it fits perfectly into my ‘logical’ way of thinking. I went shopping a few weeks ago and one of the things on my list was a head of lettuce. As I started looking through their selection, I was really having a hard time making a choice. They were all very fresh and they were all a decent size, but I couldn’t make a choice. So what did I do? I continued shopping…without putting any lettuce in my cart. Even though I needed lettuce, I didn’t get it. Why? Simply because I couldn’t choose.

This experience reminded me that decision-making isn’t based solely on logic; it is a mixture of logic and emotion. And emotion can cause you to make some completely irrational decisions. (such as me not buying lettuce)

Understanding this idea that people are irrational will help you better figure out how and why consumers purchase your product. And considering that nearly 50% of decisions are made at point of purchase, knowing the how and why could benefit your brand greatly.

In Predictably Irrational, Dan Ariely does a great job of demonstrating how truly irrational people are. Some of the questions he dives into include ‘Why do we splurge on a lavish meal but cut coupons to save twenty-five cents on a can of soup?’ and ‘How did we ever start spending $4.15 on a cup of coffee when, just a few years ago, we used to pay less than a dollar?’

Particularly relevant to business owners, Ariely also talks about pricing strategies. One that I find particularly interesting is anchor pricing.

This concept, called anchoring, refers to the fact that once people buy a particular product at a particular price, they become anchored to that price. For instance, Airely found that people who moved and bought a new home immediately tended to spend the same amount on housing as they had before…even if this meant buying a home that was much bigger or smaller than the one they left.

But what about unfamiliar or rarely purchased items where we have little or no anchors? We often accept the first price that we see. If you decide to look at buying a 3D TV, you may see one at Best Buy for $3,000. You may not buy that particular TV, but that $3,000 now becomes the anchor price that you use to compare other TVs.

The big idea for businesses is to set your customer’s anchor at a high price point.

Don’t get fooled into thinking that you will be able to upsell customers after luring them in with low prices. The more effective strategy is to introduce your customers to higher priced items when they first come in contact with your brand. Once you have established this anchor price in their minds, you can then give them lower priced options, but now they will measure this against that anchor price.

Of course, such a strategy is grounded in being able to differentiate your product from your competition.