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

Wee

k 2

Wee

k 3

Wee

k 4

Wee

k 5

Wee

k 6

Wee

k 7

Wee

k 8

Wee

k 9

Wee

k 10

W

eek

11

Wee

k 12

W

eek

13

Wee

k 14

W

eek

15

Wee

k 16

W

eek

17

Wee

k 18

W

eek

19

Wee

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

Divider slide

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.

Divider slide

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.

Divider slide

PATTERNS

Expectations shape experience

Divider slide

Divider slide Discounted energy drinks reduce performance (expectations shape experience more than reality)

0

2

4

6

8

10

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    

Terima kasih

SIMPLE

NORMATIVE

AVAILABLE

PERSONAL

PATTERNS

Terima kasih!!

Weaving richer connections between people and brands

www.tapestryworks.asia