Introduction to The Brainy Business Podcast
Melina Palmer: Welcome to episode twelve of The Brainy Business, understanding the psychology of why people buy.
Melina Palmer: This behavioral economics Foundations episode is all about relativity. Ready? Let’s get started.
Announcer: You are listening to The Brainy Business podcast, where we dig into the psychology of why people buy and help you incorporate behavioral economics into your business, making it more brainy friendly.
Announcer: Now here’s your host, Melina Palmer.
Podkite and Podcast Rankings
Melina Palmer: Hello everyone.
Melina Palmer: My name is Melina Palmer and I want to welcome you to The Brainy Business podcast.
Melina Palmer: I have started taking a few minutes in each episode to read new reviews or comments, and I’m excited to add.
Melina Palmer: Two more into the mix today.
Melina Palmer: There’s a new website called Podkite, which launched recently and allows you to see, see, and track your podcast across all the platforms and see all the reviews compiled in one place.
Melina Palmer: Before I had a podcast, I did.
Melina Palmer: Not realize that the Apple podcast app.
Melina Palmer: Is not the same in the US.
Melina Palmer: And Canada and Switzerland and Australia, but each area actually has its own app, and the reviews live within each exclusively.
Melina Palmer: Did you know that? That means because I’m in the United States, I have not had a way to see the reviews I’m getting elsewhere.
Melina Palmer: Until now, I knew I had at least one person from Canada let me know she was leaving a review and.
Melina Palmer: That I have listeners in over 40 countries now. So there had to be some other.
Melina Palmer: Ratings or reviews, but until recently, I.
Melina Palmer: Didn’t have a way to look them up.
Melina Palmer: Thanks to Podkite, now I can.
Melina Palmer: And another really cool thing it does is it lets you see the rankings.
Melina Palmer: In each of those countries and how.
Melina Palmer: You stack up against other podcasts in your category.
Melina Palmer: The Brainy Business is in the business management and marketing category, which I’m sure you can imagine is, very competitive.
Melina Palmer: Based on some very simple research, it looks to me that there are thousands.
Melina Palmer: Of podcasts in that category.
Melina Palmer: But according to Podkite, The Brainy Business.
Melina Palmer: Ranked 249 in Switzerland and number 300.
Melina Palmer: In Sweden, which is pretty darn cool.
Melina Palmer: The numbers seem to fluctuate quite a bit from day to day, but the highest I have ranked in the US appears to be number 195 for all the business, marketing and management podcasts.
Melina Palmer: I will take it. It’ll be interesting to see how this changes over time, but thanks to all.
Melina Palmer: Of you for listening and downloading around the world.
Melina Palmer: As I have said, your activity helps.
Melina Palmer: The podcast come up better in rankings.
Melina Palmer: Which is proven here, which means more people can find it easier without you, there’s no real way for other people to find the podcast.
Melina Palmer: So thank you for being here and for everyone else, thank you.
Listener Reviews and Engagement
Melina Palmer: Thanks again to everyone who’s left ratings and reviews.
Melina Palmer: Okay, on to those two reviews from Canada.
Melina Palmer: The big bummer that I have found with Podkite is I can’t see the name of who left the review, or at least I haven’t found a way to do so yet.
Melina Palmer: So I can only read the review itself and I don’t know who said it.
Melina Palmer: So if you are the one who.
Melina Palmer: Left one of these and want to let me know it was you, please reach out.
Melina Palmer: Or if you’ve left a comment in another country and want to let me know it’s you, definitely let me know so that I can thank you.
Melina Palmer: Personally, I would always love to know.
Melina Palmer: Who left specific comments.
Melina Palmer: This first one is titled how curious am I?
Melina Palmer: And it was from about a month ago, so I’m guessing it came after episode four.
Melina Palmer: Questions or answers?
Melina Palmer: Based on the title and based on the timing, I think this might be from my friend Shelley Warren, host of the Stacking Your Team podcast, which is part of the Biz Chicks group.
Melina Palmer: She had let me know that she was leaving me a review, but I have not been able to see it.
Melina Palmer: Regardless of whether this is from Shelley or not, Shelley is awesome and there’s a link to Stacking Your Team in the show notes if you want to give it a listen.
Melina Palmer: Okay, the review reads, now that I’ve.
Melina Palmer: Had a taste of Melina’s brilliance, I.
Melina Palmer: Want more every week.
Melina Palmer: Thanks so much for the fascinating insight.
Melina Palmer: You share so that we all can make better branding and marketing decisions.
Melina Palmer: You’re welcome friend.
Melina Palmer: The other review was more recent, it looks like it might have been after.
Melina Palmer: Episode nine on loss aversion came out.
Melina Palmer: It’s titled fascinating and practical and reads wow.
Melina Palmer: Melina,
00:05:00
Melina Palmer: Thank you for giving me all.
Melina Palmer: Sorts of really useful tips.
Melina Palmer: I’m going to try your loss aversion.
Melina Palmer: Theory to my marketing right now. Brilliant.
Melina Palmer: Hooray.
Melina Palmer: Thanks other friend up north. I am so excited to hear how incorporating loss aversion into your marketing worked.
Melina Palmer: So please send me an email to melina@thebrainybusiness.com or come on over to social media where you can find me as the brainy biz everywhere.
Melina Palmer: That’s B I Z, and share your victories. I can’t wait to hear how well it’s working for you and what you tried and that stands for everybody.
Melina Palmer: If you have implemented something I talked.
Melina Palmer: About and seen success with it, or.
Melina Palmer: Have questions about it, please come chat about it on social media or send me an email.
Melina Palmer: I love to hear how things are working for you and the ways that you are having success just like I talked about last week with Dawn and the other email I got.
Melina Palmer: It’s just super fun for me and I love being able to share that joy with you.
Melina Palmer: Thanks again to everyone who’s left ratings and reviews. I really love reading them and interacting with you all, so thank you.
Melina Palmer: Just thank you so much. It also helps me to know what you like or don’t.
Melina Palmer: Whether you’re commenting through the podcast apps.
Melina Palmer: Or on the episode pages of the website.
Melina Palmer: I have gotten some nice comments there.
Melina Palmer: From Jennifer Findlay and Laura Brodniak.
Melina Palmer: Thank you ladies and all the many commenters on Facebook. Thank you so much.
Melina Palmer: If you’re not yet chatting with me.
Melina Palmer: And the other podcast subscribers, come on.
Melina Palmer: Over, join the conversation. We’d love to connect with you on social media. Again, it’s the brainy biz.
Melina Palmer: B I Z.
Understanding Relativity in Behavioral Economics
Melina Palmer: Okay, on to relativity. Last week was dedicated to anchoring and.
Melina Palmer: Adjustment, and if you’ve listened to that one already, you know these two concepts are very closely aligned.
Melina Palmer: I mentioned relativity several times in that.
Melina Palmer: Episode, which is why I wanted to jump right into it this week.
Melina Palmer: If you have not yet listened to.
Melina Palmer: Episode eleven on anchoring and adjustment, there’s.
Melina Palmer: A, link in the show notes so.
Melina Palmer: You can get to it easily.
Melina Palmer: And in case this is your first episode with me, in which case, welcome.
Melina Palmer: You can find the show notes within the podcast app you are listening to or by visiting thebrainybusiness.com/12.
Melina Palmer: Because this is episode twelve, I’m not going to reference the show notes every time something is linked there because honestly, I have a lot of link backs and that would get really boring for you if I reference another episode or an article or anything that makes you think that’s interesting.
Melina Palmer: I should look into that. Check the show notes first because it’s probably already linked there for you.
Melina Palmer: And as with all foundational episodes, there’s.
Melina Palmer: A, free worksheet available for you to download on that same page of the website, thebrainybusiness.com/12.
Melina Palmer: You can follow along with that as.
Melina Palmer: You listen to the episode or use it after.
Melina Palmer: Either way, it’s really helpful for you to understand the concept and then actually apply it in your business, which is the whole goal.
Melina Palmer: If you are already subscribed to the.
Melina Palmer: Brainy Business email list, you don’t need.
Melina Palmer: To go and sign up again for the worksheet because there’s a direct link.
Melina Palmer: In that weekly email you get from.
Melina Palmer: Me, which comes out on Fridays, the.
Melina Palmer: Same day new episodes are released.
Melina Palmer: So you can go there if you prefer, and if you’re not on the list yet and would like to be.
Melina Palmer: There are two ways to get there.
Melina Palmer: When you download a freebie from the website, including the worksheet for this episode, you get added into the master list for the weekly emails.
Melina Palmer: And, it also works if you download a copy of the free ebook, my free ebook that I wrote for you.
Melina Palmer: It’s called the Ten Behavioral Economics Concepts You Need to Know and How to Apply Them.
Melina Palmer: And you can do that on the.
Melina Palmer: Homepage of the website at thebrainybusiness.com.
Melina Palmer: and as many of you listening are.
Melina Palmer: On your phones, there’s also a text option to get the free ebook and get added onto the list.
Melina Palmer: Simply text the word Brainy Brainy to.
Melina Palmer: 345 345 and you’ll be added to the list.
Melina Palmer: And that’s in the United States.
Melina Palmer: For any of you that are outside of the country.
Melina Palmer: I do not believe that that works outside the country.
Melina Palmer: But again, if you’re in the US, you want to text the word Brainy Brainy to 345 345, you’ll get added.
Melina Palmer: To the list and get your free.
Melina Palmer: Copy of the ebook.
Relativity: Value Perception
Melina Palmer: Okay, on to relativity. While I do love Einstein, this is.
Melina Palmer: Different than his theory of general relativity, which is all about gravity, spacetime, and other physics.
Melina Palmer: Fun. In the case of behavioral economics, relativity is about value.
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Melina Palmer: I have, of course, talked about value.
Melina Palmer: A lot on the podcast, including episode.
Melina Palmer: Eight titled What is Value? Which also talks a little about relativity.
Melina Palmer: This also came up in episode five.
Melina Palmer: The truth about pricing and the whole it’s not about the cookie series here.
Melina Palmer: Today, we’re going to dig deeper into relativity to make sure you really understand what it is.
Melina Palmer: And then I’ll get into all the examples for varying industries and circumstances and how you can apply this concept into your business and life.
The Difficulty of Valuing One-Off Items
Melina Palmer: So what is relativity, and how does.
Melina Palmer: It apply to value? The human brain has a really difficult.
Melina Palmer: Time valuing one off items, as in it can’t. Instead, your brain needs to make comparisons.
Melina Palmer: In order to assign value to things and then make a decision about how to proceed.
Melina Palmer: Let’s say I’ve invented a great new widget. There’s nothing like it in the world.
Melina Palmer: It has no comparison point.
Melina Palmer: It’s novel and exciting and amazing.
Melina Palmer: I want to sell it to you.
Melina Palmer: And I ask, how much would you pay for this?
Melina Palmer: What sort of questions would you ask.
Melina Palmer: Me before naming a price?
Melina Palmer: Maybe.
Melina Palmer: What do I use it for?
Melina Palmer: How big is it? How small is it?
Melina Palmer: Do other people have one?
Melina Palmer: How many are available? These are all questions to help you.
Melina Palmer: Relate that thing to all the other things around and try and assign a value to it.
The Relativity of Price and Behavior
Melina Palmer: When it comes to buying, it’s all relative.
Melina Palmer: Remember the $200 grilled cheese from that episode on value?
Melina Palmer: How do you know that’s exciting?
Melina Palmer: Expensive because you can relate it to other sandwiches and the ingredients used to make a grilled cheese at home or.
Melina Palmer: Other expensive meals, which are typically still under $100. Our brains are constantly making comparisons between.
Melina Palmer: Items, and as, with everything, it seems, they’re not always the most logical.
Melina Palmer: Here is a simple example to show.
Melina Palmer: You how these relative values can shift.
Melina Palmer: Imagine you’re at a store, and you pick out a spatula you want to buy. It is $16.
Melina Palmer: As you’re standing in line, you remember.
Melina Palmer: You’ve seen the exact same spatula at a store across town for $1.
Melina Palmer: Do you put the one in your hand back and go to the other store to buy the cheaper spatula?
Melina Palmer: Or do you proceed with your purchase right now?
Melina Palmer: Now here is a new experience.
Melina Palmer: You’re going to a, formal event.
Melina Palmer: Soon and have decided it’s time for.
Melina Palmer: A new little black dress.
Melina Palmer: You find the perfect one, makes you feel amazing, and you decide to buy it.
Melina Palmer: It costs $500, but you’re okay with the investment.
Melina Palmer: While you’re standing in line, someone says to you, you know, you can get.
Melina Palmer: That exact same dress from only $485 at the shop across town.
Melina Palmer: What do you do?
Melina Palmer: Do you put it back and drive.
Melina Palmer: Across town to buy the less expensive.
Melina Palmer: Dress, or do you go ahead and just buy it? Now, if you are like most people.
Melina Palmer: You would have said that you wanted.
Melina Palmer: To put back the spatula and drive across town to save $15, but you.
Melina Palmer: Would not do the same thing with the dress. Why?
Melina Palmer: In logical, traditional economics, a dollar, or.
Melina Palmer: In this case, 15, should elicit the same exact behavior for you, regardless of the item it’s attached to.
Melina Palmer: But of course it doesn’t. The relative price of the item that.
Melina Palmer: You’re buying impacts your behavior.
Melina Palmer: $15 compared to $1 seems like much more than $15 compared to 500. But why does that matter?
Melina Palmer: The truth is, it shouldn’t.
Melina Palmer: If our brains were more logical, the real question would be, what does $15 mean to me compared to the time to drive across town?
Relative Value and Financial Decisions
Melina Palmer: Years ago, I wrote a blog post.
Melina Palmer: About gas prices and auto loan payments.
Melina Palmer: It’s very common for people to be.
Melina Palmer: Willing to drive across town to the cheaper gas station to fill up their tank.
Melina Palmer: I personally know people who will drive an extra ten minutes to save ten cents a gallon.
Melina Palmer: Okay, let’s say you have a car with a 15 gallon tank, which is.
Melina Palmer: The average for a large sized car.
Melina Palmer: You’re saving $1.50 if your gas tank is completely empty when you get there to fill up.
Melina Palmer: And of course, I’m not even going to try to extrapolate just how much gas you’re burning to get across town.
Melina Palmer: To save that dollar 50.
Melina Palmer: But I’m willing to guess it’s enough to eat into at least some of that gain.
Melina Palmer: While at the credit union, we regularly ran a promotion where we would refinance.
Melina Palmer: An existing auto loan and beat the rate by 1%.
Melina Palmer: And that’s what prompted me writing the post. I’m talking about here.
Melina Palmer: Many people, the same ones who would.
Melina Palmer: Drive across town to save ten cents.
Melina Palmer: A gallon, would say 1% wasn’t worth.
Melina Palmer: The time to fill out an application and refinance.
Melina Palmer: It was a lot of work. And how much could it really save?
Melina Palmer: Because you apply for auto loans much less often than you fill up your gas tank, relativity comes into play as to how impactful it would be.
Melina Palmer: That’s what your brain starts to think. Let me tell you just how much you could really save using a simple online calculator.
Melina Palmer: Let’s say you had a $20,000 auto loan. If it was at 8% interest, you’d.
Melina Palmer: Pay $10 more a month than if you had a loan at 7% interest.
Melina Palmer: That means you could save $120 a.
Melina Palmer: Year by taking a few minutes to fill out the application online and refinance the car, probably in less time than.
Melina Palmer: It would take to drive to the cheap gas station across town and fill up the tank.
Melina Palmer: But again, you consider this ten cents a gallon as something that is relatively more than the effort that goes into applying for an auto loan.
Melina Palmer: Silly, but true. That’s relativity, and your brain at work.
The Olympics and Relative Happiness
Melina Palmer: Here is one more example to show you just how far reaching this is.
Melina Palmer: In the Olympics earlier this year, many.
Melina Palmer: Athletes made it onto the podium.
Melina Palmer: As you know, there are three people.
Melina Palmer: Or teams, depending on the sport, who make it onto the podium.
Melina Palmer: Gold, silver, and bronze. It’s pretty easy to know who the happiest person is on the podium.
Melina Palmer: That’s gold, for sure.
Melina Palmer: But who is the next happiest?
Melina Palmer: And if you were to guess at who would be actually angry while standing on the podium, who would it be?
Melina Palmer: That’s right, silver medalists are often angry or crying at their bad luck, while the bronze, they’re just happy to have made the podium.
Melina Palmer: So why would silver be less happy.
Melina Palmer: Than bronze medalists, who they technically did better than?
Melina Palmer: It’s because they almost won. They were so close to the gold, but fell short.
Melina Palmer: I’ve linked to a Daily Mail article I found of, silver medalists pouting back at the London Olympics.
Melina Palmer: If you want proof this is a thing or just a little laugh, I.
Melina Palmer: Also have links in the show notes for some books and articles which include.
Melina Palmer: More examples of relativity if you want to read up on that.
Applying Relativity in Business and Pricing
Melina Palmer: But for now, I want to just transition into your business and how you can apply this concept into your company.
Melina Palmer: If you own a retail shop of.
Melina Palmer: Some kind, you should absolutely be incorporating.
Melina Palmer: Relativity into your layout and pricing plan. Do you remember last week when I.
Melina Palmer: Talked about buying back to school clothes?
Melina Palmer: It’s a great example of how anchoring.
Melina Palmer: And adjustment works together with relativity.
Melina Palmer: So here’s a little refresher.
Melina Palmer: Let’s say you decided to do your.
Melina Palmer: Shopping at Target because they have a little bit of everything, school supplies and kids clothes at affordable prices.
Melina Palmer: On your way in, you see a child’s t shirt at the door for $99.
Melina Palmer: You might think, whoa, Target’s prices have gone way up.
Melina Palmer: I’m not sure I can afford to.
Melina Palmer: Buy them here this year. And when you get to the closed section, you’re pleased to see the shirts.
Melina Palmer: Are on sale and around $40 a piece. So you stock up and get three.
Melina Palmer: Because that was just a little more.
Melina Palmer: Than the price of one shirt regularly.
Melina Palmer: But was it?
Melina Palmer: What if I told you the shirts.
Melina Palmer: Were $25 a piece last year? Relative to 25, 40 seems high.
Melina Palmer: However, the store put something even more.
Melina Palmer: Expensive than $99 shirt in a place where it was very prominent, and you were definitely going to see it.
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Melina Palmer: To reset your anchor and establish a new relative price.
Melina Palmer: So now $40 seems like a great deal.
Melina Palmer: They don’t want you to buy the $99 shirt. Let’s be clear.
Melina Palmer: They’d probably be happy if you did. But that’s not its purpose.
Melina Palmer: Its sole purpose in life is to make the other prices seem low, so you buy more and feel better about it.
Melina Palmer: For you and your business. You need items that are similar to.
Melina Palmer: Each other at varying prices and to.
Melina Palmer: Strategically place them throughout the store.
Melina Palmer: If you only have one of something, it can turn into an expensive doorstop very quickly.
Melina Palmer: Let me explain.
Melina Palmer: Let’s say you sell small electronics in your store and you decide to add.
Melina Palmer: Espresso machines to your offering. You don’t have any other coffee related.
Melina Palmer: Items, so you place this espresso machine between a microwave and a blender.
Melina Palmer: It’s tagged at $150, and you were confident people would snatch it up. You pick the fancy red one.
Melina Palmer: You think it looks great, but then it just sits there and sits there.
Melina Palmer: After six months, no one has bought an espresso machine.
Melina Palmer: What do you do?
Melina Palmer: Before listening to this podcast, you probably would have figured you had two options.
Melina Palmer: One, pull it from the shelves and.
Melina Palmer: Give up on espresso machines because clearly.
Melina Palmer: No one’s buying them. Or two, discount the heck out of it.
Melina Palmer: Mark it down until people start buying it to either get rid of the ones you already bought or fuel the market, which won’t work.
Melina Palmer: Both of those approaches are wrong. What you should do is get another espresso machine that looks as close to the one you already have, but double the size and twice the price and set it right next to the $150.01.
Melina Palmer: Now when people come by, they will.
Melina Palmer: See two espresso machines and have something to compare.
Melina Palmer: They might think, well, $300 is.
Melina Palmer: A lot to invest in an espresso machine.
Melina Palmer: But this other one’s, so nice and.
Melina Palmer: Compact it could fit on my counter.
Melina Palmer: And oh, look at the color. That’s only a few trips to Starbucks.
Melina Palmer: To make up the difference in price.
Melina Palmer: Eventually I could upgrade to the bigger model if I want, but this is a nice introductory item and it’s such a great deal.
Melina Palmer: And boom. Espresso machine sold for bonus points.
Melina Palmer: Did you notice how anchoring and adjustments.
Melina Palmer: Snuck its way back in there? The $300 bigger espresso machine sets a high anchor to help the $150 price seem more affordable.
Melina Palmer: These two concepts are like peanut butter and jelly.
Melina Palmer: They’re almost always going to work well together.
Pricing Strategies: The Three-Option Approach
Melina Palmer: Which leads me to pricing in general.
Melina Palmer: People ask me for my advice on pricing all the time. Seriously, all the time.
Melina Palmer: And typically I recommend going with three options.
Melina Palmer: There are two main philosophies or goal.
Melina Palmer: With this three pronged approach.
Melina Palmer: The first is when you have one obviously best option.
Melina Palmer: In that case, your three offers will include the best thing, something that is.
Melina Palmer: Very similar to it, but obviously worse.
Melina Palmer: And then an item that’s completely different to add a little diversity.
Melina Palmer: Let me show you how this works using a suggestion I made a couple.
Melina Palmer: Weeks ago to Marielle during the on.
Melina Palmer: Air strategy session episode, which was number ten.
Melina Palmer: And again, that’s linked in the podcast app, in case you haven’t had a chance to listen to it.
Melina Palmer: One piece of advice I gave Marielle.
Melina Palmer: On that call was about the comparison.
Melina Palmer: Of pairs of earrings. We were talking about little girls going with their moms to get their ears pierced, and subsequently their first pair of earrings.
Melina Palmer: In the questioning process, I encouraged her to find out if the girl had a favorite color or was interested in a birthstone of any kind.
Melina Palmer: This gives a baseline to find items.
Melina Palmer: To compare against each other when they come in to pick out earrings.
Melina Palmer: So you’re prepared, you know what they.
Melina Palmer: Want, and you’re able to set this up perfectly for them and for you.
Melina Palmer: Let’s say this girl was born in May and she wants emerald earrings.
Melina Palmer: Instead of only showing her one pair.
Melina Palmer: There should be more than one for comparison.
Melina Palmer: Marielle let us all know.
Melina Palmer: Her gemstone earrings start at $70.
Melina Palmer: So I recommend having those and then.
Melina Palmer: Another pair at a higher price point.
Melina Palmer: Point, say $95.
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Melina Palmer: That are more than.
Melina Palmer: Double the size of those available for $70. This allows for a simple comparison point.
Melina Palmer: You can see that the more expensive pair is more than double the size.
Melina Palmer: For only a little bit more money, it feels like a better value.
Melina Palmer: In this case, you are using relativity.
Melina Palmer: To showcase the $95 pair, and she should include one additional pair that looks completely different to help them choose one of the birthstone pairs.
Melina Palmer: That third pair of earrings should be at least the same price as the.
Melina Palmer: Best pair, the $95 option, and ideally more expensive, perhaps $125 to work in the high anchor.
Melina Palmer: I’m going to get into some more detail on this in future examples.
Melina Palmer: So why should it be structured this way? Because when given three choices, most people will pick the middle price.
Melina Palmer: Let’s say you work in a furniture.
Melina Palmer: Store and someone comes in looking for a dining table.
Melina Palmer: If you show one for 5000, then one for 3500 and one for 2500, most people.
Melina Palmer: Will get the one for 3500. And remember from last week, as I.
Melina Palmer: Just said there, you want to start.
Melina Palmer: With the most expensive option and work.
Melina Palmer: Your way down to set that high anchor.
Melina Palmer: If you start at the bottom and work your way up, people will be.
Melina Palmer: More likely to choose that low option, the $2,500 table, instead of the one you are trying to sell to them.
Melina Palmer: Which is the $3,500 table.
Melina Palmer: Restaurant menus also do this all the.
Melina Palmer: Time, and you don’t need that $200 grilled cheese to accomplish this.
Melina Palmer: Although I am confident that the high price of that grilled cheese sandwich and the notoriety around it allows the restaurant to bump up the price on all their other offerings because they still look.
Melina Palmer: Affordable when related to the exorbitant sandwich or their even more expensive vanilla sundae.
Melina Palmer: For most restaurants, normal restaurants, not ones with $200 grilled cheese sandwiches, they almost.
Melina Palmer: Always have one item that is considerably.
Melina Palmer: Higher than everything else on the menu.
Melina Palmer: Very likely could be a special to be a decoy and get you to.
Melina Palmer: Buy the next most expensive thing.
Melina Palmer: My friend Michael Barbera is host of the Clicksuasion podcast, and he really.
Melina Palmer: Digs into the science of menus, menus and restaurants on his episodes.
Melina Palmer: So if you’re interested in learning more.
Melina Palmer: About behavioral economics, brain science, and menus, go check that out.
Melina Palmer: There’s a link for you in the show.
Melina Palmer: Notes to Clicksuasion as we move.
Real Estate and Decoy Options
Melina Palmer: On to real estate, I’m going to.
Melina Palmer: Read a little bit from Predictably Irrational.
Melina Palmer: By Dan Ariely, because he really just sums this whole process up really nicely.
Melina Palmer: Using real estate and shopping for homes.
Melina Palmer: Okay, suppose you’re shopping for a house in a new town.
Melina Palmer: Your real estate agent guides you to.
Melina Palmer: Three houses, all of which interest you.
Melina Palmer: One of them is a contemporary, and two are colonials.
Melina Palmer: All three cost about the same.
Melina Palmer: They are all equally desirable. And the only difference is that one.
Melina Palmer: Of the colonials, the decoy, needs a new roof, and the owner has knocked a few thousand dollars off the price to cover the additional expense.
Melina Palmer: So which do you choose? The chances are good that you will.
Melina Palmer: Not choose the contemporary, and you will not choose the colonial that needs the new roof, but you will choose the other colonial.
Melina Palmer: Why? Here’s the rationale, which is actually quite irrational.
Melina Palmer: We like to make decisions based on comparisons.
Melina Palmer: In the case of the three houses, we don’t know much about the contemporary.
Melina Palmer: Because we don’t have another house to compare it with.
Melina Palmer: So that house goes on the sidelines.
Melina Palmer: But we do know that one of.
Melina Palmer: The colonials is better than the other one.
Melina Palmer: That is, the colonial with the good roof is better than the one with the bad roof.
Melina Palmer: Therefore, we will reason that it is better overall and go for the colonial with the good roof spurning the contemporary, and the colonial that needs the new roof.
Melina Palmer: Perhaps the colonial is better on quality, but the contemporary is better on beauty.
Melina Palmer: Those are attributes our, brains cannot easily compare.
Melina Palmer: So if you include a decoy, in.
Melina Palmer: This case the worst
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Melina Palmer: colonial, which is similar, but obviously worse, it helps bring.
Melina Palmer: A point of comparison.
Melina Palmer: The funny thing is, your brain will now determine that the better colonial is better than all other options and deem.
Melina Palmer: It as the superior choice without much additional evaluation.
Melina Palmer: So, as the real estate agent, make sure you have all three choices like this to help make the best choice.
Melina Palmer: The obvious best choice. Dan’s book also has a fantastic example from The Economist, which I always include in my Consumers Are Weird talk, because it really helps show the value of relativity.
Melina Palmer: I’m going to explain it for you.
Melina Palmer: Here, but because there are a lot.
Melina Palmer: Of numbers flying around.
Melina Palmer: It can be best digested when you see it as well.
Melina Palmer: For that reason, I’ve put a post up on the blog which shows the images and discusses the points there.
Melina Palmer: When you’re able to, go check it out at thebrainybusiness.com. and click on blog and there’s also.
Melina Palmer: A link for you in the show notes.
The Economist Subscription Example
Melina Palmer: For now, I’m going to explain it to you.
Melina Palmer: The ad was trying to sell subscriptions to The Economist and it had three options.
Melina Palmer: Go figure.
Melina Palmer: First was digital for $59, then print only for $125, and finally a bundle of print plus digital for the same $125.
Melina Palmer: When presented with those three options, 16 chose digital only. No one chose the ridiculous print only.
Melina Palmer: Option, and 84 people picked the bundle.
Melina Palmer: Before I gave you the advice in this episode, you likely would have decided.
Melina Palmer: To remove that option. I mean, if no one’s buying it, why offer it, right?
Melina Palmer: Get some more white space in there. We don’t need staff to be supporting.
Melina Palmer: This thing that nobody’s going to get.
Melina Palmer: But what happened when they took that.
Melina Palmer: Out for a test?
Melina Palmer: 68 chose digital only and only 32 chose the bundle.
Melina Palmer: Remember, it was 84 last time, so you went down from 84 to 32 when you removed an option that no one had picked.
Melina Palmer: Why would this happen? You removed the option no one wanted.
Melina Palmer: And all the other prices remained the same.
Melina Palmer: So why did so many people shift from the bundle to the digital only option?
Melina Palmer: It’s because digital and print are not the same thing.
Melina Palmer: They do not compare to one another, making it so.
Melina Palmer: All you can compare on is price.
Melina Palmer: You don’t have a value for print, so your subconscious assumes it must be $66, the difference between the bundle price at 125 and the digital price at 50.
Melina Palmer: And then you have your conscious brain go into effect and say you figure.
Melina Palmer: You’ll save the money and a few trees.
Melina Palmer: You can always upgrade later, blah, blah, blah.
Melina Palmer: Your conscious has now logicked you into.
Melina Palmer: Confirming the irrational decision your subconscious brain made.
Implementing Decoys in Your Business
Melina Palmer: So when setting prices for your business, consider the decoy.
Melina Palmer: What is your best offer and how.
Melina Palmer: Are your other offerings making it look as good as possible?
Melina Palmer: If you are a coach or a consultant, what are the packages you offer?
Melina Palmer: A lot of people have one of.
Melina Palmer: Each thing, and they’re all completely different from one another, maybe even more different.
Melina Palmer: Than print and digital.
Melina Palmer: So what I advise to you is to pick one of your offerings if.
Melina Palmer: You are going to promote and showcase that. What are its best features?
Melina Palmer: What’s the benefit someone gets from it now?
Melina Palmer: Create something with similar benefits and features.
Melina Palmer: But a worse value — this thing’s entire purpose in life is to make the best option shine.
Melina Palmer: If your best option was going out to a bar, the second option would.
Melina Palmer: Be its wing lady.
Melina Palmer: She is only there to talk up the star of the show.
Melina Palmer: Then you pick a completely different product. Think back to that real estate example or the jewelry to help with the overall evaluation.
Melina Palmer: You want the customer to make one.
Melina Palmer: Simple and easy decision and have one comparison point so their brain feels like it completed the due diligence to make a decision to buy.
Melina Palmer: And remember, there’s a free worksheet on the website, thebrainybusiness.com/12 to help you build this out for your specific situation.
Melina Palmer: So you might be thinking, what about.
Melina Palmer: The other times you would use
00:35:00
Melina Palmer: Three products?
Melina Palmer: This is for when you do not.
Melina Palmer: Have a singular best option you’re trying to offer, but instead have a tier of packages available.
Melina Palmer: These can either be things that work together or where someone would only pick one.
Melina Palmer: Remember back to last week when I gave the two examples of service based.
Melina Palmer: Business owners who let me know they had applied my tips from anchoring and adjustment and relativity to create $20,000 packages?
Melina Palmer: In one case, she had three products.
Melina Palmer: That all work together.
Melina Palmer: Someone could buy one, two, or all three.
Melina Palmer: So she set up a bundle to create a deal.
Melina Palmer: If someone got them all suddenly, her.
Melina Palmer: Previous highest priced package of $10,000, which.
Melina Palmer: She almost never sold, looked much more affordable and started, flying out the door.
Melina Palmer: In the other slightly different scenario was the individual with three tiers for services, where someone would only choose one level of support and they’re picking which type.
Melina Palmer: Of setup they want, how much they.
Melina Palmer: Want over the year, or six months.
Melina Palmer: Or whatever it is.
Melina Palmer: In that case, the third highest price option, when she added it in, was chosen right off the bat.
Melina Palmer: And it will be interesting to watch if that continues and becomes a trend, or if it will actually continue to.
Melina Palmer: Push the middle price option as time goes on.
Melina Palmer: Regardless, the three product approach works because of this concept of relativity, and you should try it in your business offerings.
Melina Palmer: To see how much lift you can get in your sales.
Relativity and Healthier Behavior
Melina Palmer: Okay, one last example before I wrap this up, and this one is in a completely different realm.
Melina Palmer: To show just how robust this concept.
Melina Palmer: Can be, many of us exercise or diet from time to time.
Melina Palmer: Maybe you count calories, but it’s often difficult to compare calories burned with what we put in our mouths.
Melina Palmer: When you do an hour long class or run a five k, you feel like you’ve done a ton of work, you’re sweating and the energy expended feels like you really earned the rest of the day and all the food you’re going to eat.
Melina Palmer: Am I right?
Melina Palmer: A lot of people will then celebrate by eating a little extra or saying, it’s okay to have that snack because I ran today.
Melina Palmer: Our brains relate the effort experience to run with the effort expended to snack.
Melina Palmer: And for many, that valuation is way off.
Melina Palmer: I remember once, many years ago, I.
Melina Palmer: Logged, my workout into a fitness tracker, and I was feeling super proud of myself.
Melina Palmer: I was on top of the world. But like, I totally killed it.
Melina Palmer: Said I burned, you know, 300 calories or something. And I thought, yeah, I am awesome.
Melina Palmer: Until I noticed in the app they had a little table that showed what my calories burned equaled out to.
Melina Palmer: And it was something like 1.2 cans of soda or half a Big Mac.
Melina Palmer: Or three quarters of a Snickers bar.
Melina Palmer: Or something where I didn’t actually really.
Melina Palmer: Earn all of anything.
Melina Palmer: And, let me tell you, it did not make me want to celebrate.
Melina Palmer: With a food related treat.
Melina Palmer: And it made the comparison of calories much more real.
Melina Palmer: This was more relative. Now I understood how it worked out.
Melina Palmer: One study by Johns Hopkins put this to good use by posting signs in.
Melina Palmer: Convenience stores which read, you have to run 50 minutes, 50 minutes to burn.
Melina Palmer: Off the calories in one bottle of soda.
Melina Palmer: Yikes.
Melina Palmer: They were pleased to see that their efforts worked.
Melina Palmer: And teenagers consumption of sugary drinks reduced.
Melina Palmer: When those signs were out. So just know relativity is not all about pricing.
Melina Palmer: Finding the right point of relativity can help and encourage healthier behavior, which is pretty awesome.
Melina Palmer: Personally, I’m, all about finding ways to use these brain powers for good.
Melina Palmer: Like helping people to make healthy drink.
Melina Palmer: Choices or to encourage savings behaviors.
Melina Palmer: Like the project I’m currently doing with a credit union in Portland.
Melina Palmer: It’s very rewarding to see subtle ways to help people make better choices, as.
Melina Palmer: In that soda example, and hopefully in.
Melina Palmer: My study as well. Okay, that is it for relativity.
Melina Palmer: I find this is usually a concept people can get pretty quickly, and hopefully you can already see ways to incorporate.
Melina Palmer: It into your business.
Melina Palmer: Again, don’t forget that free worksheet is.
Melina Palmer: Created for you and you can use to walk through these steps in your business.
Melina Palmer: It’s waiting for you at The Brainy Business.com.
Melina Palmer: Twelve all.
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Melina Palmer: right now, we’ve officially, officially wrapped up this episode on relativity.
Concluding Remarks
Melina Palmer: I hope you liked it as much.
Melina Palmer: As I enjoyed creating it for you.
Melina Palmer: Next week, Lucky episode 13 is going to take a quick break from foundations and get into something I’ve been noticing a lot with my clients lately.
Melina Palmer: One simple mindset adjustment that will change.
Melina Palmer: Your life and business forever.
Melina Palmer: I am very excited to share it with you, so please tune in next week to hear all about that.
Melina Palmer: Until then, thanks again for listening and learning with me, and remember to be thoughtful.
Announcer: Thank you for listening to The Brainy Business podcast.
Announcer: Melina offers virtual strategy sessions, workshops, and other services to help businesses be more brain friendly.
Announcer: For more free resources, visit thebrainybusiness.com.
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