{"id":3877,"date":"2023-03-01T16:32:13","date_gmt":"2023-03-01T21:32:13","guid":{"rendered":"https:\/\/distributionstrategy.com\/?p=3877"},"modified":"2023-03-01T16:32:13","modified_gmt":"2023-03-01T21:32:13","slug":"the-psychology-of-choice-3-principles-to-move-customers-in-the-right-direction","status":"publish","type":"post","link":"https:\/\/distributionstrategy.com\/2023\/03\/the-psychology-of-choice-3-principles-to-move-customers-in-the-right-direction\/","title":{"rendered":"The Psychology of Choice: 3 Principles to Move Customers in the Right Direction"},"content":{"rendered":"

Growing sales, retaining loyal customers and employees, training and enabling your channel partners or sales teams.\u00a0<\/span>\u00a0<\/span><\/p>\n

All these critical actions require human behavioral change.\u00a0<\/span>\u00a0<\/span><\/p>\n

But changing behaviors is difficult. We are complex and irrational thinkers.\u00a0<\/span>\u00a0<\/span><\/p>\n

<\/p>\n

\u201cWe are prone to overestimate how much we understand \u2026 We can be blind to the obvious, and we are also blind to our blindness,\u201d Daniel Kahneman, one of the greatest minds in behavioral sciences, said in his Nobel Prize winning book, <\/span>Thinking Fast and Slow<\/span><\/a>.<\/span>\u00a0<\/span><\/p>\n

But it\u2019s made easier when you have the right tools. Behavioral Economics, or the theory that \u201c<\/span>combines elements of economics and psychology to understand how and why people behave the way they do in the real world<\/span><\/a>,<\/span>\u201d is key to selling better, marketing with more intent, and persuading others.<\/span>\u00a0<\/span><\/p>\n

Here are three principles\u00a0 \u2013 and their practical applications for distributors:\u00a0<\/span>\u00a0<\/span><\/p>\n

Principle No. 1: Choice Architecture<\/span><\/b>\u00a0<\/span><\/h2>\n

Having an abundance of choice is what we conceptually believe to be a good thing; the more, the better. However, for humans, abundant options are actually mentally distressing. This tends to <\/span>create dissatisfaction with the choice we ultimately make.<\/span><\/a>\u00a0<\/span>\u00a0<\/span><\/p>\n

Choice Architecture is being deliberate with the information we display and the way we set up the choices people need to make, whether digital, physical or in conversation.\u00a0<\/span>\u00a0<\/span><\/p>\n

Sales<\/span><\/b>\u00a0<\/span><\/h3>\n

In sales, using Choice Architecture means understanding how people make decisions. Here\u2019s how to apply it:\u00a0<\/span>\u00a0<\/span><\/p>\n

1. Set up a default choice.<\/span>\u00a0<\/span><\/p>\n

A default choice is a statement or price that\u2019s easier for a buyer to agree to. This could be the base price of a product or establishing an agreed-upon goal for their company. Default choices help a salesperson ground the conversation by reminding the buyer of choices they\u2019ve already made.\u00a0<\/span>\u00a0<\/span><\/p>\n

For instance, your product might have a service tied to it like expedited delivery. The default choice here is the base price for the product, which we can always come back to if they don\u2019t want to shell out for the extra fast delivery.\u00a0<\/span>\u00a0<\/span><\/p>\n

2. Flip the question.<\/span>\u00a0<\/span><\/p>\n

Flipping a question is a powerful way to get a buyer to second-guess their mindset. It\u2019s best explained with an example. Using the example above with the expedited delivery, let\u2019s say the default choice is to <\/span>include<\/span><\/i> the delivery and the fee, rather than ask if they\u2019d like to add it on.<\/span>\u00a0<\/span><\/p>\n

The question then becomes, \u201cWould you like to opt out of the expedited delivery?\u201d This option makes it feel like they\u2019re losing something they\u2019ve already gained and be more likely to not opt out. More on that in the Loss Aversion section.\u00a0<\/span>\u00a0<\/span><\/p>\n

3. Create urgency.<\/span>\u00a0<\/span><\/p>\n

While this is, of course, not a new concept for sales, there\u2019s significant Choice Architecture backing it. <\/span>As stated in Nudge<\/span><\/a>, a book written by Richard Thaler, a Nobel Prize winner for economics, \u201cpeople make decisions quickly under pressure, based largely on intuition, and unconsciously guided by biases.\u201d\u00a0<\/span>\u00a0<\/span><\/p>\n

A sense of urgency, especially when presented as a gap in the buyer\u2019s needs, creates a choice for the buyer: do business with me, or lose out. <\/span><\/p>\n

Marketing<\/h3>\n

Marketing with Choice Architecture in mind comes down to product positioning and understanding what your customers buy from you so that you can pitch them higher-revenue, lower-cost products.<\/span>\u00a0<\/span><\/p>\n

For instance, you might have seasonality in a certain product line. You know that soon, certain products will be bought by certain customers, in line with that seasonality. Look at those products and determine which have the highest margin.<\/span>\u00a0<\/span><\/p>\n

Start advertising or sending emails about those products to your previous purchasers before the season comes up. By the time the season rolls around, they\u2019ll be primed with an awareness of those higher-margin products and more willing to switch rather than deciding for themselves which one they will buy this year.\u00a0<\/span>\u00a0<\/span><\/p>\n

An interesting example of <\/span>Choice Architecture within Apple<\/span><\/a> is their limited number of available products. Yes, they come out with a new phone every year, but each model offers only one or two variations. As well, they offer only a few versions of headphones or watches that you can buy. By limiting the number of products it creates, Apple <\/span>limits<\/span><\/i> your choices, and thus makes you happier with your overall choice.\u00a0<\/span>\u00a0<\/span><\/p>\n

Persuasion<\/span><\/b>\u00a0<\/span><\/h3>\n

Choice Architecture has a lot to do with presenting options early on so that when decision time comes up, you\u2019ve already primed your audience with the choice you want them to make.\u00a0<\/span>\u00a0<\/span><\/p>\n

A great example of this comes again from <\/span>Nudge<\/span><\/a>: a daily specials board at a restaurant. Before customers even sit down, they see that board. A significant number of customers will instinctively opt for the specials because it\u2019s already in their minds.\u00a0<\/span>\u00a0<\/span><\/p>\n

So, if you want to persuade someone to pick something, prime them early with the choice you want them to make.\u00a0<\/span>\u00a0<\/span><\/p>\n

Principle No. 2: Decoy Effect<\/span><\/b>\u00a0<\/span><\/h2>\n

Decoy Effect is perhaps the best tool for creating easy paths to upselling and is a subprinciple of Choice Architecture. Consider the pricing options you provide to customers: low cost, middle, high cost. By making one of those slightly less attractive, you will nudge people toward a more profitable choice.\u00a0<\/span>\u00a0<\/span><\/p>\n

Marketing<\/span><\/b>\u00a0<\/span><\/h3>\n

Let\u2019s open with marketing this time because Decoy Effect is best explained with a visual. Pricing pages are your No. 1 example of Decoy Effect in the digital space. Take this example from <\/span>Campaign Monitor<\/span><\/a>.\u00a0<\/span>\u00a0<\/span><\/p>\n

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Campaign Monitor probably makes the most amount of money on their Unlimited offering. Here\u2019s why.\u00a0<\/span>\u00a0<\/span><\/p>\n

Next to the other two prices, Premier is a huge jump. $120 more than Unlimited. Premier is their Decoy price, because the presence of a $149 price tag makes the Ultimate plan seem like a steal. The Basic package by comparison seems like you might be missing out on the value of Unlimited. What\u2019s another $20 compared to the $140 more for Premier?<\/span>\u00a0<\/span><\/p>\n

You can effectively implement the Decoy Effect if you have an ecommerce platform. Think about how products are displayed on your website. Can you subtly create paths for people that lead to higher-margin products shown next to similar but more expensive, lower-margin products?\u00a0<\/span>\u00a0<\/span><\/p>\n

Counter displays are the same way. <\/span>The wine example below<\/span><\/a> is your classic retail example of the Decoy Effect. Your space is yours to display how you want. Make sure it\u2019s working for you.\u00a0<\/span>\u00a0<\/span><\/p>\n

\"\"<\/p>\n

Sales\/Persuasion<\/span><\/b>\u00a0<\/span><\/h3>\n

Here, we combine sales and persuasion because they tend to be similar. Employing Decoy Effect in sales or persuasion means including three options within your conversation or sale, knowing full well which are the most attractive and which is just the decoy.\u00a0<\/span>\u00a0<\/span><\/p>\n

For instance, the decoy price may be a non-fit option based on the conversations you\u2019ve had in the past, but you\u2019ve included it to make it seem like the other two prices are more reasonable, even though the middle option gets you the most margin.\u00a0<\/span>\u00a0<\/span><\/p>\n

Another example is if you\u2019re asking for a raise. You could come to your boss with three potential compensation plans, saying, \u201cHere are my three options for comp plans in 2023. Have a look and let\u2019s discuss which your most interested in.\u201d Meanwhile, you know that there are two in that group that your manager is most likely to lean toward.\u00a0<\/span>\u00a0<\/span><\/p>\n

P<\/span><\/b>rinciple No. 3: Loss Aversion or Fear of Missing Out (FOMO)<\/span><\/b>\u00a0<\/span><\/h2>\n

Loss Aversion has many different forms but uses the negative emotion all humans have toward losing something or missing out on something. FOMO or fear of missing out, is a more pop culture way to refer to this behavioral economic principle. <\/span>People are more likely to avoid the pain of loss than to seek gain<\/span><\/a>, thus there\u2019s a lot of effort to be gained by creating a sense of missing out.<\/span>\u00a0<\/span><\/p>\n

Sales<\/span><\/b>\u00a0<\/span><\/h3>\n

When motivating a sales team, you want to create a sense of exclusivity in competition. For instance, in a sales incentive, you could have a leaderboard of your top 10 outside sales personnel. Those top 10 get a trip to Vegas every year. Missing out on that trip could be a pretty big motivator for the sales team, especially those who have already achieved that status and don\u2019t want to lose it.<\/span>\u00a0<\/span><\/p>\n

When selling, create a sense of exclusivity and urgency within your pricing model. Time-based pricing models can help you secure better pricing if your customers fear that they\u2019ll lose their better pricing.<\/span>\u00a0<\/span><\/p>\n

Marketing<\/span><\/b>\u00a0<\/span><\/h3>\n

Using a \u201climited availability\u201d message in your marketing, \u201climited-time\u201d offers on your ecommerce site, and \u201climited product availability\u201d are three ways to drive home the Loss Aversion message in marketing. Simply put, using language that conveys \u201cdon\u2019t miss out\u201d or \u201cact now\u201d tends to move the needle.\u00a0<\/span>\u00a0<\/span><\/p>\n

Persuasion<\/span><\/b>\u00a0<\/span><\/h3>\n

Typically, when applying Loss Aversion in persuasion, you\u2019ll want to use language that assumes others are in the know. For instance, while on a selling call, you could say, \u201cI\u2019ve been able to hold this price for people in your area and wanted to make sure you got the offer before it\u2019s gone.\u201d This implies that their competitors or people like them are getting this deal while they may not, strengthening the Loss Aversion.<\/span>\u00a0<\/span><\/p>\n

Additionally, taking advantage of a perceived or real risk can be an avenue for persuasion. Airline insurance is a great example of this. You\u2019re offered airline insurance because there\u2019s a real risk that your flight might get cancelled or moved. This insurance, of course, is realized by the airlines as 100% margin most of the time.\u00a0<\/span>\u00a0<\/span><\/p>\n

Selling warranties can be another example. Try displaying the value they\u2019d lose if they <\/span>didn\u2019t<\/span><\/i> buy the warranty. This loss can be very motivating.\u00a0<\/span>\u00a0<\/span><\/p>\n

Implementing Behavioral Economics principles into your day-to-day life can be as simple as recognizing the opportunities to do so, which are plentiful. These three principles are just the start! If you want more now, check out these incredible books on the topic.<\/span>\u00a0<\/span><\/p>\n