Applied Psychology

(c) 2016, Jeff Gilman The Center for Business Innovation

jeffgilman.com

Behavioral economics provides science based ways to increase marketing effectiveness.

About This Slide Deck• One of a series of case studies

• For business and non-profit organization people

• Designed to point out innovations

• And promote creative thought

• From JeffGilman.com

Who This Is For

• Owners, operators and managers of small businesses and non-profits seeking creative ways to gain a competitive advantage.

• People seeking innovations to apply to their own operations.

Who This Is NOT For

• People seeking a simple - one size fits all solution.

• People looking to get rich quick.

• People that want the ‘secret’ handed to them.

Why Listen To Jeff?• Started, bought, developed, sold several businesses. Consulted for several

non-profits.

• Big 6 consulting firm background.

• Experience in large and small business, non-profits, and government.

• MBA, BS Accounting

• In addition to the US, Jeff has worked in Pakistan, Barbados, Saudi Arabia, and other countries.

• Big picture.

• Seasoned and experienced.

• Former SCORE Mentor

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Business Science vs. Business Intuition

There are many perspectives and often disagreement on business problems. Some of this discord is because of honest difference of opinion - two people can look at the same facts and come to different conclusions.

Much disagreement is because people, driven by purely pecuniary interests, offer supposedly ‘common sense solutions’ as the key to business success. They promote their tonic as the cure all, be all, end all, for all ailments. Of course, most of this is nonsense. My response is, “there ain’t no free lunch.”

Occasionally one of their acolytes enjoys a success which is offered up as proof of their wizardry. However, in science, it is important to count the hits as well as the misses and that’s what separates business science from the mere promoters.

The Center for Business Innovation is committed to the science of business - to finding scientific proof of what works and what doesn’t so that entrepreneurs and business people of all levels of experience and abilities can enjoy the greatest possible chances for success.

Introduction

We live in a competitive world:

• lots of competition,

• near equal access to resources (same internet, same software, same technical support, similar retail space),

• often selling the same products,

• with great price pressures.

How does one firm stand out from another?

Behavioral economics is the study of how people make decisions.

Idea gained prominence when Dr Daniel Kahneman won the Nobel Prize for his research in 2002.

Key concept is that people are NOT rational decision makers. That is, people are influenced by things other than rationality including personal biases, emotion and so forth.

Thus it is important to communicate with people in ways that improve the likelihood of them accepting your message.

“A choice architect has the responsibility for organizing the context in which people make decisions.”

― Richard H. Thaler, Nudge: Improving Decisions About Health, Wealth, and Happiness

The ProblemGetting noticed

1. Differentiate ones’s self in a competitive world.

2. Inspiring action.

3. Get the sale before the other guy.

4. Build a brand.

Background: The need for results

The story begins with any business or organization, yours maybe.

And the need to more effectively convert people from prospects to fans.

An important way to do this is thru the tools of influence - that is - ways information is presented that make people most likely to accept it.

The techniques presented can be used, individually or in groups, in any form of communication.

Background: The problem with communications

Many of us believe that presenting the facts or sharing information is how information is exchanged or how people are made into customers or supporters.

This is not true.

People hate to think. The brain, contrary to popular opinion, does not like to analyze and parse information to see how it if of benefit.

The brain likes to exclude information and do as little as it can. Your brain is happiest when it is ignoring information out rather than gathering data and thinking about it.

Therefore, the brain has developed a set of rules - heuristics - to get thru the day.

These rules allow the brain to make fast, and generally good, decisions without wasting time or energy.

If these rules are understood, the communicator has a direct ‘feed’ into the brain and can by pass the filters designed to keep information out.

Principals of Influence6 heuristics the brain uses to make fast, effortless decisions

• Social proof - following the other guy. (Like mother said, ‘if everyone else jumped off a bridge would you too?’ Of course you would, that’s what everyone is doing.)

• Scarcity - the less there is of it the more valuable it is. (Don McClean, author of ‘Bye Bye American Pie’, sold his original manuscript for $1.2 million. But the photocopy, as an exact duplicate as anyone might need, is not worth 50 cents.)

• Reciprocity - I owe you. (Phrases such as ‘much obliged’ or ‘I’m beholden’ are part of our culture. There is a strong internal pressure to level the scale - to payback - to be a good person.)

• Consistency - humans strive to be consistent - to behave in a predictable fashion. (Research shows it’s easier for someone to take the second step after taking the first.)

• Authority - we obey authority figures. (Every con man knows dressing the part is half the battle. Dress like a banker and you are half way to getting an old lady to hand over her life savings.)

• Liking - we tend to do business with people we like and trust. (Politicians love to be photographed kissing babies because they know it makes them likable - and instant liking is more powerful than a 50 page position paper.)

Influence Is Based On• Research conducted by Dr. Robert Cialdini

• Regents' Professor Emeritus of Psychology and Marketing at Arizona State University

• He is best known for his 1984 book Influence: The Psychology of Persuasion. The book has sold over three million copies and has been translated into 30 languages. It was listed on the New York Times Business Best Seller List. Fortune Magazine lists the book in their "75 Smartest Business Books".

• His two other books, "Yes! 50 Scientifically Proven Ways to Be Persuasive" and "The Small BIG: Small changes that spark a big influence" were named a New York Times Bestseller and The Times Book of the year respectively.

Six Slides Depicting How Others Have Used The Principals Of

Influence To Connect

Examples taken mostly from web sites for illustrative purposes only. The same applies to billboards,

sales funnels, etc.

Social ProofAmazon and other leading web retailers have adopted the principal of social proof using:

• Ranking systems. • Best Seller tags • Reviews. • Counting the number of reviews. • Ordering the reviews in the sequence

others find ‘most helpful’. • The ‘verified’ purchase, seller, etc.

What they know is the buyer is not going to compare dozens or even a few other books to arrive at a buying decision. Rather, the buyer is going to take the path of least effort and silently say to herself, ‘what do other people think?’ and follow.

ScarcityeBay and others have adopted the principal of using scarcity to influence buying behavior:

• This eBay ad tells us there are only 3 available and 105 people are watching - waiting to beat us to the purchase.

• It also tells us how many people are looking at it per hour to increase the pressure on us to act and beat the other guy to the purchase.

What they know is the buyer is not motivated if supply is plentiful. However, the buyer can be spurred to action if they realize the supply is limited and they might miss out.

ReciprocityIt is human nature to feel ‘obliged’ if someone does us a service. Many marketers have adopted the principal of giving something first to get something later.

• Seth Godin, master marketer, has made giving ‘free stuff’ into an art. • Giving free stuff creates that feeling of obligation which can only be satisfied by

buying something from the giver.

Think of the musician that is giving her music away: how can that work out? Think of it like this:

She gives you a free song (in exchange for your email address). Later she sends you an email saying she will be in your city performing - please come see her.

Which show are you going to see? The one where the nice lady gave you free music (you liked) or someone else?

ConsistencyIt is human nature to try and behave in a consistent fashion.

• In one famous case, fire extinguisher salesmen visited homes in the guise of a public service to make sure you are safe. In the process, they get you to commit (state your believes about safety) and share some fire safety literature with you. They don’t try to sell anything on this visit. A week later someone else comes to make the sale by which time you are convinced you are the kind of person that buys fire extinguishers. You buy because your new self image is one of safe and prepared citizen.

• Call centers use this technique by asking, “How are you today?” and otherwise obliquely entering into the subject of the call. After you have answered a couple of questions, you will keep answering questions.

Dr Cialdini uses this technique on his web site. You have to click the “Learn More” button to get to the page with the video and then click again to launch the video. There is no reason not to put it on the more convenient first page except that he is creating in you the habit of clicking and that makes you more likely to keep on clicking.

AuthorityThe below is also taken from Dr Cialdini’s web site. Note that we don’t even know what the product or service is at this point - but he has communicated how good it is by the authority figures that trust him and refer him.

We don’t need to check out the competition or evaluate the alternatives with this sale: the authority of giant brands tell us we can trust this guy.

Liking One picture is worth a thousand position papers.

Remember• Excellent work is still important.

• Detailed explanations of the product still matter.

• However, the relationship is best formed when

• they like you,

• hear others say good things about you,

• have taken a first step with you,

• recognize your authority,

• are motivated by scarcity, and

• owe you one.

• Decisions are based on how one ‘feels’ about the facts, not necessarily the facts themselves.

Resources

Nudge - Dr Richard Thaler

Thinking Fast and Slow - Dr Daniel Kahneman

Influence - Dr Robert Cialdini

Summary• The world is a crowded place. Once upon a time there were

few of us and we knew each other. Once upon a time just making something or doing something was a challenge and enough to make the sale.

• Today, we have untold choices of who to buy from, where to buy, or what to buy.

• The decision process had moved from finding what we want to selecting from many alternatives to get what we want.

• One of the key ways to manage buyer behavior now are the principals of influence.

Recap

Principals of influence

• Social proof - following the other guy’s lead

• Scarcity - the less there is the more valuable we perceive it to be

• Reciprocity - I owe you one

• Consistency - it’s easy to take the second step after taking the first

• Authority - we obey authority figures

• Liking - we tend to do business with people we like and trust

Conclusion: Better Communication Is Inexpensive

• Of all the things one can do, studying consumer behavior better delivers the most bang for the buck.

Bigger, splashier ad campaigns

Successful new products and

locations

Details of daily business

Better (i.e., higher)

conversion rates

Better Technique Delivers More Results For Less Money

Results

Investment

MoreLess

Mor

eLe

ss

Focusing on how buyers make decisions is the least expensive and highest return activity sellers can under take.

The Innovation

Applying new knowledge - the psychology of decision making - to buyer behavior.

About Jeff Gilman

jeffgilman.com

Jeff is a multidisciplinary consultant that helps small businesses with coaching and developmental services.

There are just a few things that make a big difference to small organizations: better fundamentals and a clearer vision of how they create customers. Jeff helps with both.

The innovation series is devoted to demonstrating that opportunity is just one innovation away.

"There is no one better at listening and helping small business people sort thru their ideas and choices." - Tom Peric

“I love my talks with Jeff.” – Carajoy Nash

“My relationship with Jeff is very important to me.” – Willie Davis

“Jeff is a life time friend.” – Dale Brooks

Certified mentor, retired