The same, cheap head-ache tablet is actually less effective than the same expensively priced option.

Read that again slowly because it is really powerful. In a study by Shiv, Carmon and Ariely (2005), they have established that discounted products are not only perceived less favourably by customers, but discounting actually detrimentally affects performance.

In one example, respondents who drank a discounted energy drink actually performed worse at solving puzzles because they believed the product did not help us much with concentration, causing them to physically perform worse than the control group.

Similarly, cheaper headache tablets actually take longer to work and were less successful at reducing headaches.

Discounting has the following – now scientifically proven- consequences:

• Perceptions of poorer quality,
• Belief that product tastes differently (inferiority)
• Belief that a product does not work as it should (efficacy)
• And...this is the killer: not only are discounted products perceived to be less effective, they ARE less effective. Through the so-called placebo effect, these beliefs and perceptions are transformed into less effective performance - a classic case of perception becoming reality.

What this means that discounting reduces the ability of a product to perform. (Of course there are products that may not be affected by this phenomenon, but not as many as you may think at first.)

The solution is very simple, but the difficulty is coming up with an alternative to the pricing tactic of first resort - discounting.

I’ll blog about the solution next time... have fun.

Dennis

• Only 7 3 units left
• Runout sale
• Last few days
• Offer must end tomorrow

Most of these taglines are copied form other retailers or past campaigns, and because they have never really studied the underlying psychology, they don’t know that there are quite a few qualifications that apply.

Invoking scarcity is a powerful motivator because it plays on the notion of ‘anticipated regret’. But consumers will only anticipate regret if your tagline communicates that possibility in some way. Regret is only feared if:

• There is an element of recency. That is, the product/offer must have become recently scarce. The store that has been ‘going out of business’ for the last 3 years does not generate sales because of any perceive ‘scarcity’. Products that have always or will always be scarce will reflect that scarcity in its price – and consumers know it. It is the prospect of a price/value equation might change radically which is the motivator.
• There must be perceived competition for the product/offer. That is, there must be an apparent demand by other people, because the potential regret is amplified when it is obvious that other people are fighting for the resource.

A current classic example of how an advertiser is effectively using the principle of scarcity in a novel way is the Burger King Whopper Freak-out. See the video here.

It is a viral campaign – launched a few months ago – that demonstrates the emotions induced by scarcity /unavailability without actually making the product scarce in anyway. (In this instance it is technically called ‘deprivation research’, but I am sure you’ll see clearly the emotion that scarcity invokes in consumers.)

When designing campaigns around the notion of scarcity, retailers should:

• Be very clear about what is scarce. (Simply saying time is running out is not a powerful motivator - there is always more time, but the actual product might not always be around...)
  
• The consequences of that scarcity should also be clear. (Last chance to make her happy...etc)
  
• There must a definite time-limit that forces the desired behaviour. (And stick to it! It can be repeated later, but don't extend the sale.)
  

The 3-Hr sale in shopping centres is a good example. A bad example is when retailers keep extending the sale, hoping to continue the early response. All that happens then is that customers are educated about your strategies, undermining the future efficacy of such tactics.

Dennis

I don’t enjoy flying. But this week I had a strange experience; feeling very calm despite extensive weather delays and the prospect of a terrible flight.  I watched the passengers run around trying to get a flight home, being pushed and shoved in the melee as passengers fought to get one of six seats left on an earlier flight. The circumstances weren’t easy for the crew, but the service was pretty poor anyway – which did not make the situation any easier.

And this got me thinking; what is the missing ingredient when it comes to creating and maintaining a sustainable competitive position? Why is it so damn difficult to create a winning service culture? And then the proverbial penny dropped when I discovered the common thread between three unrelated stories.

• A close friend has a partner who suffers severe depression, with all the ramifications that that suggests. For 16 years, from the day they got married, my friend has selflessly sacrificed in small or big ways on a daily basis. Yet there is no bitterness or regret; just tenderness, hope, and never say die attitude.

• Recently I also attend a meeting with a potential alliance partner. I met a very special woman. There were the telltale signs of the head scarf and the pencilled-in eyebrows suggesting the obvious. Yet, her enthusiasm was palpable; she radiated fun, passion for her products and service – a real zest for life. In conversation she casually referred to her illness – the not so casual demon of breast cancer. She taught me something important in those few minutes.

• At the other end of the scale, I remembered Rupert Murdoch’s observation (after he purchased MySpace for a squillion dollars) that he had a gut feeling that the purchase was a good investment. No matter how much analysis is possible, no matter how much research is conducted; success requires you take a leap in the dark. He created a great business on the back of decisions like that.

All these stores, all these people have one thing in common and that is absolute, undeniable COURAGE! We can learn from this these people because they have courage to turn a business around, the courage to put their own interests last in order sell you something you need, they have the courage to risk something of themselves in order chase a bigger goal.

At the heart of success, at the heart of great service, at the heart of achievement is the seed of courage. To care about the customer takes courage; you must risk rejection and disappointment. You must have the courage to put your own interests last.

This is a key trait of any manager (and owner) must have to run a business, to make people believe in the business, and to sell their ideas to customers.

To all the retailers out there, don’t be afraid to:

• Trial a new (even controversial) product
• Let all your staff write their own job descriptions
• Post all staff performances on your intranet
• Let your staff members rate your performance (as owner and manager)
• Let staff decide who should be promoted
• Apologise to a customer
• Give something away without expectation of a return

THAT is courage. And greatness, success and achievement of your goals are all built on the foundation of courage.

Posted by Moonyeen

One of the challenges that I put to my MBA classes is:

What would you do if your core product/offer had to be FREE – as of tomorrow? What would you do? How would the business survive?

This is not a hypothetical question only as many businesses face this conundrum today:

• The music business (with a flow on music retailers)
• Newspapers (with a flow-on to newsagents)
• Training
• Consulting & Coaching
• Publishing (with a flow-on to Book stores)
• Toy stores having to fight online gaming
  

- and the list goes on.

Of course the free frenzy is driven by the disruptive properties of the internet. In this excellent post Kevin Kelly identifies 8 values that cannot be copied, and hence are excellent antidotes against ‘free.’ His assertion is that the Internet is giant copy machine and that anything that can be copied is worth nothing. It is kinda mind-blowing but absolutely true. The purpose of his essay was somewhat different, but I see it as a great checklist to evaluate your business model against. Is, or can your core proposition be improved and embedded with any number of these ‘generative’ values?

Immediacy. Being first. Not just being quick – because second has no more value than third; only first counts. Is your offer capable of being positioned as, and capable of being delivered first?

Personalization . This is more than customisation – it is when a product or service is uniquely suited to the individual. How can you make your product/service offer personalised?

Interpretation. As the old joke goes: software, free; the manual, $10,000. Information and data is free. The bits and bytes of software… all free. There is no value in the ‘bits’ – all the value lie in the interpretation and meaning of that information/data.

Authenticity . I relate this to ‘trust’ as well. People will pay for information/ services that are authentic, original and ‘genuine’.  Can you make your experience authentic? (Newspapers in particular should think long and hard about the true value that they offer. The Internet is a cesspool of inaccuracies and finding 'truth' is really hard. (This blog excepted of course ). Newspapers will do well to leverage their reputation to stake a claim as purveyors of truth.

Accessibility. The new economy values ‘connectivity’ – not ownership. The music can be stored on iTunes, the blogger can store the book on a server; but the value lies in being able to consume on demand, without having deal with the hassle of ownership and having to manage physical possessions.

Kelly discusses a few more, and reading the original post is highly recommended.

As always, the challenge is what to do with this information? It is easy to turn around and tend to business as usual – after having skimmed through the blog. But where will you be; where will your business be in 5 years if everything you sold today, was available free. How would you survive?