Reconfigure Your Own Endowment Effect

With the increasing popularity of virtual goods, you would do well to rethink and reconfigure your endowment effect as a retailer.
     The “endowment effect” refers to people placing a higher value on objects they own than equivalent objects that they do not. Among other consumer behaviors, it helps explain why people resist selling used items at a price others will find attractive and why people hesitate tossing foods with an expiration date from last week when they wouldn’t eat the same food at a friend’s house if the expiration date has passed.
     The endowment effect is set off when the purchaser takes physical possession of the product. In a brick-and-mortar store, this often occurs before the customer pays for the product, as they grasp the product to place it in the shopping cart or as they carry it to the cash/wrap.
     With ecommerce—as with phone and mail orders—the purchase occurs before physical possession. Researchers at California State University-Sacramento found that when a direct marketing customer has confirmation of payment and shipment, there are signs of the endowment effect, but it is not at its strongest until the customer is holding the product.
     It’s natural to think about the customer experiencing the endowment effect and about it applying to physical goods. What about the retailer experiencing it, and what about virtual goods? Do you overvalue virtual goods? According to a recent StorefrontBacktalk article, it’s likely you’ll be called upon to set a value attractive to the customer for ebooks, ring tones, video games, rights to use cloud software, and other virtual goods from you.

• What, if anything, should you charge the purchaser for the rights to loan that virtual good to someone else?
• Should you consider the loan as allowing the other person to preview the virtual good and therefore become a potential customer? Should you reward the person doing the sharing, such as by giving them a discount on a subsequent purchase?
• What fee structure should you set for resale by the customer of virtual goods they’ve purchased from you? Unlike with physical goods—such as a hardcover book—the physical characteristics of the goods don’t suffer from being a used item. In fact, if you’ve provided upgrades of the virtual good, the value may be even greater at the time of resale.

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Purge Expired Products
Consider Having Resale Merchandise

Give Your Sales Pitches Changeups

One of the more surprising consumer research findings of the past couple of years was reported in an article titled, “Enhancing the Television Viewing Experience through Commercial Interruptions.” The University of California-San Diego, New York University, and Carnegie Mellon University researchers discovered that people give higher average ratings of TV programs when the programs include advertising breaks than when the programs don’t.
     Skeptical?

• Some consumer behavior researchers’ conclusions won’t make sense to you because they are actually error-filled nonsense. But before dismissing these findings about commercial breaks improving viewer enjoyment, ask yourself if you might have overlooked factors the researchers discovered.
• People are often bad at predicting their behavior when asked directly. Consumers say they’d enjoy programs more without ads. They pay for devices to eliminate ads and to see commercial-free programming. But this does not, in itself, mean that those people would rate programming with commercials as less enjoyable.
• Being a retailer, you’re probably more interested in how much people liked the commercials than how much they liked the TV programs. It’s the commercials that do the selling for you. How would liking the programming help bring in the money?

     Well, those who had the ads were willing to pay about 30% more for a DVD compilation of programs by the same director. Participants who watched a nature documentary with commercial breaks were willing to donate more to a nature charity after viewing. The enjoyment of the programming did translate into greater financial returns.
     The explanation: Interruptions increase enjoyment. It’s an example of what psychologists call habituation. Consider the massage therapy category of services retailing. Massage therapists report that the client generally likes the massage more when they’re rubbed for a while, pounded for a while, kneaded for a while, and then rubbed again than if there’s no change.
     The nature of habituation is related to age. The researchers found that commercial breaks improved the enjoyment more for younger than for older people.
     If you’re producing infomercials, deliver the pitch in brief segments with changeups, especially for younger audiences. The in-store version of the infomercial follows the same rules. When you do all the talking nonstop, you’ll lose the prospect’s attention, whether that prospect is a customer in your store or one of your employees you’re wanting to sell on a better way of increasing your business profitability.

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Sell More by Adding Variety

Fine-Tune Your Social Couponing

“Social couponing” is a promotion tactic in which a substantial discount is offered to consumers who are told the offer is activated only when a certain number of people sign up for it online. Restaurants, educational services, and salons/spas have been the most frequent users of social couponing.
     The logic of social couponing is that, even if the retailer loses money on each coupon transaction, users of the coupon will be working to get loads of their friends to give the retailer a try. The profitability from social couponing depends on convincing the right kinds of coupon users to come back soon and often.
     Rice University researchers report that about 40% of retailers who have used social couponing during the past year say they would not do it again. The major complaints were that coupon users too often failed to buy anything beyond the face value of the coupon on their visit and/or didn’t come back to make a purchase at regular prices.
     Still, this leaves the majority who said their results were positive enough that they might give social couponing a try in the future. Here are shopper psychology tips on fine-tuning social couponing so that you profit:

• Establish reasonable expectations. Social couponing draws bargain hunters. If discount prices are a marketing point for your store, fine. If your criterion of success is that people spend more than the face value of the coupon, make that a condition of the coupon use.
• On the bill you present, state the discounted price, but state the undiscounted price more prominently. There are a few reasons for this: It builds appreciation in the customer for the value they’ve received. It reduces expectations that the service they’ve received is worth less than the price you’ll expect them to pay next time they come. And in a restaurant or spa, it encourages the customer to give a tip based on the undiscounted price. This keeps your staff supportive of the coupon program. In turn, supportive staff make the coupon redeemer’s experience memorable so they’ll want to return and bring along other people.
• Be sure your services to your current customers aren’t compromised by services to the coupon customers. Tell your current customers about the coupon offer and encourage them to enroll online for their next visit. Have sufficient staff, which often means increasing your staffing.

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Keep Discount Conditions Strict Enough
Customize Your Discount Coupons
Give Coupons Early and Proudly
Offer Exclusive Price Discounts Cautiously
Have Unannounced Discounts on Common Purchases

Help People Pass the Time

A university professor and a health care researcher found that many people like to shop mostly to pass the time.
     This finding seems too obvious to justify a research study. But the details do lead to valuable ideas for retailers, in my opinion.
     The researchers—from London’s Imperial College Business School and Toronto’s Sunnybrook Health Sciences Centre—surveyed more than 3,000 visitors and outpatients at a total of seven hospitals. About 70% of their respondents said that retail businesses in a hospital added great value to the consumers’ experiences under difficult circumstances. Around the same percentage said that a retailer’s presence at a hospital would make it more likely they’d purchase from that business at another location and speak positively to others about the retailer.
     What types of stores did the visitors and patients want? The types of places you could browse in: Clothing, electronics, bookstores. Hairdressers, where you can let yourself go and primp yourself up. Banks and grocery stores, where you can pass the time without feeling you’re wasting time.
     Researchers at Envirosell report finding the same sorts of desires for retail stores among airport visitors, and again with the same motivation: To pass the time in an interesting way in a setting that could otherwise be uncomfortable.
     Here are a few tips to build good will for the store’s brand name:

• Offer the consumer options for when to complete the purchase. This gives a sense of control that can in itself ease stress. If the customer who is told, “I can check out your purchases over here,” responds with, “I can wait,” the store staff response should be an understanding nod rather than a puzzled or irritated look.
• Graciously answer the same questions more than once. Some people deal with their anxiety by seeking more information or developing a plan for making a purchase. However, if the questioning seems to become a never-ending waste of your time, say, “You might want to think about it some more on your own and then get back to me.”
• Be ready for delay to become sudden action. Some people shiver at the side of the pool and then suddenly grit their teeth, think a happy thought, and jump into the freezing water. When that happens, let your customer quickly get into the swim and get it over with.

For your profitability: Sell Well: What Really Moves Your Shoppers

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Help Customers Buy Unpleasant Necessities

Collect Collectors

In the psychiatric literature, there’s a case of a man who owned over 2,000 wrenches and was continually alert to find new wrenches. He was labeled as mentally ill, in part because he never used any of the wrenches as hand tools. He’d take them out, look at them, feel them, show the wrenches to others, and then put them away.
     Suppose I said this guy owned 2,000 paintings. He enjoyed looking at the paintings and showing them to others. Wouldn’t you agree that as long as he pays his bills, this is okay? As a psychologist, I’m ready to say that the man with the wrenches may not be mentally ill at all.
     Actually, if I ran a store with a hand tool department, I could learn to love this guy. I might ask him to recruit a group of his buddies to form a “wrench-of-the-month” club. I’d spring for the refreshments if they’d hold the meetings at my store.
     Let’s encourage our customers to be collectors. Here are three research-based motivations we can use:

• Fantasy identification. More people will be interested in collecting figurines, bells, or dolls than wrenches. Researchers at University of Minnesota, University of Arizona, and Notre Dame University found that collectors often view each item in their collection as a fantasy image of themselves. Past research suggested that adults developmentally outgrow the appeal of fantasy. However, the popularity of fantasy football leagues, the Home Shopping Network, and Internet pornography would seem to prove those research findings incomplete. In selling collectibles, give each item a personality the customer wants.
• Reminders of experiences. University of Minnesota researchers pointed out how some items in a collection gain special importance because of the wealth of the owner’s personal experiences that have become associated with the items. Even an exact replica of a lost or broken item wouldn’t be a sufficient replacement. Before offering a new item in a collectible series, ask the customer to tell you their experiences with the items they’ve had.
• Sense of completeness. University of Nebraska-Lincoln research found that as children approach age 11, their desire to have complete collections grows. In most adults up through middle age, the urge for completeness often comes to play less of a role in purchasing behavior. To sell to the adult collector, you might want to redefine what constitutes a complete collection.

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Ethically Develop Kids into Collectors
Meet Customers’ Desires for Nostalgia
Suggest Nostalgic Items to Lonely Shoppers
Offer Family-Oriented Experiences

Loosen Up Shoppers to Reveal Flaws

People shop to correct shortcomings. When somebody admits to a flaw, there’s the opportunity to make a sale. So how do we make it more likely that our shoppers will drop the defensiveness?
     What would work if you were the customer? Please think now of a flaw you have that would make it more likely you’d purchase something sold in your store. Some shortcoming you admit you have, but don’t talk about to everybody, maybe because it’s embarrassing.
     Got that personal flaw in mind? Okay, read on.
     Suppose you’re shopping on my ecommerce site for the first time. I present you with a questionnaire saying I’d like to get to know more about you so I can better meet your needs. An item on the questionnaire asks specifically about that flaw.
     The question is the same on both versions of the questionnaire. Yes, there are two versions. On one version, the website header has the store logo on the left and on the right reads, “Survey on Strengths & Weaknesses” in a professional black font. On the other version of the questionnaire, the website header has on the left a cartoon devil logo and on the right reads, “How BAD Are U???” in a bright red font.
     On which of those two would you be more likely to admit to a flaw? The questionnaire with the professional look or the one with the very casual look? Please make your pick and then read on. (I realize the title of this posting could be a spoiler. You couldn’t help looking back at the title, could you? But if that’s your biggest flaw, you’re fine.)
     Researchers at Carnegie Mellon University explored this issue of people revealing their shortcomings. What did they find? If you are like most of the people who were in that study, you’d be more likely to admit to your flaw when the questionnaire is casual.
     With our shoppers, elicit information about flaws by loosening them up. We don’t want to leave the impression of an unprofessional business, though. In some retail settings, the “How BAD Are U???” approach works fine, but in other settings with other sorts of customer expectations, you’ll want to use techniques like gentle humor and casual conversation to do the loosening.
     Then once the flaw is revealed, promptly move toward the sale by describing the remedy you can provide.

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Personalize by Respecting Privacy Concerns