BEHAVIORAL ECONOMICS – 10 FOUNDATIONS EVERY

RETAILER SHOULD KNOW.

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WHAT IS BEHAVIORAL ECONOMICS?

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Not Your average consumer….Even if they think they are.

11 MILLION BPS VS 40 BPS

$16 $1

$986 $971

WHAT IS THE DIFFERENCE?

• Spatula A = $16

• Spatula B = $1

•Difference of $15

• Television A = $986

• Television B = $971

•Difference of $15

FOUNDATION # 1

RELATIVITY

• Relativity is about value.

• Our brains are constantly making comparisons.

• However they are not always logical….

HOW DOES THIS APPLY TO RETAIL?

This is called Framing.

DON’T GET RID OF THE DECOY!

MORE RELATIVITY AND FRAMING.

RELATIVITY AND THE INTERNET…

• Price Referencing.

• This is why MAP is so important.

• Spatula vs. Dress example.

• We compare the relative advantage of local product vs. the alternative.

- This is why stock is so important, touching leads to perceived ownership (Later today).

TIME FOR ACTIVE PARTICIPATION

FOUNDATION # 2

ANCHORING & ADJUSTMENT

• When your subconscious brain doesn’t know the answer to something it takes a guess.

• An anchor # gives the brain a shortcut to something it doesn’t know a lot about.

• This is a form of priming (more on this later.)

• More Examples:

• Are there more or less than 10,000 Emperor Penguins in Anarctica? How many do you think?

• 595,000

• Are there more or less than 10 species of Octopus?

• Over 300

HOW DOES THIS APPLY TO RETAIL?

• Example:

• (A) - Buy 18 great to keep in your freezer for a later date.

• (B) - Buy them and keep in your freezer for a later date.

• Option (A) sold 38% more than option (B)

ANCHORS ARE POWERFUL!

Be careful of setting them too low!!

WOULD THESE HAVE BEEN BETTER?

• Lift chair sale 20% off

• All lift chairs under $2,500

• Large selection of models

• Chairs and prices to fit everyone.

WHAT ARE YOU ANCHORING TO?

WHAT ARE YOU ANCHORING TO?

• Knee Walker Package

• Elevating Leg Wedge

• Cup Holder

• Basket

• Fleece Pad Cover

• Easier to remove than add items.

• This triggers Loss aversion (later today).

FOUNDATION # 3

FREE IS GREATER THAN ZERO

• Marketers have tried to avoid the word “Free” as of late because they believe consumers have become immune to it.

• However, Free still holds a lot more power than “Zero Cost”.

EXAMPLE: TRUFFLES VS. KISSES

Lindor Truffle Hershey Kisses

EXAMPLE: TRUFFLES VS. KISSES

Experiment # 1

• 1 Truffle = $.16

• 1 Kisses = $.01

• Outcome

• 73% Truffle

• 27% Kisses

Experiment # 2

• 1 Truffle = $.15

• 1 Kisses = Free

• Outcome

• 69% Kiss

• 31% Truffle

HOW CAN THIS CONCEPT BENEFIT YOU?

What can you offer for free that will close a sale?

• Free delivery?

• Free Scooter cover?

• Free accessory on all mobility?

• Free Samples for Incontinence ?

• Free swag? (luggage tags, Key rings, koozies)

What are you already offering for free, but not listing as free?

• Free break adjustment on rollators?

• Free battery testing on mobility?

• Free assessment on all scooters and lift chairs?

• What Else.

FOUNDATION # 4

PERCEIVED OWNERSHIP

PEOPLE HOLD A HIGHER VALUE ON THEIR

STUFF VS OTHER STUFF.

SO HOW CAN THIS BIAS FOR THINGS PEOPLE

ALREADY OWN BE USED TO YOUR BENEFIT?

WELL THE TRUTH IS PEOPLE ONLY HAVE TO

PERCEIVE OWNERSHIP FOR THIS TO WORK.

WHERE IS THIS ALREADY BEING USED IN

OTHER INDUSTRIES?

WHERE ELSE?

SO WHERE DOES PERCEIVED OWNERSHIP

APPLY TO RETAIL DME?

What Else?

PERCEIVED OWNERSHIP

• This is why having a chair in Brisa is important

• Different size models.

• Different size scooters

• Handing out Incontinence samples

• Having Stander Displays in your store.

• Allow the Customer to take ownership of the product in their mind.

WHAT COMES TO MIND WHEN I SAY SHARK?

HOW ABOUT THE WORD COW?

AVAILABLE INFORMATION IN THE BRAIN MAY HAVE

YOU BELIEVE ONE THING ABOUT COWS AND

SHARKS, HOWEVER…..

• On average cows kill 22 people a year in the United States.

• Sharks however kill less than 1 person a year on average.

FOUNDATION # 5

AVAILABILITY

• Availability in essence in what comes to mind the easiest from information you have already received, regardless if that information is correct.

AVAILABILITY

• When the brain is posed with a question it doesn’t exactly know the answer to, it swaps the question for one it knows more readily…..pretty lazy really.

• Example: 24 x 86 =??

• Your brain may say, 24 x 100 = 2400 so maybe 2200.

• The brain also values personal experiences and stories over statistics.

• Keep this is mind when you are updating your social media page and your web page.

• Let customers know about all of those happy customers you have helped. Post all of those positive experiences. These will help people to connect to your company and have more readily available positive thoughts about what it is you do.

MORE EXAMPLES OF AVAILABILITY AT WORK

In 2014 Norway saw 10 times as many tourists as the year prior. Why

In 1997 Mars Bars Sells jumped unexpectedly. Can you guess why?

SO WHAT ARE SOME LOCAL EVENTS YOU CAN TRY

TO ATTACH YOURSELF TOO TO BOOST

AVAILABILITY?

What Else?

WHAT ARE SOME EXAMPLES OF

AVAILABILITY IN THE HME/DME WORLD?

FOUNDATION # 6

SCARCITY

MORE EXAMPLES OF SCARCITY

MORE EXAMPLES OF SCARCITY

• William Shatner’s Kidney Stone

Sold for $75,000 on ebay.

British Guiana Stamp

Sold for $11,500,000 at auction.

- Scarcity is tied to value

- Scarcity also ties into loss aversion (Later today.)

- Wrist watch ad study.

YOU CAN EVEN APPLY THE CONCEPT OF

AVAILABILITY TO SCARCITY. HUH?

@therealPSL

By using social media Starbucks has increased the availability of the PSL to potential customers.

HOW CAN YOU USE SCARCITY TO GROW

YOUR BUSINESS?

• This week only buy a scooter and get a free cover and cell phone holder!!

• Buy a rollator with a cane holder and ge 50% off of in stock canes!!

• Buy a floor model lift chair and get $50.00 store credit.

• This month only bring in your mobility device for free repairs (doesn’t include parts)!!

• What else could you do???

FOUNDATION # 7

DEFAULT

DEFAULTS

• Every choice has a default, usually it is to do nothing.

• This is called Status Quo bias.

• When faced with a decision several people choose to go with doing nothing.

• In business when you are presenting options it is CRITICAL that you consider what is the default, and what will be more likely to be chosen.

• This default option can be persuaded through herding.

PEOPLE LIKE IT WHEN THEY CHOOSE

POPULAR THINGS.

SO WHAT ARE SOME DEFAULTS YOU USE, OR

COULD USE IN A DME?

NUDGE YOUR CUSTOMER INTO THE RIGHT

DIRECTION.

• Your default product or suite of products should be a win win.

• Never eliminate the choice.

• Nudges:

• What do most other customers prefer?

• What is the top selling SKU in the country?

• What will you recommend first? Because its most likely what they will buy.

FOUNDATION # 8

PRIMING • Priming is everything the customer experiences leading up to the sale or attempted sale.

• Priming Can be done with numbers.

PRIMING CAN BE DONE WITH WORDS.

WHATS YOUR STORY?

PRIMING CAN BE DONE WITH WORDS.

WHATS YOUR STORY?

THE FIVE SENSES MATTER IN PRIMING

• Studies have proven that the smell of lemon in a restaurant increases the sale of seafood items.

• Also the smell of cleaning agents had more people cleaning up after themselves.

• Taste matters too. This is why major hotels put out cookies for you. The really smart ones give you fresh ones as you leave. This leaves a better impression when guests were asked to recall their experience.

• We have covered touch with perceived ownership being a prime.

• The sounds in the store, is there music playing, is it eerily quiet.

• Most importantly is SIGHT.

REAL QUICK LAST MINUTE ADDITION-

ON THE SUBJECT OF SIGHT -MIRROR NEURONS

• Most powerful when an action has context.

HOW DOES YOUR ATTITUDE AFFECT SALES?

The overall mood of a sales staff is a prime.

WHAT OTHER SIGHT RELATED PRIMES ARE

THERE?

• Your Store of course!

TIME FOR ACTIVE PARTICIPATION

FOUNDATION #9

LOSS AVERSION

DOUBLE THE GAIN TO OFFSET THE PAIN

• This is why you see more people post negative reviews then positive reviews.

FOUNDATION #10

OVERWHELM

CHOCOLATE CAKE STUDY

Participants assigned a 7 digit # Participants assigned a 2 digit #

65 % went for the cake. 70 % went for fruit salad.

EXPECT ERRORS

• Error # 1 – Too much information at once. Impossible to retain it all.

• Error # 2 – The inability to really focus in the moment because the brain can only devote so much.

• Error # 3 – Post completion error.

MANAGING THE BRAIN. KIND OF.

• Make lists.

• Showroom check list?

• Cleaning

• Literature

• Stock to be ordered

• Much less stressful once it is a habit.

• Do one thing at a time. Multi-tasking is a myth and a path to productive procrastination.

• Do you have a goal?

HELP MANAGE THE CUSTOMERS BRAIN.

• Good priming.

• Incorporate check ins and breathing points.

• Does the customer have a goal?

• You should ask. You are their trusted adviser, right.

• Write down things you and the customer discuss.

A QUICK REVIEW

1. Value is Relative

2. Set good Anchors

3. Free is greater than Zero

4. Perceived ownership is powerful

5. Make your store Available

6. Use Scarcity to your advantage

7. Set up default products and know them

8. Practice and set up good Priming.

9. Loss Aversion, Double the Gain to offset the pain.

10. Set up good habits to avoid being overwhelmed for you and your customers.

RESOURCES:

• “The Brainy Business Podcast” – Melina Palmer

• “Predictably Irrational” – Dan Ariely

• “Misbehaving” – Richard H. Thaler

• “Nudge” – Richard H. Thaler & Cass R. Sunstein

THANK YOU FOR YOUR TIME!!!