Sunday, April 26, 2009

Applied Irrationality

The first in a series of articles examining the marketing aspect of insights presented by Dan Ariely in his book "Predictably Irrational"

Give them something to not choose.

Dan Ariely's research, expressed in his book "Predictably Irrational", reveals some very interesting tendencies in how people, in general, value things.

One is that, given three choices, people will be more likely to choose the middle option.

Another is that in a group of three objects or images, people are more likely to pick one that is similar to, but better than one of the others. For example, if you had three hammers, two red and one blue, one red hammer has a cheap looking handle, the blue and other red hammer have nice looking, comfort grip handles. You can expect the red, nice handled hammer to be the best seller of the three, all else being equal.

We are also vulnerable to the power of suggestion. Baselines can be set for us. For example, you are in a restaurant where the steak costs $45. You may opt for the hamburger, but you see the $14 price tag as a bargain.

So what's the marketing take-away?

Giving people choices is not just good for them, it's good for you. Having more than one variation of an item gives the consumer something upon which to base a comparison.

Without such a basis they might be more comfortable not making a choice at all, since you gave them an ultimatum "it's this hammer or no hammer". You may sell very few low end hammers, but if they increase sales of higher end hammers just by their presence, it's worth the shelf space.

The same dynamic is true on the higher end. Having a high priced, top of the line choice may not result in lots of high end sales, but it just might increase the mid-priced sales.

You have to consider each section of your product or service mix to be an integrated display. Look at total sales at least as closely as individual item sales. To what extent are the products that aren't selling driving sales of those that are? Removing a particular product due to slow turnover may end up costing you sales.

Making the most of it:

It's important to recognize that market behavior is what it is. It's not what you think it is. It's not what you think it should be. It's not about what you think you would do in a given situation. The stats don't lie. Behavioral trends change with the market place. The more people are wary of a particular quirk, the less it expresses itself. What works today may not work so well in 5 years. That's what continuing research is for and that's what keeps it fun.

For more insights into the irrational, visit

No comments: