Got a product or service to sell?
One way to increase your online sales is to design a feeling of missing out into your sales process.
Traditionally this has been used by direct marketers through the principle of scarcity but let’s take a look at it from another angle.
“The competent advertising man must understand psychology. The more he knows about it the better.”
~ Claude Hopkins
Much of selling online comes down to direct marketing and human psychology.
For the direct marketing part we need to look to the masters, David Ogilvy, Claude Hopkins, Gene Schwartz, and many others. For the human psychology part I like to look towards Behavioral Economics and Neuro Science.
I Want My 2 Dollars
In a classic behavioral study, researchers offered subjects a choice between $100 right now or $102 tomorrow. All of the test subjects took the money now. No surprise there. But the interesting part is when the researchers changed the offer to get $100 in a year’s time or $102 in one year and a day.
What do you think happened?
More people were willing to wait the extra day for the extra $2.
It turns out waiting the extra day after waiting a year is not so hard to do but waiting a day to tomorrow is impossible.
Perhaps we think of time that is closer to the present (tomorrow) as something we may lose and a year and a day is too far away to feel like were losing out?
Human nature is both irrational and somewhat predictable at the same time. I believe, that there are a series of base emotions that tie us all together and act as triggers for decision making, fear and loss is one such trigger and perhaps the strongest one of all.
The concept of “fear of loss” is derived from prospect theory, developed by the psychologists Daniel Kahneman and Amos Tversky, which states that people are more motivated by avoiding loosing than gaining value.
The online sales take away is that the feeling of loosing is more motivating than gaining something. That is, the potential of a losing something, even if it is something you do not already have, is more motivating than the potential of a gaining something.
Internet marketers are too often in a perpetual state of giving value that sometimes it’s hard to pull back and take away.
The best way to apply this to selling online is to think of loss as an incentive.
Incentives add value to an offer – Buy this and get this free bonus. But in the incentive scenario we’re gaining and if it’s human nature to act right away when a feeling of loss is eminent then perhaps adding incentives add little value?
Bottom line is loss versus gain matters in the sale – A LOT!
According to new psychological research, from just last year, separating incentives into different categories can motivate more people.
Scott Wiltermuth of the University of Southern California and Francesca Gino at Harvard University conducted a study to see if motivation to gain a reward could be affected by the category in which the reward was placed.
Participants were randomly assigned to two groups and asked to complete a simple 10-minute writing task in exchange for a reward. The possible incentives consisted of a mix of inexpensive items displayed in two large plastic bins from which participants could choose one incentive. All participants were told that if they voluntarily chose to continue working and completed a second 10-minute task they could chose a second item from the bin.
Unbeknownst to the participants there was one important difference in the information given to the two groups. The first group was told that if they completed the additional writing task, they could take any two incentives from the bins. The second group was also told that if they completed the additional task, they could take a second incentive but that the two they selected would have to come from two different bins.
Despite the fact that all the participants clearly saw that the two bins contained the same mix of items, those in this second group were three times more motivated to complete the additional task than were those in the first group.
So why did the prospect of receiving incentives from two categories motivate more people than a single category?
According to Wiltermuth and Gino, dividing the incentives into categories made people feel that they would be “losing out” on something if they didn’t complete the additional task.
So simply by separating incentives into different categories can, without increasing their economic value, increase their psychological value because of people’s fear to avoid loss.
My hypothesis is that it is the not knowing that is the key driver of motivation here.
I’d love to hear some counter ideas – What do you think?
Wiltermuth, S. S., & Gino, F. (2012). “I’ll Have One of Each”: How Separating Rewards Into (Meaningless) Categories Increases Motivation. Journal of Personality and Social Psychology, Vol 104(1), 1-13
Download the research document here
Prospect Theory: An Analysis of Decision under Risk
by Daniel Kahneman and Amos Tversky
Download the research document here
Daniel Kahneman, won a Nobel Prize in Economics for his work developing Prospect Theory.
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