In previous posts we discussed several cognitive biases you should know and use to increase conversion. Further more, understanding cognitive biases gives us a better understanding of our audience and what it is looking for.

 

What are cognitive biases?

Our brain is an amazing tool that is far more powerful than any computer currently available. However, amazing as it is it does have its limitations and obstacles. Quirks in our memory & calculation issues are 2 examples, but and another glitch our brain is subjected to is cognitive biases, those small “bugs” in our thinking patterns that cause us to make irrational decisions most of the time yet still have us believing we’re completely rational and thinking straight. To make is simple, Cognitive biases are tendencies of our brains to think in certain ways, they’re “unconscious” triggers that make different connections in our brain to help us make decisions that usually lead to systematic deviations from a standard of rationality or good judgment.

 

The Decoy effect

The cognitive bias we’ll be discussing today is The Decoy Effect, this cognitive bias happens when we’re presented with more than 2 options which causes us to prefer 1 option over another option simply because it looks better, even when it might be the exact same to the second option or a worst option.

To explain the decoy effect, let’s examine Skype’s pricing page and then the Economist’s pricing page:

You’re on Skype’s site, debating how much credit to get. $10 or $25 credit. Which suits you better? What would you choose?

Reasons for choosing either can vary, from the amount of credit you currently have, your usage of the product, your current cash balance and other reasons. there wouldn’t be one distinctive offer that stands out and looks better than the other.

What if you were presented with a third option? The decoy effect states that consumers will tend to have a specific change in preference between two options when also presented with a third option.

Demonstrating the decoy effect perfectly is the Economist who differently from Skype, has 3 options. This great example of the decoy effect was found by behavioral economics professor Dan Ariely. While searching the Economist’s site he came to their pricing page and discovered the following structure:

If you take a good look you’ll notice that the economist was offering 3 different pricing modules, 1 module cost $59 and consisted of the online version only, the other for $125 which was for the printed version and the last was the same price – $125 for both offline and online versions.

As we’ve pointed out in several occasions, we (humans) do not know what we want and make our decisions according to the context in front of us. Meaning, the way things are presented to us has a huge effect on our decision making. Our entire decisions in life are in relation to other things, or as professor Dan Ariely points out – we don’t even know what kind of job we want until we see, hear or know someone else who is doing something which we think we should be doing. We need lights to show us where to go and direct us in the right path.

According to the decoy effect, while presented with only 2 options (either printed or online) people need to think, and make a decision. Trying to decide whether we prefer one or the other can be an extremely hard task, and so offering the readers of the Economist a third “no-brainer” option was an easy way out and a clear solution – both print and online together seem a better solution. The majority of people today may have felt fine with getting just the online version (I know I would), and though most people would not have chosen the offline option by itself (more expensive and not immediate), when presented with the third option they prefered it – it was an easy choice to make – 2 for the price of 1.

 

Optimizing pricing pages using the decoy effect

 

Similar to landing pages which have a testing strategy, so should your pricing pages. Pricing pages optimization is an important part of the funnel, and there are many elements to take into consideration.

Considering the decoy effect, make sure you offer pricing plans or modules that don’t just stand alone, but actually compliment each other and lead the customer to purchase the plan you would like them to. Circling a preferable plan and writing “recommended” is nice, but not enough. Heloing your customers chose the right plan for them is a huge part of your conversion optimization.

Take a look at intercom’s (if you’re not using their product by now, you should be!) pricing page for example, the clear plan to be chosen is clear (marked in blue) but other than that, it makes it very hard on the user to distinguish, why the ‘standard’ plan is better than the lite.

On the other hand, one of my favorite examples for pricing pages in Mailchimp. There pricing page has a great way of segmenting you and helping you decide exactly what category you’re in and what to choose. No need to guess why one is better than the other, you just know right away why one option suits you more than another.

Other elements to consider on your pricing pages are – the call to action button, Analysis Paralysis (giving too many options), the prices themselves and of course the emotional triggers the pricing pages create. You can also check out our emotional color guide which will give you an insight into what emotions your pricing page’s colors are triggering.

 

AB testing pricing pages

The key to optimizing and AB testing pricing pages is similar to landing page testing: testing a strategy. Small changes such as different titles or a color of a call to action button can present some interesting results but will be very hard to learn from. Once you get the results you’ll know what worked better, but you won’t know why. The “why” is extremely important as it helps you learn and understand your customers better and allows you to optimize your funnel on a larger scale.

The decoy effect can help customers complete your funnel with ease and increase your paying customers. Find out more about other cognitive biases and emotional triggers that can increase your revenue:

1. Analysis paralysis – why your features are killing your conversion

2. Emotional Targeting  - Why, how and when.

3. Anchoring – The cognitive bias used by Steve Jobs to sell the iPad

4. Loss Aversion – why the world of free trials works

5. The endowment effect – the cognitive bias that attaches us to our stuff irrationally

How do your pricing pages look like? We’d love to see and hear about them!

Our decisions in life are irrational. Bold statement to make, and hard on most people to accept, but it’s true.

Half the time we have no idea what we want, and when we do it’s mostly to do with our surrounding environment and different cognitive biases. If you’ve been following the blog you’ll know we write many posts about irrational behavior and its effect on conversion optimization. In an earlier post I wrote about the effect neromarketing has on conversion optimization and this time I want to focus on one of the greatest “hacks” since the dawn of marketing – The endowment effect. These days social behavior scientist understand the psychological impact ownership has on us as humans and its tremendous affect on our decision making.

As marketers, understanding the endowment effect can lead to higher increase in customer success and revenues.

The endowment effect is a state of mind in which a consumer’s’ valuation of an object (any object) increases once they’ve taken ownership of it. Several studies have shown that the endowment effect is where “Loss Aversion” –  (the suffering from losing being stronger than the happiness of gains) begins.

 

What is the endowment effect?

Simply put, once we own something, we get used to owning it and we’ve adjusted to that ownership. Now we don’t want to give it up and we can only think about gaining or losing according to our ownership.

A famous experiment on the subject was conducted by professor Dan Ariely (my source of inspiration) exploring the endowment effect with mugs and chocolate bars. Splitting a group into half, they randomly gave 50% of the participants mugs, and 50% of the participants chocolate bars. The distribution was completely random and had no connection to the participants.

Once items were assigned to participants, the participants were asked how much they would be willing to sell their item for, and how much they would be willing to pay for the other item. The results were very interesting, both owners of mugs and owners of chocolate priced their item very expensively as they appreciated it much more than the other item, this resulted in the fact that almost no one agreed to switch their product. The principle of this experiment was that once people had taken ownership over their random mugs or candy, they were sure that their item was worth much more and were not willing to exchange it for a “normal” price.

 

Using the endowment effect to increase conversion

The moment you have ownership on any product you start evaluating it from that perspective, and thinking differently about what you’re going to lose and what you’re going to gain.

Our irrational behavior (in this case, the endowment effect) can easily be used to better understand our potential customers and increase conversion.

A few examples for using irrational behavior to increase conversion:

• Now you have it, now you don’t – The power of trial accounts. The idea that stands behind trial accounts is simple, first you have a product, you use it for a while and then you have to pay for it or you will lose it. Trial accounts are the precise example for the endowment effect. What to do?

  • Allow your potential customers to use your product for 30 days (for example)

  • During this time, send emails to these potential customers explaining the value of your product, giving tips and tutorials on how to use it to increase a sense of ownership. Don’t forget to remind them they only have x amount of days to enjoy it.

  • Towards the end of the trial period start offering special ‘one time’ offers to users in order to convert them into paying customers. (Check out: how to increase your click-through rate on your email campaigns)

 

• Warning, you are about to lose it – 90% (or more) of our decisions in life our irrational, which means that our behavior is mostly irrational and navigated by our subconscious. The art of exit pop ups or exit intent popups has been on the rise in the past year and is a simple way to catch your user’s eye before they leave your site/landing page. The exit popup usually includes text like in the popup example here. This is a popup we designed for our client which warns users that their work is about to be deleted and they will use all their information. – A quick way to trigger the endowment effect and keep users on the site. What to do?

  • Design an exit pop which is triggered by movement of mouse, this means that once the user moves their mouse outside of the site a pop up is triggered. While creating your exit popup remember that it’s really important to create a logical pattern that triggers the popup at the right time, poor execution of pop ups can lead to lower conversion rates and poor user experience,.

  • Think about the copy of this pop and what you want people to feel from it. you want to warn them or explain the results of leaving your site and enhance the feeling of loss of ownership.

 

• User Experience – Creating the connection – Creating the sense of ownership of your product is a science well performed by social media platforms. The most common ownership online today is our social profiles in which we have invested time and thought into creating the perfect avatar, posts, comments and more. We “own” our facebook profiles for example, and if someone told us to give up this online commodity we would feel a sense of “giving up” and letting go of something which is ours. infact it would be the endowment effect affecting our judgment. Personalization is the name of the game, the more accurate you are, the stronger bond you create between your product and customer, and the higher your conversion rate will be. What to do?

  • The user experience a customer goes through is extremely important. the more personal you are & the more the journey becomes an experience, the more the user develops a sense of ownership and relationship to the product.

  • Emailing is a wonderful way to create a personal connection (if done right), referring to people as YOU and I, builds a sense of relationship with the product.

Using the the endowment effect in your conversion optimization efforts can increases both psychological ownership of the product and positive reaction toward the product (relating to the product even more). Ownership is about creating a connection between your customer and your product, if you succeed in doing this, you’re on the highway to higher conversions.

So, are you irrationally attached to your stuff (maybe even meaningless/useless stuff)?