EXAM 2

The Pain of Paying

"Pain of paying" is magnified when our feelings of spending money are coupled with consumption Paying with cash is more painful than paying with credit EX: Safari -- pay 3mo in advance or on day of departure Problem: should pay on day of departure -- rational thing to do because of the time value of money (hold on to it longer and invest) If you were to pay on departure, you'd just be thinking about having to pay for length of trip -- subtracts from overall enjoyment of experience

Primacy and Recency Effect

"Tendency to remember the first (primacy) / last (recency) piece of information we encounter better than the other information presented" We are more likely to show the primacy effect when we are tired (vs. awake) and when we are distracted (vs. paying attention) Ballot: people on top get more votes -- if undecided, people pick first option → to counteract, randomize order Amazon tents, first thing associate with high quality Items at top of menu are typically picked more Sandwich method of feedback -- tell them something positive, negative, positive (drug advertisements)

Prisoner's Dilemma

"Two members of a criminal gang are arrested and imprisoned. Each prisoner is in solitary confinement with no means of speaking to or exchanging messages with the other. The police admit they don't have enough evidence to convict the pair on the principal charge. They plan to sentence both to 1 year in prison on a lesser charge. Simultaneously, the police offer each prisoner a bargain. If he testifies against his partner, he will go free while the partner will get 3 years in prison on the main charge. But there is a catch: If both prisoners testify against each other, both will be sentenced to 2 years in jail." Both Testify = A&B 2 years A Testify; B Quiet = A free, B 3 years B Testify; A Quiet = B free, A 3 years Both Quiet = A&B 1 year

Money Can Buy Happiness...

...if you know how to use it: 2016 Study in Psychological Science concluded that people whose purchases better match their personality report higher levels of life satisfaction 77,000 transactions (59 categories) by 625 consumers in UK over 6 months Categories that were matched with different personality traits, such as openness to a new experience or if someone is self-controlled or easygoing EX: extroverts who were required to spend voucher at a bar were more satisfied with their experience than introverts; introverts who were dispatched to spend cash at a book store were happier than extroverts

10 Psychological Tricks of Restaurant Menus Assignment

1. Limit your options 2. Add photos -- not too many 3. Manipulate prices -- get rid of dollar signs; write out price; 9.95 is better price than 10; get rid of decimals; DO NOT ADD DOTTED LINES 4. Use expensive decoys -- $300 lobster makes $70 steak attractive 5. Play with your eyes -- negative space; most expensive in top right, arrangement of apps 6. Utilize colors 7. Use fancy language -- organic; farm-raised; foreign language 8. Make you feel nostalgic -- Grandma's; Mom's 9. Increase the price of the second least expensive beverage 10. Use first in show tactic -- put most profitable items first on menu

Market and Social Norms (Starburst)

1c = 58 students per hour; 3.5 per student Free =. 207 students per hour; 1.1 per student Violates 2nd law of demand -- politeness; social standards/norms

Price of the Free

25c truffle vs 1c regular piece of chocolate -- pick truffle 24c truffle vs free regular piece of chocolate -- pick chocolate Free $10 Amazon GC vs pay $7 for $20 Amazon GC -- rational choice Transactions usually have an upside (benefit) and a downside (cost) If something is free, we only see the upside and often neglect the downside of it (e.g., worse quality) Free apps often much worse than 99c apps → make 1c or 5c the lowest price for an app Real world applicability: we should eliminate the co-pay for unpleasant medical exams to increase participation

What Makes Things Catch On -- Kevin Allocca

3 different factors help videos takeoff 1. Tastemakers → introduce us to new and interesting things → larger audience 2. Communities → participation (spread or do something new) 3. Unexpectedness -- Casey Neistat + bike lane Everyone has access and determines what becomes popular

Endowment Effect: Real World Examples

30 days return policy: after taking possession of an item, people consider themselves owners and like the object more, making it difficult to give up (physical/mental ownership of it) Holding on to items in a store: often times, we are not sure about an item in a store and the salesperson tells us to carry it with us for a bit while we walk through the store → the longer we hold on to it, the more likely we are to buy (harder to part with it) "Virtual Ownership" (eBay): people feel ownership even before they actually own something -- the longer you are the highest bidder, the more likely you are to assume ownership → you bid higher (irrational) prices Bad idea to put other @ in beginning -- leader for several days then last minute someone bids more → feel bad, have been envisioning owning it

Marketing Ethics + Place

Ad for cigarettes -- blatantly targeting young girls (color, language) Pussycat Dolls -- dress was "inappropriate" Report cards sponsored by McDonald's Kid Cuisine -- aimed at kids but is unhealthy Coke + soccer players -- makes kids think they can be famous soccer players if they drink coke

The Anchoring Index

Anchoring index = ratio between the two differences Index goes from 0 (ignore the anchor) to 100 (completely adopt the anchor) Real World Examples: Limit of x per customer increases sale, move first in negotiations because you set the offer

Emotional

Appeal to the heart, not (only) the mind Focus on an individual -- feel more for visceral picture than a statistic Establish an association -- allow people to associate something they do with something you want them to care about Appeal to one's self-interest -- tell customers what they stand to gain, not the features your product has Relate to one's identity -- we buy things that appeal to our identity: who we are, and what we value

Triggers

Associate your brand with something that people will encounter often The stronger your brand is associated with the trigger, the more likely people will be reminded of your brand + reminded more frequently if trigger occurs often EX: specific days; seasons; common words/phrases used in conversations Bad publicity only works with unknowns (authors, wineries, etc.) Competitors can be used as triggers → enables public health organizations to compete against the marketing strength of better-funded rivals Important to ensure that no other brand shares the same trigger -- customers will get confused by multiple triggered associations Holy grail of trigger-based marketing = product becomes only one with the trigger "Top of mind, top of tongue" Triggers and cues lead people to talk, choose and use -- social currency gets people talking, triggers keep them talking

Loss Aversion

Asymmetry around a neutral point, where losses are perceived as about 2.5x stronger than gains Losses loom larger than gains Separate losses, aggregate gains

Attitudes

Attitude = learned predisposition to behave in a consistently favorable or unfavorable manner with respect to a given object 1. Towards an object (e.g., product/service, price, store, ad) 2. Direction: +/- (continuum) 3. Consistent, but can be changed over time 4. Learned through experience with product, interaction with others, ads/promo 5. Can't be observed directly: cognitive and affective components can't be seen 6. Not synonymous to behavior 7. Occur within a situation

Is There Too Much Choice?

Barry Schwartz Having too much choice is negative Secret to happiness = low expectations 1. Produces paralysis rather than liberation -- With so many options to choose from, people find it very difficult to choose at all. 2. End up less satisfied than if we had fewer choices -- imagined alternative induces you to regret the decision you made → subtracts from satisfaction you get out of the decision you made, even if it was a good decision; the more options there are, the easier it is to regret anything at all that is disappointing about the option that you chose; opportunity costs 3. Escalation of expectations -- adding options to people's lives can't help but increase expectations people have about how good those options will be → produces less satisfaction with results, even when they're good results

Fairness and Reciprocity

Because determining value of different items or services is so difficult, we use shortcuts such as assessing the level of effort required to produce something Our ideas about fairness are based on marginal cost (MC -- increase/decrease in the total cost of a production for making one additional unit) rather than fixed cost Low fixed cost and high MC: bank teller → fair High fixed cost and low MC: ATM → not fair As consumer: think less about effort As producer: how can I show more effort (MC) → gets more difficult, because fixed costs for a lot of new items/services becomes invisible (e.g., how long does it take to produce an app?)

Ethics -- Background

Being ethical is not a matter of following one's feelings → person following their feelings may frequently deviate from what is ethical Being ethical is not the same as doing "whatever society accepts" → Germany in 1930s and 40s (morally defect society) Laws can deviate from what is ethical → old apartheid laws of South Africa Most religions advocate high ethical standards → if ethics were confined to religion, then ethics would apply only to religious people Greek word "ethos" = character, habits/customs

Pain of Paying -- Micro Payments (TV)

Breaks up the cost of purchase into smaller components EX: Pain of paying: 100c is not equal to $1.00 Cartoon = 1 cent News and Sports = 1/2 cent Post-Modern Lit = FREE Condition 1: micro payment on demand (1c for cartoon, ½ cent for news) Condition 2: micro payment at the end Condition 3: deduct from prepaid account Condition 4: subscription C4 spent most amount of money; C1 spent least amount

Contagious Summary

Build a social currency-laden (S), triggered (T), emotional (E), public (P), practically valuable (P) Trojan Horse (S), but don't forget to hide the message inside. Make sure the desired information is so embedded into the plot that people can't tell the story without it. Note: not all principles have to be applied at the same time, but the more the better

Stories (STEPPS)

Build your own Trojan Horse -- make sure your brand message is central to the story so people can't leave it out when sharing the story Virality is most valuable when brand or product benefit is integral to story → best part of the story and brand name are perfectly intertwined Information travels under the guise of idle chatter Make sure you think about valuable virality: information you want people to remember and transmit should be critical to the narrative

Are Some Things Born WOM-Worthy?

Can anything be made contagious? Blendtec Will it Blend? videos have been watched more than 300 million times, sales increased by 700% within first two years Virality isn't born, it's made → STEPPS

Altering of Components of the Multiattribute Model

Change the relative evaluation of attributes -- change relative weights of attributes Change brand beliefs -- "more, better, best" Adding an attribute previously neglected or new technological advances Change the overall brand rating rather than single attribute

Strategies of Attitude Change

Changing the Basic Motivational Function Associating the Product with an Admired Group or Event Resolving Two Conflicting Attitudes Altering Components of the Multiattribute Model Changing Beliefs about Competitors' Brands

Framing Real World Examples

Cheating: "65% of the students had cheated during their college career" vs "35% of the students had never cheated" (better) New medicine: "50% success rate" (better) vs "50% failure rate" Frame things in terms of positives

Normative Model of Judgment and Decision Making (JDM)

Classical Theory = rational choice -- consumers are rational decision makers who maximize utility Expected Utility (EUT): multiply the utility of each outcome by its probability, then sum across the possible outcomes

Heuristics & Biases

Classification based on Tversky and Kahneman (1974) Representativeness, availability, anchoring and adjustment Heuristic = mental short-cut to simplify difficult problems → System 1 Bias = pattern of deviation in judgment that occurs in particular situations → when System 2 does not check what System 1 suggests

Tricomponent Attitude Model

Cognition -- knowledge and perceptions about an object, acquired by direct and indirect experience (+/-) Affect -- consumer's emotions or feelings about particular product/brand ("feel right" or not) Behavior -- likelihood that an individual will behave in a particular way with regard to the attitude object

Attitude Commitment

Compliance -- lowest level; consumer forms attitude because it gains rewards or avoids punishments Identification -- mid-level; attitudes formed in order to conform to another person or group Internalization -- highest level; deep-seeded attitudes become part of consumer's value system

Attribution Theory

Concerned with how people assign causality to events, and form or alter their attitudes as an outcome of assessing their own or other people's behavior When we explain the negative (positive) behavior of others we look for internal (external) attributions When we try to explain our own positive (negative) behavior we tend to make internal (external) attributions

Summary -- Rational Behavior

Consumer preferences are often fuzzy and imprecise -- makes them susceptible to a variety of seemingly irrelevant influences People don't always behave rationally -- doesn't mean consumers don't know what they want or that we shouldn't bother asking them what they want → must pay attention and try to develop systematic understanding of what guides behavior to understand how consumers think

STEPPS

Contagious -- Jonah Berger Social currency; triggers; emotion, public; practical value; stories

Emotion

Create an emotional connection between your customers and your brand When we care, we share Marketers tend to avoid negative emotion, but if used correctly, they can boost WoM Fixing negative high-arousal emotion early can mitigate the negativity before it snowballs (monitor online chatter) Not about positive or negative emotions, it's about an increase or decrease in arousal

Should We Spread Out Our Spending? Solutions

Debit card that will defrost only a small amount of money for our daily spending every day Different budgeting approach that more clearly shows us the tradeoffs we are making between now and later Alert from our bank that will warn us when we get close to overspending at the beginning of the month

Marketing Ethics + Promotion

Deception = misrepresentation, omission, or practice that is likely to mislead consumer acting reasonably in circumstances, to consumer's detriment (FTC): Overstating a product's features/performance Rigged contests or games Invasiveness Marketing to children/the elderly Overaggressive promotion Covert marketing strategies Product placement

Cognition < / > Emotion?

Depends on type of object under consideration Utilitarian Products -- products with a functional purpose; cognition > emotion Hedonic Products -- products for fun/enjoyment; cognition < emotion BUT: a utilitarian product might be hedonic for another person

Commons Dilemma

Depletion of a shared resource by individuals, acting independently and rationally according to their self-interest, despite their understanding that depleting the common resource is contrary to the group's long-term best interests Rational individual outcomes lead to poor group outcomes Garret Hardin: "Picture a pasture open to all. It is to be expected that each herdsman will try to keep as many cattle as possible on the commons... As a rational being, each herdsman seeks to maximize his gain. 'What is the utility to me of adding one more animal to my herd?'... the rational herdsman concludes that the only sensible course for him to pursue is to add another animal to his herd. And another; and another... But this is the conclusion reached by each and every rational herdsman sharing a commons. Therein is the tragedy. Each man is locked in a system that compels him to increase his herd without limit — in a world that is limited. (...) Freedom in the commons brings ruin to all."

Find Inner Remarkability

Desire for social approval is a fundamental human motivation Snapple "Real Facts" are remarkable (interesting, surprising, novel) → provides social currency Remarkability can be applied to anything

Marketing Ethics + Product

Development: create new (unnecessary) needs Performance: prevent poorly made and unsafe products Packaging: exaggerating packaging or misleading labels EX: VW emissions; price staying same but amount decreases; Barbie + body image; elongation bias

Independence Violation -- Decoy Effect (Popcorn)

Didn't generate new product -- added another choice that nobody chooses → everyone chooses bigger alternative, medium reference puts large in a better light

Pain of Paying -- Micro Payments (Pizza)

Duke University + Pizza Restaurant Counted how many bites people take out of piece of pizza -- made an average number and did a special promo where they charged people per bite → Enjoyed experience less and thought pizza didn't taste as good

The Commons Dilemma + Water Shortage

During extreme heat, cities might ask you to reduce your water consumption But if you do take a shower there is great benefit to you; the small amount of water that you consume is insignificant compared to the total in the reservoir and, in fact, no one will notice; your consumption when spread over the millions of residents is of no consequence → bad outcome for all

The Commons Dilemma + Fishing

Each fisherman benefits from fishing as much as possible But if everyone fishes so much the number of fish will drop, they won't regenerate, now everyone will have a smaller income → bad outcome for all

ETHICS Check

Effect: does the decision harm anyone? Transparency: does the company mind if the decision is disclosed publicly? Harmony: does the decision conform to statutory and self-regulations? Interests: is the decision in the long-term interest of the firm? Consumers: would consumers consider the decision as fair? Sovereignty: is consumers' purchasing sovereignty respected?

Consensus

Especially when they are uncertain, people will look to actions and behaviors of others to determine their own Hotels often + persuading guests to reuse towels Rather than relying on our own ability to persuade others, we can point to what many others are already doing, especially many similar others

Language and Ability to Save Money -- Keith Chen

Futured language -- every time you discuss the future, or any kind of a future event, grammatically you're forced to cleave that from the present and treat it as if it's something viscerally different; makes the future feel like something more distant and more different from the present; makes it harder to save Futureless language -- speak about the present and the future identically; if that subtly nudges you to feel about them identically; makes it easier to save By the time they retire, futureless language speakers, holding constant their income, are going to retire with 25% more in savings Futureless language speakers = 20-24% less likely to be smoking at any given point in time compared to identical families; 13-17% less likely to be obese by the time they retire; 21% more likely to have used a condom in last sexual encounter

Leverage Game Mechanics

Game mechanics such as scoring systems, levels, and leaderboards tell you how well they're doing in relation to others (social comparison) Encourages a form of competitive spirit, and internally motivates us to be better than others What good is status if no one else knows you have it? People are talking because they want to show off their achievements, but along the way they talk about brands or domains where they achieved

Marketing Ethics + Price

Gender-based pricing Deceptive pricing

Who should pay in a restaurant and how much?

Have one person pay the whole bill and alternate each time you go out -- segregate gains and aggregate losses

2 Systems & Biases and Heuristics

Heuristic = "Mental short-cut to simplify difficult problems" → System 1 Bias = "Pattern of deviation in judgment that occurs in particular situations" → creeps in when System 2 does not check what System 1 suggests

Does any emotion boost sharing?

High Arousal Positive Emotions (increases sharing): amusement, awe, excitement High Arousal Negative Emotions (increases sharing): anger, anxiety, disgust Low Arousal Positive Emotions (decreases sharing): contentment Low Arousal Negative Emotions (decreases sharing): sadness

Associating with an Admired Group or Event

Honey Nut Cheerios and the save the bees movement

"On Orbitz, Mac Users Steered to Pricier Hotels"

I do not think the firm's behavior is unethical because Orbitz is only steering Mac users to pricier hotels, they aren't forcing them to book pricier hotels. If you have a Mac and you go to Orbitz to look for a hotel and you know your price range that you're willing to pay then nothing is stopping you from paying the rate you want. You have the choice of filtering your search and sorting the results by price. Orbitz conducted research and figured out that Mac users on average spend between 20 and 30 dollars more a night on hotels than PC users so they saw an opportunity and went for it. I don't think their decision is harming anyone or trying to be deceitful since the company is open on what they're doing and they commented on the situation. So, I do not think the firm's behavior is unethical.

"Roomba's Next Big Step Is Selling Maps of Your Home to the Highest Bidder"

I do think that the firm's behavior is unethical because iRobot's CEO Colin Angle points out that user data won't be sold without permission however, they don't clearly communicate this to consumers as they present information to users in the form of convoluted legal language. Additionally, the circumstances under which iRobot could share personal information with third parties are wide and the company has a lot of freedom in dealing with your private data. And, your consent to share that data wouldn't necessarily be required if iRobot wanted to sell its user data in bulk to Apple, for example. Users are always presented with terms and conditions which they always agree to without reading because the average person couldn't understand the legal language in which it is written anyway. The consumer focuses on convenience rather than privacy. iRobot should be making more of an effort to inform consumers of how their private data is being used in order to make their behavior more ethical.

"Your Phone Is Listening - Literally Listening - to Your TV"

I do think that the firm's behavior is unethical because the company is collecting the information sneakily. The methods marketing companies use to discover links between users' devices are often silent and secret by design. Technologies to block tracking technologies aren't currently readily available and the ability to opt-out of the tracking isn't readily known to consumers unknowingly accessing media that is tracking their data. Companies like Verizon and SilverPush are keeping consumers in the dark about how their data is being collected which is in line with deception. Overall, these companies are practicing unethical behavior.

"Should You Return Your Tent After Burning Man?"

I do think the consumers' behavior is unethical because "wardrobing" products is a form of return fraud. Not only is the consumer harming the company but they are harming other consumers as they are making other consumers lose out on opportunities to return items that they didn't wardrobe but need to return for other reasons. For most occasions, especially in the case of Burning Man, wardrobing is unethical as it hurts the companies' sales and ruins their products to the point where they can't resell them again. Overall, buying a product and knowing you're going to return it in bad shape is unethical.

"Why you should always buy the men's version of almost anything"

I do think the firm's behavior is unethical because these companies are selling women's products at a much larger mark-up than men's products just because the packaging is aimed towards women/girls. The decision to mark-up products aimed towards women/girls is harmful to them as they are having to spend more money for the same basic products that men buy, like razors and scooters, just because the packaging is more feminine—the product has no other difference or added benefits. Marking up a scooter that is the exact same as another just because it is pink is unethical. There is no special labor put into making the product.

Authority

Idea that people follow the lead of credible, knowledgeable experts It's important to signal to others what makes you a credible, knowledgeable authority before you make your influence attempt Can present problems It doesn't seem to matter if the person who introduces you is not only connected to you but also likely to prosper from the introduction themselves Persuasion science that was both ethical and costless to implement

Loss Aversion: Real World Examples

Imagine 2 salespeople A and B: A gets paid whole commission for the year up front, based on an estimated number of items; if A is below that number, have to pay back the difference -- B gets paid by the items they sold A will sell more items on average -- B is about gaining, A is about losing → inner drive, cares more to pay back than B has to gain more Give teachers money in advance and tell them that if the students did not show improvements, they have to give it back -- "here's x amount of $, if students don't get x average, you'll have to give it back" Uber uses loss aversion -- more motivated when you know how much they lose

Resolving Two Conflicting Attitudes

Imagine you want to buy a new laptop, you really like the Apple MacBook design and capabilities (attitude 1), but you do not like the conditions under which they are produced (attitude 2)

Intro to Decision Making Models

In general, researchers distinguish between two types of models: Normative Models -- How people "should" behave → Homo Oeconomicus Descriptive Models -- How people actually behave (more realistic)

Anchoring and Adjustment

In many situations, people make estimates by starting from an initial value that is adjusted to yield the final answer Different random starting points yield different estimates, which are biased toward the initial values → anchoring People adjust less when their mental resources are depleted Insufficient adjustment is a failure of a weak or lazy System 2

Market and Social Norms

In some situations, adding money to the equation makes things much worse -- we live in a continuum between market norms and social norms Once financial motivation comes in, social motivation decreases Gneezy and Rustichini (2000) -- $5 fine for parents who picked up their children late from kindergarten → more people showed up late, rather than fewer since people felt no guilt, because they paid for it Introducing a fine moved behavior from social to market norms, which was impossible to reverse: people were even more late → no guilt, no fine Social relationships create a greater sense of reciprocity Gifts in the workplace move relationship toward social domain and build social capital (e.g., 1 week vacation vs. cash bonus; health care, gym membership, free lunch at cafeteria) Basic economic theory = if price of an item is reduced, demand increases because: 1st law of demand, more people can afford the item; 2nd law of demand, people might buy more than one item → does not always hold!

Word-of-Mouth (WoM)

Influences up to 2/3 of all purchasing decisions -- people trust other people more than the firm itself; more info → more able to target firm WoM is more effective than traditional advertising: more persuasive and more targeted

Are there instances when making something public could be a bad idea?

Just say no campaign actually increased drug use, why? → seemed like every kid was doing them Music Association website: "only 37% of music acquired by US consumers ... was paid for" & "approx. 30 billion songs were illegally downloaded" → campaign backfired; why am I stupid enough to pay for it?

McBranding

Kids like foods better when it is labeled as McDonald's (burgers, milk, fries, carrots) It comes as many food and restaurant companies face pressure to cut back on marketing to children as rates of obesity among that age group continue to climb. Robinson and colleagues conducted a taste test with a total of 63 kids aged 3 to 5 who were enrolled in a Head Start preschool for low-income families. They were offered five pairs of foods and asked if they tasted the same or to point to the one that tasted better. The food — taken from the same order — was wrapped in either McDonald's packaging or unbranded packages in the same color and style. In about 60 percent of the tastings, the kids preferred food in the McDonald's wrapper. About 22 percent of the kids chose food in the plain wrappers while 18 percent said the food tasted the same or were unable to complete the experiment. Ranged from 48 percent who chose the hamburger up to over 70 percent who chose French fries as tasting better if they thought they were from McDonald's Even for baby carrots, kids said the carrots they thought were from McDonald's tasted better Same was true of milk.

Step 3: Evaluations of Alternatives

Known Brands and Unknown Brands Known Brands + Evoked Set (brands you like) = Acceptable Brands -- Purchased and Not Purchased Brands Known Brands + Inept Set (brands you don't like) = Unacceptable Brands Known Brands + Inert Set (brands that you feel indifferent about) = Indifferent Brands Known Brands + Overlooked Brands

Violations of Similarity

Let's assume there are only two phones out there, the iPhone and the Samsung Galaxy -- some people choose the iPhone, others the Galaxy, but there's no clear majority Imagine a 3rd phone, C, comes in that is NOT dominated by the iPhone or the Galaxy: addition of C increases choice share of iPhone (rather than decreasing) -- "Compromise Effect" Violates similarity -- should draw more share from the more similar alternative Third phone closer to iPhone, closer in price equality → should take market share away from it Don't go for extremes -- iPhone is middle option

Other "Irrational Behavior"

Loss aversion Endowment effect Framing Primacy and recency effect

Uber Assignment

Losses loom larger than gains -- ~2x as much Having a dollar target = bad thing for drivers -- punish yourself, good thing for Uber -- pay bad rates "Ludic loop" = get little bit of reward, keep going and going Forward patching = give next ride before current one ends, inertia of human nature -- already doing something → keep going and going, default is keep driving (Hook model, remove border/obstacles) Gamification -- badges that don't mean anything Uncertainty, don't know where most rides will go -- variable rewards

Consumer Ethics + Show-Rooming

Low-service, low-price retailers versus high-service, high-price retailers creates "horizontal free-riding"

Changing the Basic Motivational Function

Make certain needs more salient: Utilitarian function -- how the product is useful to us Ego-defense function -- how the product would make us feel more secure and confident Value-expressive function -- how a product can more positively reflect the consumer's values, lifestyle and outlook Knowledge function -- how a product satisfies the consumer's "need to know"

Public

Make your brand visible so that people will notice it and want to follow it Design products that advertise themselves: Apple products and tip jars "Behavioral residue" helps provide social proof for brands -- sticks around even when the product is not being used or the idea is not top of mind Built to show, built to grow If people can't see what other people are doing, they can't imitate them → make them publicly observable

Social Currency

Make your customers feel good and give them something to brag about Sharing personal opinions activates the same brain circuits that respond to rewards like food and money Mint social currency -- give people a way to look good while promoting your products and ideas along the way: (1) find inner remarkability, (2) leverage game mechanics, (3) make people feel like insiders We share things that make us look good As soon as you pay people for doing something, you crowd out intrinsic motivation -- people are happy to talk about companies and products they like, and millions do it every day for free without prompting

Societal Marketing Concept

Marketers should endeavor to satisfy the needs and wants of their target markets in ways that preserve and enhance the well-being of consumers and society as a whole, while fulfilling the objectives of the organization

Factors Influencing Decisions

Marketing Mix: product, price, place, promotion Psychological Factors: motives, attitudes, perceptions, learning, lifestyle Social Factors: family, reference groups, culture Situational Factors: purchase situation, shopping situation, temporal state

Multiattribute Attitude Models: Fishbein Model

Most popular multiattribute model: Ajk = Sum of (Bijk)(Iij) Ajk = attitude of consumer j toward brand k βijk = consumer j's belief that brand k offers satisfaction on attribute i Iij = importance of attribute i for consumer j → Attitude of a consumer towards an object = ratings of the attributes, weighted by attribute importance

Money, Time and Happiness -- Michael Norton

Natural experiment -- CNN article: when people win the lottery they spend all the money and go into debt and everyone bugs them for money Money often makes us feel very selfish and we do things only for ourselves → what if you were more pro-social with money? Amount of money doesn't matter much -- what really matters is that you spent it on somebody else rather than on yourself The specific way you spend on other people isn't nearly as important as the fact that you spend on other people in order to make yourself happy, which is really quite important Across all different contexts--personal life, work life, intramural sports, etc.--spending on other people has a bigger return for you than spending on yourself

Are we really good with money?

No

Step 1: Problem Recognition

No problem -- ideal state and actual state are parallel Opportunity recognition -- ideal state above actual state Need recognition -- actual state is below ideal state

The Commons Dilemma -- Solutions

Non-Governmental: -Definable boundaries (e.g., land) -Resource dependence -Resource depletion -Difficulty to find substitutes -Small and stable populations with a thick social network -Built-in incentives for responsible use and punishments for overuse Governmental: -Privatization: enforces sustainability -Regulation: limit amount of common good

Opportunity Costs

OC = second best option of what you give up Weekly stipend and no other money once we run out? → spend more in beginning; once we run out of cash, trade-offs (= opportunity costs) become more obvious and we become more hesitant Yearly stipend? → becomes more difficult Credit cards → trade-offs are obscured (horizon becomes unclear) We place a higher value on specific items, despite restriction EX: Sony ($1,000) vs. Samsung ($800) OR Sony ($1,000) vs. Samsung ($800)+$200 Best Buy gift card (go with Samsung + BB gc)

Cognitive Dissonance

Occurs when a consumer holds conflicting thoughts about a belief or an attitude object Dissonance: boring task, poor pay → maybe wasn't that boring No dissonance: boring task, but paid well

Practical Value

Offer useful tips to help your customers get better at what they're doing Passing along useful information strengthens social bonds Saving time and money, happiness, health Emotions: "when we care, we share" vs. Practical Value: "sharing is caring" News you can see Out of the 6 principles, might be the easiest to apply Be careful: false information can spread just as quickly as the truth Hardest part: cut through clutter → highlight incredible value; make clear why product/idea is so useful that people have to spread the word

How to "Unstick" Ideas

Once it sticks, it is almost impossible to reverse Solution: fight sticky with "stickier"

System 1

Operates automatically and quickly, with little or no effort and no sense of voluntary control, jumps to conclusions → sounds intuitive, but is wrong Other examples: drive car on empty road, complete the phrase "bread and ...", detect hostility in a voice How heuristics and biases happen -- mistakes in judgments

Step 4: Coping with Missing Information

Partial Devaluation = Risk averse: consumers assume a negative value for the missing information Complete Devaluation = More risk averse: forming of a negative attitude towards partially described option, regardless of standings on other dimensions Average Imputation = Consumer will assume a typical value Inferential Imputation = Inferring a value on missing-information dimension from values provided on other dimensions Dimension Disregardment = Ignore missing-information dimension Don't go through process with every product -- just expensive, use often

Pain of Paying + Real World Examples

Pay-as-you-go services not advisable iTunes mostly has the same price for songs → simple Y/N decision, rather than "Is this song worth X cents more?" iTunes waits to send a receipt → consolidating multiple purchases into one invoice reduces pain of paying Gift certificates and pre-payment options reduce micro payments and therefore the pain of paying (→ "mental accounting")

Reciprocity

People are obliged to give back to others the form of a behavior, gift, or service that they have received first Restaurant -- gift with bill (a liqueur, fortune cookie, a mint) = increase tip Key = be first to give and ensure what you give is personalized and unexpected

Availability

People assess the probability of an event by the ease with which instances or occurrences can be brought to mind -- overestimate probability of it happening Information you use to make a decision = recent, frequent, extreme, vivid, negative Real World Examples = shark week + going to the beach, lottery winners when buying tickets

People Should Spread Out Their Spending Assignment

People do not spread out their spending because in general we spend too much money at the beginning of the month, after we get our paychecks, and end up with too little at the end of the month Present bias = care more about the present than the future → spend money too early rather than saving their money for future use Important to find a way to manage our present bias Amie will be happier at the end of the month because she has more Happiness Points because she spreads out her spending evenly through the month. Since she spends around $40/day, the first $20 she spends will have 4 Happiness Points associated with it. The next $20 she spends will only have 3 Happiness Points associated with it. There is not a large decrease in sensitivity and the diminishing marginal utility is small. However, Bob has large diminishing marginal utility as he spends around $80 in the first 10 days of the month which gives him 10 Happiness Points per day but for each $20 he spends, the Happiness Points for each $20 spent will go down (from 4 Happiness Points for the first $20 to 1 Happiness Point for the last $20). There is a larger decrease in sensitivity. Furthermore, because Bob does not spread out his spending, he is only left with $20 to spend per day for the last 20 days of the month. So, he only earns 4 Happiness Points per day which is smaller than the 7 Happiness Points that Amie earns every day.

Representativeness

People ignore the "base rate" (farmer vs. symphony orchestra) Insensitivity to sample size (hospital example) Insensitivity to regression to the mean (flight example) Real World Examples: "Sports Illustrated Jinx"; Jury Duty; Name Brand vs. Store Brand

Consistency

People like to be consistent with the things they have previously said or done Consistency is activated by looking and asking for small initial commitments that can be made When seeking to influence using the consistency principle, the detective of influence looks for voluntary, active, and public commitments and ideally gets those commitments in writing

Costco Article

People love free, people love food → people love free food Retailers love sampling -- financial reasons (samples have boosted sales in some cases by as much as 2,000 percent) and behavioral reasons (they can sway people to habitually buy things that they never used to purchase) Free samples help consumers learn more about products, and that they make retail environments more appealing Subconscious level -- reciprocity Samplers with a heightened awareness of the presence of others at the sampling station may feel a level of social 'pressure' to make a post-sample purchase Come to Costco because it's fun → variety of psychological mechanisms kick in, compelling them to buy more products over a longer period of time The more positive experiences people have with Costco, the more likely they are, presumably, to shop at Costco, to bring up Costco in conversation

Violations of Utility Maximization

People maximize utility -- not always the case Presenter's Paradox -- presenters' mindset = process info in a piecemeal fashion → adding; evaluators' mindset = process info holistically → averaging Offer more → people willing to pay less

Liking

People prefer to say yes to those that they like Persuasion science = three important factors that cause someone to like you → we like people who are similar to us, we like people who pay us compliments, and we like people who cooperate with us towards mutual goals Group 1: "Time is money. Get straight down to business." → around 55% were able to come to an agreement. Group 2: "Before you begin negotiating, exchange some personal information with each other. Identify a similarity you share in common then begin negotiating." → 90% were able to come to successful and agreeable outcomes that were typically worth 18% more to both parties → Be sure to look for areas of similarity that you share with others and genuine compliments you can give before you get down to business

Scarcity

People want more of those things they can have less of Not enough to tell people about benefits they'll gain if they choose your products and services -- also need to point out what is unique about your proposition and what they stand to lose if they fail to consider your proposal

Sources of Influence on Attitude Formation

Personal experience Influence of family Direct marketing, mass media Internet Personality factors

Stages in Consumer Decision Making (DM)

Problem Recognition → Information Search → Evaluation of Alternatives → Product Choice → Outcomes

Step 2: Information Search

Process by which we survey the environment for appropriate data to make a reasonable decision Directed learning: existing product knowledge obtained from previous information search or experience of alternatives → active (go out and experience the product) Incidental learning: mere exposure over time to conditioned stimuli and observations of others → passive (someone else talks about the product) Directed is more convincing than incidental

How Do Marketers Change Attitudes?

Reciprocity -- more likely to give if we first receive Authority -- tend to believe authoritative sources Liking -- will agree with those we like or admire Scarcity -- tend to find things that are not readily available more desirable Commitment/Consistency -- try not to contradict what we've said before Consensus/Social Proof -- will consider what others do before we decide what to do

How Behavioral Economics Can Improve Marketing

Richard Thaler Everyone gets nudged -- potential to alter someone's behavior without nixing any of their options or changing their economic incentives Nudges have improved market research, decreased selective attention in stores, and converted online shoppers waffling about purchases Nudge + behavioral economics -- field of research that blends psychology, economics and the scientific method to examine the human rationality of decision-making Dan Ariely -- "Power of free" makes us irrational Daniel Kahneman + research partner Amos Tversky -- "prospect theory": psychological cost of losing is twice as big as the psychological benefit of winning Thaler and Hersh Shefrin -- "economic theory of self-control": the brain has a "doer" focused on short-term rewards and a "planner" focused on long-term rewards -- doer and planner are always at war System 1 and 2: Dhar = consumers tend to shop from the gut → marketers must think like System 1 consumers Many marketers are ensconced in their research methods -- put in time, money and effort and don't want to change (= more time, money, effort, and complete shift in philosophy) Tamsin Shaw -- If subjects are unaware of unconscious influence, the freedom to resist it begins to look more theoretical than real Uber nudges its drivers to work longer hours, possibly pushing drivers into less-lucrative areas Nefarious nudges: automatically enroll free-trial customers into a purchase if they don't cancel in advance One way marketers can take the perspective of consumers is to think about their own irrational shortcuts Marketers should stay alert to these mental shortcuts and think carefully, using their rational, slow-thinking System 2 brain to ask what they irrationally overlook at work, in life or as a shopper

"The Evolution of Cooperation"

Robert Axelrod (1984) -- tournament of N-step prisoners' dilemma; participants had to choose their mutual strategy again and again, and have memory of previous encounters Winning deterministic strategy = "tit for tat"; cooperate in first round, then do what opponent did in previous round Conditions necessary for a strategy to be successful: Nice: not cheat before an opponent does Retaliating: successful strategy must not be a blind optimist -- Always Cooperate is a bad choice ("nasty" strategies will ruthlessly exploit) Forgiving: players will retaliate, but fall back to cooperating if opponent does not continue to cheat -- stops long runs of revenge and counter-revenge, maximizing points Non-envious: not striving to score more than opponent (a "nice" strategy can never score more than the opponent)

Make People Feel Like Insiders

Scarcity (less available due to high demand) and exclusivity (knowledge): helps products catch on because it makes them more desirable

Last Exam

Select whether you want 2 points or 6 points added onto your exam grade; catch = if >10% of the class selects 6 points, then no one gets any points Game Theory Approach (>10%, <10%, =10%) 2pts → 0; 2; 2 6pts → 0; 6; 0 Relative To Others 2pts → 0; 0; 0 6pts → 0; 4; 0 Choosing 6 points is usually a dominant strategy

Endowment Effect

Selling price is typically about 2x as high as buying price We adjust our level of ownership and it becomes the baseline by which we judge future gains and losses Ownership -- endowed by it

Consumer Ethics - Other Examples

Sharing accounts (e.g., Netflix) Student discounts after graduation Song/movie/software downloads/copies

Unexpected

Shatter your customers' expectations with something counter-intuitive, then delight them with great value Get Attention: surprise (break a pattern); common sense is the main enemy of sticky ideas Hold Attention: interest; curiosity occurs with a gap in our knowledge (show gap first before you fill it → teaser ads); mysteries are powerful, because they create a need for closure Teaser Ad -- movie trailers, news, Apple (new products) Mystery Ad -- build intrigue (need to wait until end) -- Apple

Attribution Theory Example

Shirt has a hole in it Internal: seller tries to rip me off; seller doesn't care enough; seller is a bad person → won't buy again External: shipping service messed up; unlucky circumstances; hole is too small to be seen by employee → will buy again

Credible

Show that your stuff really works, and people will trust you more Use an anti-authority -- "living proof" that your product works Provide extensive details -- more details about your product = more internal credibility Utilize statistics -- show data that illustrates your point Pass the Sinatra Test -- look for one proof that convinces all your customers (Safexpress in India) (if you can make it in a tough environment, you can work anywhere) Present testable credentials -- allow customers to test your product/idea for themselves

Made to Stick

Simple Unexpected Concrete Credible Emotional Stories

Weapons of Influence

Six shortcuts that act as universal guides to human behavior Authority, Consensus, Consistency, Liking, Reciprocity, Scarcity

Simple

Strip your brand/message down to core elements, so it's easier to absorb Find the Core: What's the single, central idea that you want to tell? -- competitive advantage (why should people choose you over others) Share the Core: Use different means, e.g. analogies/schemas to help your audience understand easily

2 Systems - Overview

System 1: fast, unconscious, automatic, everyday decisions, error prone System 2: slow, conscious, effortful, complex decisions, reliable

Thinking Fast and Slow - System 2

System 2 allocates attention to the effortful mental activities that demand it, including complex computations → correct answers, but takes more effort EX: park in a narrow space, fill out tax form, count the letter "e" on this page Most of the time, System 2 adopts what System 1 suggests with little or no modification → "lazy controller" When System 1 runs into difficulties, it calls on System 2 for support → Division of labor minimizes effort and optimizes performance

The Commons Dilemma + Medicine

Taking Antibiotics: Each individual wants protection, so uses a lot of antibiotics. Overuse leads to emergence of new strains of resistant bacteria. In the future, we may not have protection. Immunizations: Each individual would rather everyone else take the immunization. They will be protected by the others immunity, but won't have the risks of the immunization itself.

Elongation Bias

Tendency to think a tall, thin glass holds more than short, stout glass of = volume Elongated glasses lessen general tendency to overpour, short glasses increase it Elongation bias is larger among children than for adults Experience reduces, but does not eliminate, elongation bias (bartender example) Findings might also apply to medications and OTC drugs: underpouring can be as dangerous as overdosing Positive aspect of overpouring: dehydration is a major health risk to athletes, soldiers, laborers, or rescue workers; undernourished young and old (good for parents, dieticians)

The Commons Dilemma + Gulf of Mexico "Dead Zone"

Thousands of farms are located along the Mississippi River. Fertilizers flow downriver and eventually enter the Gulf of Mexico, where they create conditions for a dead zone — a region of the ecosystem that can't support any living creatures. Everyone along the Mississippi River shares the waterway without considering how each small contribution of nutrient and chemical pollution adds up to have dramatic results. → bad outcome for all

The Pain of Paying -- Summary

Timing and method of payment affects enjoyment Increase pain of paying: -Use cash -Receive notification whenever money is spent -Increase salience (gas station vs. electricity) Decrease pain of paying: -Use credit cards -Keep payments hidden -Prepay before consumption (focus on enjoyment of experience)

Models of Attitudes

Tricomponent Attitude Model Multiattribute Attitude Model

Normative Model of JDM + Assumptions

Typical assumptions of rational choice models that are frequently violated: 1. Independence = adding option that no one chooses (irrelevant alternative) should not impact choice consumers make 2. Regularity = adding new alternative to existing choice set can't increase probability of choosing a member of original set 3. Similarity = new competitor in a choice set should draw more share from more similar alternative (take market share) 4. Maximization of utility = consumers are assumed to be rational, trying to get most value for their money (people do what's best for them)

Concrete

Use concrete terms that appeal to the senses so people will remember it better Can inject concreteness in marketing through product promise; brand's tagline/message; brand name Don't "dumb things down," but find a universal language that everybody understands → break things down from abstract to more concrete level

Stories

Use stories to communicate most important messages, and inspire people to act Challenge plot: David vs Goliath; underdog who faces insurmountable odds Connection plot: Bridging the gap; developing relationships with others from different backgrounds Creative plot: Eureka moment; solving problems in interesting and creative way

Changing Beliefs about Competitors' Brands

Verizon and AT&T maps Dunkin' and Starbucks Risk because you advertise competitors as well

Consumer Ethics + Wardrobing

Wardrobing is the practice of purchasing an item, using it, and then returning it to the store for a refund

Mental Accounting

We assign money to mental categories and spend it according to these categories → $ is mostly considered not fungible (treat as if you can't move it from account to account (can't use going out fund for rent fund)) Ticket example: lose a ticket ($100), perceived cost = $200; lose $100, perceived ticket cost is $100 Mental accounting is not optimal and leads to errors but it can be an adaptive strategy and allows us to partition our spending and make financial decisions more manageable → Try to optimize existing mental accounting techniques even if they are irrational

Relativity of Money

We think of money in relative, rather than absolute terms Problematic -- bank account doesn't care where savings come from (expensive camera vs pen and ability to save $8) Curve of diminishing returns -- smaller difference in psychological intensity with more expensive product and small savings

Step 4: Decision Strategies

Weighted Adding Strategy (WADD) = multiply each attribute's subjective value by its importance weight Lexicographic Strategy = alternative with best value on most important attribute is chosen Satisfizing = alternative gets rejected if it does not meet cutoff level for a certain attribute Elimination-by-Aspect (EBA) = alternative gets rejected if it does not meet cutoff level for most important attribute; process is repeated for second most important attribute etc. Equal Weight Strategy (EW) = value is obtained for each alternative by summing all attribute values for that option Confirming Dimensions Strategy (CD) = values of two alternatives are compared and one with majority of winning attributes wins Combination of strategies very common

Violations of Regularity -- Attraction Effect

When adding of an inferior brand to a consideration set increases the attractiveness of the dominant brand Choosing between 2 graduation trips, both are all-inclusive -- some people choose Paris, some choose Rome, but no clear majority. 3rd option-Rome no all-inclusive comes in, dominated by Rome all-inclusive, but not by Paris all inclusive: addition of Rome no all-inclusive increases the choice share of Rome all-inclusive, which dominates Paris all-inclusive now Violates regularity -- increases probability of choosing a member of original set -- puts in a better light

The Commons Dilemma Example

William Forster Lloyd (1833) & Garrett Hardin (1963) Example: Common grazing ground Each herder benefits from adding another cow (+1) Cost of each additional cow is divided over everyone (-1 cow / # of people sharing space) What does a utility rational maximizer do? What would you do? -- everyone concludes the same thing which leads to the tragedy of the commons

Cognitive Dissonance Example

Zappos trains potential customer service candidates for several days → upon finishing training, offer candidates up to $2,000 if they decide not to take job If you reject the $2,000, tell yourself: "I could have gotten $2,000, but I decided to work for Zappos. That means I must really like Zappos." You convince yourself that you enjoy going to work a lot, which leads to better work environment and customer service Retaining happy and motivated employees and eliminating the rest helps maintain quality customer service