In the last post, we talked about choice architecture–how you can shape the decision-making environment to influence a prospect’s buying decisions.* But Predictably Irrational author Dan Ariely has found that we have some peculiar irrationalities when it comes to money too…
5 Logic-Defying Ways Your Prospects Think About Money
Opportunity cost. Even a first grader can tell you that $10 – $10 = $0. Once you spend that dollar, the opportunity to spend it on something else is gone.
But when researchers asked Toyota shoppers what buying a new car would mean they couldn’t buy, they were dumbfounded. The only answer they came up with was that they wouldn’t be able to buy a Honda. Um, if you were never planning to buy a Toyota AND a Honda, you aren’t really giving anything up, are you?!
The researchers were looking for how many vacations, dinners out, and so forth they’d have to give up to afford the car–things they actually planned to buy–or perhaps the free time they’d have to give up by working more.
Although we know money spent one place can’t be spent in another, it’s hard to make our minds actually go there and consider what we’re giving up.
Relativity. Cost is never absolute. While buying a $25k car, we’ll spend another $2,000 for the leather seat package without blinking an eye–yet claim the $2,000 leather upgrade for a $800 sofa is “too expensive”…even though we’ll spend far more time on the sofa.
On the other hand, we’ll be thrilled about the bargain price we found for our vacation…until the person next to us on the plane says they got the same vacation for less. The price we paid didn’t change, only our knowledge of whether there was a cheaper price out there.
Pain of paying. Many times, we’ll opt to use credit cards even when we have cash to pay for things like groceries and meals out (i.e. things there’s little chance you’ll return, we hope).
Why? Because we can just swipe our card and not think about how much we’re actually spending on that sweater or second guess if the uber-cool gadget is really worth that. It doesn’t really feel like we’re spending that money. But it’s totally different when you have to count out and hand over the cash.
Mental accounting. Once we allocate money to something in our mind, it’s stuck there and we don’t move it, even when it might make sense to. The most literal example of this is having a big savings account earning less than 2% interest while having three times that amount in credit card debt at 19%.
Logically, you’ll “earn” more by putting those savings toward paying down the debt. But we often don’t because the savings and debts are in separate mental buckets.
But we do this with spending too. Prospects say they don’t have the money to attend your seminar, yet book a vacation to Hawaii the next day. Obviously, they had the money. But in their mind, it was already allocated to the vacation. There was nothing left in the seminar bucket for you.
Fairness. We basically expect an item that costs more to be bigger, take longer or have higher fixed costs. And when it doesn’t, we feel gypped.
In other words, customers will happily pay the newbie locksmith $150 after he struggles to open the lock for hours, but balk at paying $150 to the old pro who opens it in a heartbeat…because it’s not “fair” to pay him so much for doing virtually nothing.
Nevermind that the pro’s skill and speed meant that they still made their meeting and landed a new customer that day or prevented their kids from being stranded in the rain for three hours and getting sick. (Again, because we have difficulty thinking in terms of opportunity costs!)
The bottom line is we tend to value visible effort more than the actual result.
Now here’s a quick test to give you some ideas about how to use these principles to improve your marketing and sales copy conversions…
Pop Quiz
Identify which of the money psychology principle(s) discussed above are being addressed in the copy snippets below, then click the link at the bottom of the post to see the answers…
- “If you put off this small $150 investment now, you could end up spending $1,500 to replace your entire air conditioning system in a few months…”
- “For just 60 cents a day—the cost of a cup of coffee—you can sponsor a child…”
- “Your investment in this seminar may be tax-deductible, please consult your accountant…”
- “You could spend 40 hours wrestling with writing your own sales page, or you can hire me…”
- “For today only, you can put it on the QVC EZ Pay plan for just 3 payments of $19.95…”
- “You can also use PayPal for payment by clicking here…”
- “Choose from the following subscription options: the Internet only version for $29, the print version for $99, or the Internet and print version for $99”
- “I’ll get your lock open in just 15 minutes—without scratching up your door–or my visit is free”
* Notice I said influence and not manipulate. The point is to help people overcome the obstacles to making the choices they really do want to make–not “trick” them into doing something they don’t want.
