3 Benefits of Paid Media for Small Businesses

I was recently asked a very simple question that surprisingly made me stop and think. The question asked was “how can you convince an SMB client that paid media is right for them.” It’s one of those questions that seems so obvious that putting together a structured answer is almost difficult. I first answered the question with “well, it depends what the client is selling and what their goals are” – which is a true PPC answer to the core. However, it got my wheels turning and I realized that for those not in the business of paid media or marketing that it does seem confusing and maybe overwhelming. All businesses can benefit from paid media. In fact, small businesses oftentimes benefit the most with the right account structure in place. With small business owners, their time and resources are very limited and it can be difficult for them to find time to understand how paid media works and how they can benefit from using it. Today’s blog will be focusing on just that as I highlight three benefits of paid media and how to utilize it to improve your business.

 

  • Exposure

As a marketer, I like to think of the internet in terms of real estate. There are many roads that can lead a searcher to a destination –  and much like the real world it is full of competition. Take an e-commerce business for example: for a business that only operates online, not using paid media is the equivalent of having a nice restaurant located in a sketchy ally way. Without any signs leading hungry customers to the restaurant, it will barely be discovered. Sure maybe a few people will stumble across it, but wishful thinking does not generate revenue. You need illuminated signs that will attract those customers and relevant information that will lead them into a seat at your restaurant. In the online realm, paid media is the illuminating sign that leads consumers to your website. No matter the size of your business, there are many different ways to utilize paid media to target your consumer base.

Acura ILX Showcase-23

Taking advantage of the the search network, for example, to target people searching for your products is a sure way to increase your reach to an audience with purchase intent. In fact, 87% of people in need first turn to search before anything else and in 2016 70% of consumers who purchased an item in-store first searched for information about the product online. If you are not aligned with your consumers when they turn to search, it is likely that your competition will be. It is crucial that you make it easy for consumers to find the right information to fulfill their needs/wants when searching for a product that you offer. Creating and optimizing search ads is a great way to assure that consumers turning to search see what you have to offer along with your value proposition. Consumers who click on your search ads are 25% more likely to make a purchase when visiting your store and on average spend 10% more. Make it easy for your customers to find you online and in turn they will make it easy for you to see the benefit of paid search.

 

  • Control

While paid media and advertising in general have many benefits, conversions are still king. Whether it be through an immediate call to action approach or a long term approach that eventually leads to a sale, businesses spend money on advertising to turn a profit. With paid media, you can control your budget and gather data to best optimize your ads. In the early stages after you launch your first paid media campaign, it will be unclear which strategy will perform best…so give it time. After running your campaign for several weeks you can then gauge what is performing and what is not and adjust your budget accordingly. No matter the goals of your business, there are ways to customize your campaigns to meet them. Whether that be focusing on Return On Ad Spend (ROAS) to assure you’re meeting your ROI goals or if your  intent is to drive customers into your physical store, there is a campaign for you. Unlike traditional advertising, you can easily take the reins behind your campaigns to assure you are hitting your KPIs and growing your business.

 

  • Results

Structuring your paid media account and creating the actual ads to be seen can indeed be a fun challenge for those up to it. However, at the end of the day everyone wants to see results…to taste the fruit of their labor. One of the greatest benefits of paid media is the ability to gather rich data from your campaigns that tells the full story of where you are finding success and where you are having trouble. Using platforms like Google Analytics to track and measure your campaigns, you can gain insights to crucial aspects of your consumer’s journey. You can track everything from where your consumer entered the sales funnel to where they exited. You can track how they navigated through your website after clicking your ad and see on a micro level what pain points your website may have that is preventing you from converting sales. Such information can assist you in making changes to your search campaigns to assure every dollar of ad spend is optimal towards your goals.

 

Paid media has tons of benefits and can really help give your business a platform to succeed – especially If you are an entrepreneur or SMB owner. I will be covering more on this topic and deep diving into each aspect of paid media and how you can utilize it in posts to come. Make sure you don’t miss a post by clicking that follow button located below and stay tuned for more matter.

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A Brand’s Life

Throughout time there has been one major element that has connected us as human beings. Through evolution and adapting to the climates, as far back as we know this element has kept the human journey alive. It is what makes us who we are, it creates our identity. The element I speak of is the power of story. Stories have been the backbone to human civilization dating all the way back to the Epic of Gilgamesh. Most all art is an expression that tells a story. From music to fine art, to photography to design all forms of art capture a moment in time that will tell a story for as long as it exists. We learn through stories of history and create new stories with our imaginations. Most of us live our lives dedicated to a story through religion and worship.

By now you get the point, the power of story is an immortal element that will forever be in the forefront of human society. Much like humans, all successful brands have their unique story. Let’s take Guinness beer for example.

During the transition period from brewing their beer in wooden casks to brewing their beer in metal casks, Guinness drinkers were not fond of this new change. The metal casks were topped with a new nitrogen induced formula with the purpose of providing a better head to top off the stout. This new method of brewing Guinness came with a huge side effect. Due to the nitrogen, the beer had to sit for 1 minute and 35 seconds before the bubbles would form a nice foam head and the beer could be served. That left the Guinness drinkers at the bar waiting for a minute and half while watching their beer just sit there. With backlash from their consumers, Guinness had to think quick before their brand was tarnished. What came next is one of the best marketing campaigns to date. Guinness accepted their “flaw” and made it part of their brand story. They introduced the Guinness Two Part Pour, referring to the two steps it took in pouring the perfect Guinness. Step one was to pour the beer, step two was to wait the minute and a half. They followed this with an advertising campaign with the tagline “good things come to those who wait.”

 

 

The campaign was a hit and suddenly people did not mind waiting on their Guinness, they actually enjoyed it. Guinness has since built on this campaign and most of their online ads today are a respective 1 minute and 35 seconds long. Guinness found a way to offer more than a stout infused with nitrogen to their consumers, they provided them with an experience.

Having a story behind a brand is the key to success and can be the backbone behind the entire organization, however, it is equally important to stick to that story. Oftentimes brands look to restructure and redefine themselves in an attempt to increase sales and tap into new markets. While this can be done if the brand remains true to their core values, most of the time it strays from the story that it’s loyal consumers know and love. Let’s take LEGO for example.

lego fiber optic set

 

In the late 1990’s in an effort to make their toys more intricate to compete with other toy manufactures, LEGO introduced a new series of toys and totally rebranded themselves. LEGO had long been known as the simple building blocks that children and adults alike could use to create whatever their imagination allowed them to. It was a very simple design and LEGO was a staple in the toy industry. Their plan to rebrand completely backfired causing them to lose $300 Million in one year. While creating new innovative toy designs may have seemed like a good idea on paper, it did not go over well with the children who happen to be LEGO’s target audience. In 2004, LEGO found a new CEO in Jordan Vig Knudstorp. Knudstorp had a new strategy, ask the kids what they wanted. After focus groups and interviews with their target audience, LEGO rediscovered what made them successful from the beginning. Kids want to build; kids want to create. In 2006 from the efforts of ad agency Blattner Brunner, LEGO introduced a new campaign targeted towards kids titled “Imagine.”

lego-imagine

 LEGO found out the hard way the importance of knowing your target market and allowing your brand story to develop naturally.

An issue with today’s brands is just that. Today we are in a digital era where it has never been easier to communicate with your consumers. Through social media, big and small data, and other platforms, brands have a clear window into who their consumers are. The issue is that most brands fail to fight inertia.  They are so used to traditional methods of advertising that they fail to properly adapt to the climate. Advertising is no longer one-way messaging or broadcasts. Successful advertising today is creating a dialogue with consumers and allowing them to tell your story. This is especially true for new brands or small businesses. It is important that a brand create core values and stick to them, no matter the circumstance. Allowing your consumers to experience your brand and become part of the story is a guaranteed way to create brand loyalty. Airbnb does an amazing job doing this by allowing their hosts and consumers to tell their story through short videos and blog posts and sharing them on their site.

A success story using this method is Pabst Blue Ribbon (PBR). In 2001 PBR was on the verge of bankruptcy. They could not afford traditional advertising and were desperate to fix their branding. PBR hired Fizz, an Atlanta based marketing agency to help gain some insights on how PBR could turn things around. Fizz began by finding the consumers that still drank PBR and personally reaching out to them for an interview. They found that the reason these consumers remained loyal to PBR was because they had never seen an advertisement for them. Fizz quickly realized that PBR’s target market was filled with what we may call hipsters or those who tend to go against the grain. Fizz suggested that PBR get in touch with like consumers and since PBR has hosted random events like art shows and skateboarding events in Portland, Pittsburgh, Atlanta, and other cities. Today PBR is a billion-dollar company that has yet partake in any traditional advertising.

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The moral of the story is to know your consumers, know their preference, talk to them, interact with them, let them tell your story. The life of a Brand is much like that of a human. Life is a journey and in every journey there are setbacks and adversity. Instead of letting adversity discourage you from continuing a path, embrace it. There are many paths we can take in life, and we are bound to end up on a wrong one. Instead of feeling lost, pivot and get back on course. Most importantly, know who you are. Know your core values and stick to them no matter the competition or pressure you are facing. If you do, you will attract the right people. You will find longevity. You will find your story.

 

What brands are you loyal to and why? Has a brand ever made you feel like part of their journey? Join the discussion in the comment section below and share with your peers. For more matter, hit that follow button.

How Smell Persuades You to Buy

It’s your day off and you decide to treat yourself to a new shirt/top. After having your morning coffee, you hop in your car and head towards the nearest mall. You’re cruising along when you see one of the most dreaded sights known to man; brake lights. Your heart rate almost immediately skyrockets as you know what the next 30 minutes entail. After playing the real life version of red light, green light (sidenote: notice how our favorite childhood games are all things we now despise doing.) you are almost at your destination. As you pull into the mall the real fun now begins and you get to look for a parking space. After driving around for 15 minutes and refusing to park in the parking garage for whatever reason, you find yourself at the valet (tip your valet by the way.) Paying $10 for parking was the straw that broke the camel’s back and you are extremely frustrated. What you hoped to be a relaxing outing has turned into a big cloud of stress. You walk into your favorite department store and almost immediately begin to feel calm. You can’t place a finger on it, but something about the aura of the store is soothing to you. As you come to a cool state, you begin browsing the store and grabbing multiple items to try on. As you try on the clothes you picked out you become a virtual owner of the products, almost all of them look amazing on you and you cannot bring yourself to choose just one item. As you go to retrieve your car from valet, you feel good about your purchases even though you only came to buy a single shirt and walked away with five.

So what about the aura of the store calmed you? Was it the displays that the store’s creative team spent hours upon hours on creating? Was it the lighting that made your heart rate come to a resting level? Oh I know, it had to be to kind sales woman that said hello to you and made you feel welcomed. While all of the factors stated may play a tiny role into grabbing your attention and giving you a warm welcome, none of them have quite the power to persuade you to purchase five items when you intended on buying one. The x factor in this scenario and the reason you had a sense of calm come over you was due to the scent being pumped throughout the store from a unit in their air conditioning system.

That’s right, many successful stores actually pump scents through their vents in order to add an additional element to your shopping experience. This marketing technique is called Ambient Scenting and is used in many different products including makeup, new cars, even the baby section of certain stores. Ambient scenting falls under the Sensory Branding umbrella along with other techniques including color in brands. We all know that most fast food restaurants sport red logos. In theory, the color red increases our heart rates and excites us to eat at their restaurant. Think of your favorite fast food joint, I bet their logo has red in it.

The most popular scent in America is vanilla. In fact, a study was conducted by Eric Spangenberg, a consumer psychologist and dean of the college of business at Washington State University, on scent marketing at a particular women’s clothing store. The study found that when vanilla scent is present in the store, sales doubled. So why is this? How can the scent of vanilla make you want to purchase more items? As the rule of thumb in psychology states; correlation is not causation. Thus meaning that the smell of vanilla alone is correlated with the increase in sales, but it does not directly cause the increase in sales. So what about vanilla attributes to increased purchase behavior?

As Pam Scholder, marketing professor at Georgia State University, says

“All of our other senses, you think before you respond, but with scent, your brain responds before you think.”

When we smell a familiar scent, it activates the limbic system in our brain which controls memory, emotion, and the sense of security. When we are infants, we encounter the scent of vanilla often. From our Johnson & Johnson baby powder to our mother’s breastmilk, vanilla is commonly present. Most of our earliest memories contain the scent of vanilla as our mother changed our diapers and coated our bottoms with baby powder, fed us her breast milk, and smothered us in vanilla scented lotions. As a baby, our mothers calmed us from crying and gave us a sense of security. While we may not cognitively remember being an infant, our brain remembers the emotions we felt and the associations we created. So when you walked into that department store frustrated and angry at the world, the scent of vanilla being pumped throughout the store had the same effect on you as it did when you were an infant. You felt calm and secure and suddenly you trusted the department store. Once the store has your trust you are willing to purchase more from that store and you begin forming a long time association of trust thus leading to customer loyalty.

Powerful stuff, huh?

A study conducted by Martin Lindstrom, author of the book buy-ology found that while the power of scent is powerful on its own, combined with a matching image it becomes even more powerful. Lindstrom was one of the first researchers to use fMRI brain scanning during studies. He did so to find out “the truth and lies about why we buy.” When interviewed about a product, we are prone to lying without even realizing it. Monitoring brain activity during research studies was a sure way to see how we react to various things when making decisions. A particular study he did was to show participants images on a slide and pump in a scent that either matched the image or had no association. The study found that when the scent and image matched, the participant rated the slide very pleasant and when they did not the participant almost always rated the image as unpleasant or very unpleasant. For example: when an image of a fish fillet sandwich was presented along with the smell of lemon, the participants rated the image as very pleasant. If an image of a cup of coffee was presented along with the smell of hand soap, the participants would rate the image as very unpleasant.

Companies like ScentAir specialize in creating scents for their clients to increase their customer experience. Their website is filled with data on scent marketing and there is even a scrolling quote wall with various facts about our sense of smell including “Tests show a 40% increase in our mood when exposed to pleasant fragrance.” ScentAir has a very impressive client list ranging from Bloomingdales to Lexus to Coca-Cola.

Lexus? You might be wondering. That’s right. Don’t you just love the smell of US7770817 B2?

Oh you might know it as the “new car smell.” Car manufacturers are even creating an experience through smell by pumping the new car smell through your cars air conditioning vents. Many companies are on board with these tactics. Ever been pumping gas at a 7Eleven or other gas station and got a big whiff of coffee? Well that is because the scent is being pumped out into the parking lot. I’m sure you love the smell of RTX9338PJS. That’s the code for the scent “just cooked bacon cheeseburger” and is used in many of your favorite fast food restaurants to increase your appetite. I could go on and on but you get the point. When we smell certain scents, our memories are activated and we can almost see an image of what we are smelling. One small smell of Abercrombie & Fitch’s signature cologne and you can picture the dimly lit store and it’s ripped denim.

 

Sensory Branding is a powerful tool used by brands and is an ingenious way to embed their products into your memory. What scents do you smell and instantly think of a brand or product? How do you feel about Ambient Scenting or scent marketing? Leave your thoughts in the comment section below and pass this article along to your friends.

The Sunk Cost Fallacy in 2017

It’s Friday night and you and your significant other are planning to have your weekly date night. You bought tickets yesterday to see the latest drama at your favorite movie theater so you could get the seats that you wanted. All day you are looking forward to seeing the movie and you have seen at least 50 commercials promoting the thing. Your coworker Dave asks what you are up to later that night and you tell him the movie you plan to see. “Ah that movie stunk.” Dave replies. “You and your girlfriend should come out with us tonight for drinks.” Disappointed in Dave’s review of the movie, you are intrigued by his invitation and would love to go out for drinks. The only problem is, you already bought the tickets for the movie tonight. “It would be a waste not to go see this movie now” you tell yourself and you respectfully decline Dave’s offer. As the night approaches and you and your date head to the movies you mention to her that Dave from work invited you two out for drinks. She loves the idea but agrees that it would be a waste not to see the movie you paid for. Halfway through the movie you are tuned out and agree with Dave’s two-thumbs down review. As you sit there you wonder if you still have time to catch Dave at the bar. You quickly dismiss those thoughts with a “nah I have to finish this movie, I paid for it.” The movie ends and you wake up your date to leave the theater. Bummed, you can’t help but feel like you missed out on a fun opportunity.

We so often fall into this trap. We feel if we have already spent money on something or invested time into something that we have to continue doing it even if we don’t enjoy it. This is called the Sunk Cost Fallacy.

In economics, a sunk cost is defined as a cost including time and money that has already been incurred and cannot be recovered. Economists see sunk costs as neither a “fixed cost” nor a “variable cost” and do not consider sunk costs when evaluating an investment decision. While this may be seen as efficient in circumstances for a business, for an individual it is not wise to treat sunk costs this way.

As humans we thrive off of emotions. As mentioned in my previous article every decision we make has an opportunity cost. This opportunity cost often times becomes ignored when a sunk cost is introduced. Behavioral economists Amos Tversky and Daniel Kahneman covered the sunk cost fallacy in their book “Thinking Fast and Slow.” Khaneman stated that every decision we make involves a degree of uncertainty about the future. Our brains combat the uncertainty with their very own automation system for how to proceed when a potential for loss emerges. Loss aversion, which was also covered in my previous article, is our human tendency to avoid losses even at the cost of gains. Losing something hurts us twice as much as gaining something makes us feel good. Khaneman continues by saying that organisms that place higher urgency on avoiding losses as opposed to maximizing opportunities are more likely to pass on their genes. Thus overtime loss aversion has become a more powerful motivator than opportunities for gains.

So how does the sunk cost fallacy look in 2017? Let’s take a look at the all familiar Starbucks app.

 

starbucks-app

 

Starbucks is well aware of your behavior and knows how the sunk cost fallacy works. Have you ever used their app and wished you could just pay through the app for the amount that you owed in that single transaction without having to load a minimum of $10 onto the app first? Well, there is a reason Starbucks wants you to add money to the app. They even encourage you to use their auto-reload feature that will reload a desired amount of money onto your card once your balance falls below a certain amount. So why is this beneficial to them? They know that once you have uploaded the money onto the app, you will treat it as a sunk cost. Sure you pass that new, hip coffee shop every day that you have been wanting to try but then you remember that you have $20 uploaded into your Starbucks app. This keeps you from trying that new coffee spot and ensures that you come back to Starbucks. If that wasn’t enough to keep you coming back, they have their gold star program that reminds you of the time you have invested into your lifespan as a loyal Starbucks customer. You just can’t wait to be promoted to a gold level account so you continue uploading money to your account.

This same concept is being utilized by many companies through their loyalty programs all in attempt to make you a repeat customer. What are some companies that you can think of that has a similar program set up? Share a story of a time you have fallen victim to the sunk cost fallacy below in the comments.

We all fall victim to the sunk cost fallacy so don’t feel defeated. However, next time you catch yourself in a situation where you are doing something simply because you have invested the time and/or money, take a step back and evaluate your alternatives along with your happiness level.

The Benefit of Letting Go

In my previous article The Cost of Ownership (which I highly recommend reading prior to reading this article) I discussed the cost of ownership. Sure you pay an explicit price to acquire something, but there are ambiguous costs to everything. The costs I am referring to are opportunity costs. As mentioned in my last post, we all suffer from three factors that prevent us from letting go. Those factors include: status quo bias, the endowment effect, and mere ownership.  In summary, we are bias towards maintaining our current state when presented with other options, we overvalue our possessions more than others simply because they’re ours, and by simply touching something we feel a sense of ownership towards it. Anyone who has taken a basic economic course knows what opportunity costs are. An opportunity cost is the benefit or gain that we give up when we make a decision. It is what you must forgo in order to obtain something. For example; if you decide to spend your bonus on a vacation instead of buying new furniture, the opportunity cost is the joy that having new furniture in your home would bring you. While we often weigh the benefit of two alternatives when making a decision, we don’t always account for the underlining costs. The vacation you took will provide you with fond memories for the rest of your life while the furniture will bring you joy for about 10 years. The true underlining cost is our tendency to overvalue possessions. While it is ok to value a memory or an experience, it is not beneficial to objectify that value into a product. When it comes time for us to sell the furniture we bought, we will more than likely place a price tag on it that is well beyond it’s true worth. This provides us with a new opportunity cost that is so often overlooked or not thought about at all. The opportunity cost of obtaining something is easy to gauge, however, the opportunity cost of holding on to something is rarely analyzed in a cognitive state. In this article, I will help bring to light some key factors that will benefit you in the process of letting go.

In the world of economics there is a theory called the Law of Diminishing Marginal Utility. This theory states that as a person increases consumption of a product, while keeping consumption of other products the same, there is a decline in marginal utility that a person gains from consuming each additional unit. To break it down, the more you consume a product the less satisfied you will become with each additional use of that product. Say you and a few friends go out for dinner at your favorite sports bar. You are absolutely starving and this place has the best hot wings in town. The waiter comes to take your order and without hesitation you order 20 wings for yourself. Your friends all laugh at you and tell you that your eyes are bigger than your stomach, but you haven’t eaten all day and are sure you can eat all 20 wings with no problem. The waiter brings your wings and your mouth instantly begins to water as you smell the hot sauce that’s smothering the chicken. The first wing you eat is the best wing you have ever had. This wing is the optimal utility because you gain the most joy from it. The second wing is great, almost as good as the first. Each wing you eat you become more and more full. By the 10th wing you are no longer hungry but decide to continue eating. Each wing you eat from this point on will present you with negative utility. It no longer brings you joy to eat them and after 13 wings you begin to feel sick and bloated. The ideal serving size for you would have been 10 wings. This is because you still gained utility with each wing until after the 10th when you began to have a negative experience.

This same concept should apply to everything you own. Once you have maximized the utility of the product and it no longer brings you joy or serves a purpose, it is time to move on and let go. This is a rule that minimalist live by and a rule that brings them optimal utility of everything they own. While I’m not asking you to become a minimalist, I am suggesting that you re-evaluate everything in your life. We all have our daily routines that we carry out without stopping and evaluating possible alternatives. Sure the first time you had that Vente White Mocha from Starbucks it was an amazing experience. So much so that you began buying one a few times a week. It soon became part of your morning routine and you now consume one a day. However, have you stopped and questioned the utility that you are gaining everyday by stopping by Starbucks? By now, according to the Law of Diminishing Marginal Utility, the benefit you get from drinking this coffee becomes less and less every time. There are several possible alternatives available and at a much cheaper price. To be a bit extreme, by cutting this purchase out of your daily routine, you could save $35 per week, $140 per month, or $1,680 per year assuming you spend an average of $5 each visit. The opportunity cost of each coffee should be considered carefully. But why is it so hard for us to give up habits? Why is it so difficult to let go?

Let’s look at the Law of Diminishing Marginal Utility from a different angle. The diminishing marginal utility of wealth is a great example and states that as our income increases, the amount of satisfaction we get decreases accordingly with each marginal increase of income. For example, right now a $100,000 bonus would give you tons of happiness. However, if you are Bill Gates it almost goes unnoticed.

diminishing-wealth

This graph was a byproduct of economic theory and makes total sense in a perfect, economical world, However it fails to include human behavior and emotions. Behavioral economics pioneers David Kahneman and Amos Tversky agreed that the table was a good foundation, but decided that they should focus not on levels of wealth, but changes in wealth as highlighted in Richard H. Thaler’s book “MisBehaving.” After a few changes and some additions to the table, Kahneman and Tversky came up with this:

value-function

This was labeled the Value Function and recognizes a key human behavioral trait, loss aversion. As you can see in the graph, losing something hurts us twice as much as gaining something makes us feel good. This perfectly illustrates the Endowment Effect and explains why it is so hard for us to let go of things. Whether it be people in our lives that no longer serve a purpose or a routine you have that no longer benefits you, it is vital to our happiness that we let go. Replacing your Starbucks with coffee made at home is so difficult to do because giving up that Vente White Mocha hurts twice as much and we will enjoy our home brewed coffee. It is important to realize that by letting this affect you, you are looking at your daily decisions on a micro level and not seeing the bigger picture. Sure giving up that pointless relationship that is going nowhere is going to sting, but only because it is in your human nature to fear loss. Avoiding loss will not bring happiness to your life. You may feel ok with holding on to something longer than you should, but the opportunity cost is exponential.

I challenge you to evaluate the utility or happiness you gain from your daily routines and from your possessions. Go through your closest, when was the last time you wore most of those clothes? You don’t wear them anymore because you have maximized their utility. The same with that friend from high school that you are no longer close with but you take time out of your week to meet up with them for coffee. The next time you are making a decision and evaluating opportunity costs, do not fail to account for the benefit of letting go.

Share this article with your closest friends and help each other with your evaluations. Sometimes it is good to have an outside opinion. As always, hit that follow button located on the bottom of this screen for more matter.

The Cost of Ownership

It’s Thursday night and you and a few friends are out having a drink. Your good friend Jay walks into the bar and you quickly embrace him with a pound and a hug. As you two are catching up he gets a phone call and promptly answers, it’s his girlfriend Megan. “Ok…ok…agh ok” he says as you watch the muscles in his face lower and lower almost to a frown. He hangs up and is clearly disappointed. “What’s going on?” you ask. “Megan just bailed on me for tomorrow night, I got us tickets to see Taylor Swift.” “Bummer” you respond. He proceeds to tell you that he waited in an online que for over an hour to buy those tickets at retail price. You quickly text your girlfriend, “Hey, do you like Taylor Swift?” While waiting for a response you offer to buy the tickets from him if your girlfriend is down to go. A quick vibrate interrupts you and you read your girlfriends response “Yea, she is ok.” You give Jay $100 for both tickets and he sends you them via email. You aren’t truly a fan of Taylor Swift and your girlfriend doesn’t seem to be too crazy about her either but it seems like a fun date and you are helping out your friend by buying the tickets from him. After googling Taylor Swift song lyrics and streaming her latest album on Apple Music the entire following day, you notice an advertisement on the side of your Facebook page. It’s a StubHub advertisement for the Taylor Swift concert you have tickets for. You curiously click on the advertisement and notice that tickets are selling for $300 a piece. “Wow!!” you exclaim. You suddenly have a dilemma on your hands. Do you go to the concert or do you take your girlfriend out for a great date night? You could sell your tickets for $600 and make a $500 profit, but something inside of you dismissed that idea and you are all of a sudden very excited about this concert. You mention the prices to your girlfriend as well and she seems equally excited. Suddenly you are shamelessly singing along to Shake It Off while your girlfriend texts all of her friends to rub in the news.

Hold up, what is going on here? You went from being indifferent about going to the concert to all of a sudden a member of Taylor Swift’s fan club. Your girlfriend might as well buy you two matching 1989 shirts. It is seemingly logical to resale the tickets and make a $500 profit, but instead the pride of ownership sets in and alters your decision making process. As hypothesized in William Samuelson and Richard Zeckhauser’s study Status Quo Bias in Decision Making,

“Faced with new options, decision makers often stick with the status quo alternative, for example, to follow customary company policy, to elect an incumbent to still another year in office, to purchase the same product brands, or to stay in the same job.”

In deciding not to sell your concert tickets for a $500 profit, you are opting to stay with the status quo of going to the concert with your girlfriend. However, if Jay would have known of the increased resale prices of the tickets and offered you them for $300, you would have declined. Thus sticking with the status quo of not going to the concert. So why is it you would not be willing to pay $300 for these tickets that you seem to value yet not accept $600 to sell them? In Samuelson and Zeckhauser’s study that contained multiple tests with various framing, the decision makers all possessed a significant status quo bias. Status quo bias directly correlates with the Endowment Effect. The Endowment Effect states that people add more value to things merely because they own them.

The endowment effect was described in an example told by behavior economics pioneer, Richard H. Thaler. Thaler recalled his late colleague and chairman of the economics department at the University of Rochester, Richard Rosett. Rosett was a wine enthusiast and collected bottles of wine over the years. One afternoon Rosett informed Thaler that he had several bottles of wine in his cellar that he had bought years ago for $10 each and that the bottles were now worth $100 each. Rosett continued on about how he would drink one only on special occasions but refused to sell them. He also said while he enjoyed his wine with a $100 price tag, he would never pay that much for a bottle. Rosett as an economist even admitted to his irrational behavior but couldn’t help himself.

We as humans overvalue almost everything we own, especially our vehicles. As soon as you buy that brand new car and drive it off of the lot, the value of the vehicle depreciates on average 11%. This depreciation continues and after owning the car for only one year the depreciation averages a whopping 19% of the original price. In 5 years of owning the vehicle it will depreciate by about 60%, and this is about the time you look to sell the vehicle and buy a new one. Say you bought a new Nissan Maxima for $30,000 and have owned it for 5 years and you are looking to sell it for about $15,000. You go to the dealership and they appraise your car at a value of $10,000. Immediately you become frustrated and storm out of the dealership. While the value of the car will stand to be $12,000 and a dealer needs room for profit, $10,000 is a realistic selling price. However, that car has been your pride and joy for 5 years. You have made countless memories and have had minimal problems with the car. You aren’t going to get a better offer anywhere else and you stubbornly decide not to sell the car.

This is known as the mere ownership effect and is the theory that people who own a product tend to value it more than people who do not own it. The observation got its name off of researchers results stating that by merely touching an object peoples perceived ownership dramatically increases. In fact, in 2003 the attorney general’s office in Illinois issued a warning to Christmas shoppers to be aware of retailers who try to get them to hold or touch their products. This is why those pushy salesmen in the mall kiosks want you to try on their lotion or retail stores want you to try on their clothes. Ever been inside of a Footlocker and been pestered with a sales rep insisting that you try on that shoe you’ve been glancing at? That is because they know that the chances of you buying the shoe after you have tried it on dramatically increases.

So why do you believe that we tend to overvalue items in our possession? Is it the emotional bonds that we have formed with the items? If so, how do you explain mere ownership and the endowment effect for products that we have only owned for less than 5 minutes? By acknowledging your tendency to overvaulue your belongings, it should become easier to let them go and to move on to new opportunities. By failing to acknowledge the tendency, you are forming an unrealistic opportunity cost when evaluating alternatives, thus increasing your cost of ownership.

Share your thoughts and experiences in the comments below and be sure to share this article with a friend who you feel is unknowingly increasing their cost of ownership.

 

How Expectations Shape Your Reality

It is your best friend’s birthday and she has invited you over for dinner and a small get together with her closest friends. You accept the invite with great joy and immediately panic on what to bring her. After giving it a bit of thought, you remember that she has a love for red wine, bingo! You rush to the nearest package store in search of the perfect bottle. As you scan the aisle of hundreds of different types of red wine and different brands, you see Apothic Red. “Perfect, this is our favorite!” You go to grab it and notice that it is only $12. Hmm, you quickly question your selection and decide that there must be a superior bottle on the shelf that is worth more than $12. It is her birthday and all. You look up and see a nice bottle with a label that reads: 2012 Peju Merlot Napa Valley. You scan down and see it is on sale for $99.99. You quickly decide that this wine must be amazing. Since this is your best friend and you want to be the best gift giver at the dinner, you decide to make the purchase. You arrive to her apartment and while dinner is cooking you all decide to give her your special birthday gifts. She opens a few envelopes enclosed with kind cards and Starbucks gift cards. She then gets to your gift. She reaches into the bag and pulls out your pricy bottle of wine and shrieks with excitement, “You know how much I love Merlot!” she exclaims. As dinner is being served your friend runs into the kitchen and you hear her pop open your bottle of wine. She comes out with two glasses and gives you one with a smile and a wink. After a hardy cheers filled with well wishes and happy birthdays, you take a sip from your glass and your eyes light up. “Wow! This is the best thing I have ever tasted!” You finish your glass and follow your friend into the kitchen where she thanks you for coming and for her bottle of wine. “Is it not the best wine you have ever had?” you ask with excitement. “It definitely isn’t your typical bottle of cheap wine” you say with a smile, knowing that you paid a pretty penny. “I haven’t tried this kind, but I’m so excited to taste it!” she responds. Puzzled, you look at the countertop and see that your bottle is sitting there unopened. “Oh, well what wine did we have at dinner?” you ask. She laughs and says “only our favorite.” She proceeds to grab the bottle of Aphotic Red behind her and pours another glass. You are at a loss of words. How could the wine taste so different, so much better this time than ever before? You pour another glass of Apothic Red and all of a sudden it doesn’t taste quite as good. What happened here? Why did the wine taste so much better when you thought you were drinking from a $100 bottle instead of a $12 bottle?

Your expectations mold your reality. Your perception of brands, products, and even people are all framed by the packaging, the price, and the appeal that comes along with it. Unless you have an advanced pallet and you are a wine enthusiast, you would not be able to tell the difference between an expensive bottle of wine and a cheap bottle.

The effects of expectations were examined in an experiment conducted by Leonard Lee (Professor at Columbia Business School), Shane Frederick (Professor at MIT), and Dan Ariely (Professor at Duke University). In the study, the trio of researchers set up shop at a bar located on the campus of MIT. In the study, the theory being tested was whether or not people’s expectations influenced their views on following events. In this scenario the indicator being measured was whether the bar customer’s expectations for a particular type of beer would mold their perception of the taste. As students began flooding into the bar after a long day of class, Leonard would approach them with an offer of two free samples of beer and whichever beer they enjoyed the most he would buy them a glass. One sample would be Budweiser, and the second sample would be an “MIT Brew” that was simply Budweiser with two drops of vinegar for each ounce of beer. However, the participants would not know this. The first student that Leonard approached accepted the offer and was presented with two pitchers, one labeled A and the other labeled B. Leonard poured a glass of each and the student carefully tasted both. After evaluating his options, the student chose pitcher B that contained the “MIT Brew.” Leonard approached the next participant and instead of simply offering her a taste of label A or B, he went into more detail and informed her that one was a standard commercial beer and the other was a beer that had been altered with drops of vinegar. She sampled pitcher A containing the Budweiser and nodded with approval. She then tried pitcher B and immediately wrinkled her nose with disgust. Needless to say she chose pitcher A for her free glass of beer. After testing hundreds of participants, there was a common trend. Without knowledge of the ingredients of the two beers, most all participants chose the “MIT Brew.” However, when they knew they were drinking beer laced with vinegar they preferred the Budweiser.

After this study was conducted Ariely decided to reframe this experiment, this time with coffee. He set up a popup coffee shop at MIT along with his colleagues. The question poised to the participants was should MIT begin selling this roast of coffee in their cafeteria. Along with the coffee, he would offer traditional add ins such as milk, half-and-half, sugar, etc. Alongside the traditional condiments were some odd ones such as cloves, nutmeg, orange peels, and sweet paprika. The way the condiments were presented were frequently altered from Styrofoam cups to fancy metal containers and brushed metal trays. As the students drank the coffee, they would fill out a survey. While no one dared to try the odd condiments in their coffee, there was a unique finding in the experiment. If the odd condiments were presented in the fancy containers and trays, the participants were much more likely to like the coffee and also more likely to pay a higher price for it.

Many companies do a great job of managing your expectations to value their product highly. Hundreds of millions of dollars are spent annually on research to determine how to get you to desire their product and how to shape your thoughts about the brand. It is important for you to realize when your thoughts on a product are your own versus when they are thoughts you have been fed to believe. Consumers control the market however marketers often times control the consumers.

What products do you feel are overpriced based off of hype? Have you ever overvalued a product or service based on price or presentation alone? If so, share your stories in the comments below and follow the blog to be the first to know of a new post.

Can’t Buy My Love: Market Norms vs Social Norms

It’s a Tuesday night and your good friend calls you to come to the gym and play basketball. You don’t really have much to do and you haven’t played in a while so you agree to come. You get to the gym and almost immediately get thrown into a pickup game. Your team is down 2 points and you pull up from the 3-point line in attempt to tie the game. Your shot is off and you miss the basket. The other team grabs the rebound, drives down the court, and scores an easy layup to win the game. Your friend walks over to you and pats you on the back and gives you a pointer on improving your shot. You two practice getting the shot down before you play again and the next game your shot is on point. As the night winds down and people flee the gym, you pull your friend to the side and give him a $20 bill. “Thanks for the pointer, man!” you exclaim. Your friend flings the money back at you and calls you a fool, slightly offended. What happened here? Why is your friend offended? Why is it wrong to tip your friends when they help you out? Well, you have just taken your relationship from a place of social norms to a place of market norms. What does this mean, exactly?

Our lives have two realms in which we are constantly balancing that affect the types of relationships we have. In the realm of social norms, everything we do is from a place of cultural and social expectations. We base this knowledge off of what others do and what they think we should do. We are social beings and our purpose when operating off social norms is to enhance our relationships with our friends, family, and communities. When we do our friends a favor, we do not expect an immediate payback and we especially do not expect monetary compensation. Helping other people brings us joy in itself, that is the payoff. If your friend gives you advise in an area that they are experts in, you shouldn’t offer to pay them. Instead, down the road when the roles are reversed you can give them advise in an area that you are knowledgeable in.

On the other end of the spectrum is market norms. These relationships aren’t necessarily friendly ones. This usually entails how much you are willing to pay for something or how much money you require to do a job. There is a clear exchange of money or services that both parties understand and agree to. You operate in market norms when dealing with your employers or your car dealership for example. When buying a car, you aren’t there to help out the car salesman. Just because you two build some rapport doesn’t mean you are going to offer to pay more money for the car to increase his commission. Vice versa, the car salesman isn’t going to knock off $10,000 from the car just because you both like the Atlanta Falcons and you complimented his tie clip. Your relationship with companies that offer you a service are never that of social norms, no matter how hard they attempt to make it seem that way.

A study conducted by Uri Gneezy (the Epstein/Atkinson Endowed Chair in Behavioral Economics and professor of Economics and Strategy at the University of California) along with his partner Aldo Rustichini (a professor in Economics at the University of Minnesota) examined the change in behavior from parents when an Israeli daycare center altered a social norm into a market norm. At the daycare, it was somewhat common for parents to be late picking up their children. In an attempt to decrease this behavior and for the purpose of the study, the daycare started charging a $3 fee to those parents who were late. Prior to installing this late fee, the daycare relied solely on social norms to ensure that the parents picked up their kids in time. The guilt that the parents felt when arriving late controlled their behavior and influenced them to be on time as not to be rude. While the relationship was rooted in market norms, the daycare workers were not receiving any additional compensation for staying late with the children, thus making this aspect of the relationship based off of social norms. Once the daycare began charging the late fee, that aspect of the relationship now became based on market norms. Instead of decreasing the amount of late pickups, the fee had the opposite effect. Parents now made the decision to be late or not pending on how willing they were to pay the additional $3 fee. After more and more parents started picking up their kids at their own leisure, the daycare decided that this course of action was not the right decision and waived the late fee. This decision was made hoping that the parents would now go back to the previous behavior and act on social norms with the feeling of guilt controlling their tardiness. However, after the late fee was waived even more parents began picking up their children late at an increased rate.

The study showed that when you take a relationship from social norms to market norms, it is very difficult to revert the relationship back to a social one. It is important that we keep this is in mind when dealing with friends and family and operating in a social realm. When you buy someone a gift, don’t try and rub in how much you paid for it. When you take a date out to a nice dinner, don’t mention how much you are spending or the price of the options. If you buy your dad a nice bottle of bourbon, even if he thinks it’s a cheap bottle from the liquor store don’t dare mention that you paid a hefty price for it. This is the fastest way to tarnish a relationship. If a friend asks you to help him carry his new couch into his house, don’t charge him $20 for your help. In doing so, the next time you need his help with something be prepared for a price tag to be thrown at you.

Behavioral Economics expert Dan Ariely has done a ton of research on this topic and highlights many interesting findings in his book “Predictably Irrational.” In the book he describes a study he did at Duke University where he monitored the different outcomes of social norms versus market norms. In the study he had a computer simulation set up in the lab where students were to click and drag as many circles as they could in and drop them in a square on the other end of the screen in 5 minutes. The output that would be measured was the effort that the participants put into the task. He had three focus groups. In Group A, he gave the students $5 in advance for participating. In Group B, the participants were awarded only $0.50 for their efforts. Finally, in Group C the task was presented as a social effort to help the professors in the lab with no mention of any compensation. So how do you think the groups performed? Group A dragged on average 159 circles while Group B dragged an average of 101 circles. The increase in money influenced the participants who were paid more to perform at a higher rate. So Group C who didn’t receive any money at all must not have performed very well, huh? Wrong. Group C had the highest labor output with an average of 168 circles.

The results show that people are willing to work harder for a cause than they are for money. When money is introduced, we quickly decide how much output that money is worth. This same concept applies to our own careers and hobbies. You are always told to find something you would be willing to do for free, and get paid for it. But why is it when we begin to do something we love for money that we lose the joy in it? If you haven’t experienced this personally, think of a hobby you enjoy doing. Now imagine someone offered you $50,000 a year to do this hobby professionally. All of a sudden that thing you enjoyed doing loses its fun factor and now becomes an obligation, something you have to do. Be mindful of what you are sacrificing when entering market norms. While money is nice, social relationships are the key to our happiness and belonging. Can you think of a time that you transitioned a relationship from social norms to market norms? What were the results? Share your stories in the comments below and follow the blog for more matter.

Somatic Markers: It’s Your Choice?

As you make your routine visit to the grocery store to stock up on food for the week, you suddenly remember that you need laundry detergent. You make your way to the appropriate isle and suddenly you are parting a sea of hundreds of various laundry products. You aren’t very brand loyal to any certain product so you begin to look at all of the scents and guarantees that are on the labels of these red, blue, orange, and florescent green packages. After about a minute of scanning the isle you grab the Gain Original Scent, toss it in your shopping cart, and continue to the frozen goods section. Was your decision rational? Absolutely not.

While you may defend your decision on choosing Gain with an attempt at logic, chances are you don’t really know why you chose that product. However, the actual decision making process happened in about 5 seconds based off of a lifetime of experiences and associations. These are things we don’t think about on a conscious level and instead we have a full dialogue with ourselves deep in our subconscious mind about how your mom once used Gain and you enjoyed the scent and that on the show Dexter he used Gain once and his white t shirt is always white and his clothes never seem faded. Plus, you saw David’s mom use Tide once and his clothes never smell nice and he never really seems very fresh. Not to mention the nice green color of Gain’s packaging that made you feel relaxed and assured you that this is a natural, environmentally safe product.

Believe it or not, all of these thoughts go through your mind without you realizing it when you are making a decision. According to German retail experts Gruppe Nymphenburg who conducted a study on consumer behavior, more than 50% of all purchasing decisions by shoppers are made spontaneously at the point of sale. These thoughts and associations that flash through your mind are known as Somatic Markers. Our brains often create shortcuts for us to enable us to think and thus react faster. An example of this can be found in many optical illusions where your brain uses Mental Filtering to make assumptions based off of your memory. Take this photo for example:

brain-illusion

Your brain has created a shortcut for you to read the sentence without realizing the repeated word. Much like this brain shortcut, Somatic Markers give you a shortcut on rationalizing decisions in the blink of an eye.

In an experiment led by Portuguese-American neuroscientist, Antonio Damasio at the University of Iowa, the somatic markers hypothesis was tested in the Iowa Gambling Task. “Participants are presented with 4 virtual decks of cards on a computer screen. They are told that each time they choose a card they will win some game money. Every so often, however, choosing a card causes them to lose some money. The goal of the game is to win as much money as possible. The decks differ from each other in the number of trials over which the losses are distributed. Thus, some decks are “bad decks”, and other decks are “good decks”, because some will lead to losses over the long run, and others will lead to gains.”

The healthy participants sampled cards from each deck and after about 50 turns started figuring out the game and were able to consistently choose the good decks. However, the study found that based off a measurement of the player’s galvanic skin response that they started to show a reaction of stress when hovering over a bad deck after only 10 turns. The findings show that our minds are able to rationalize decisions on a subconscious level much faster than we are able to on a conscious stream of thought. This is where the whole “go with your heart not your brain” argument takes place. When dealing with difficult decisions and conflict resolutions, we aren’t always able to make a decision on a conscious level. We think of all of the alternatives and various outcomes and that is when emotion sets in. We have an emotional response to conflict based off of our past experiences in life. First, our reactions to a stimuli or a conflict begins with a physical, bodily response such as activation of the sweat glands or an increased heart rate. This reaction triggers our emotions and we begin thinking of a resolution to the problem from an emotional stance. Over time, these emotions and the resulting physical bodily changes become associated with certain situations and their past outcomes. This is a somatic marker.

These brands want to be on the right side of your emotional response and is a huge reason you see so many advertisements with emotional appeal. At face value, that heartwarming commercial you saw yesterday was cool but it didn’t influence you to go out and buy that product immediately. The purpose of that ad, however, wasn’t to get you to do such a thing. The next time you are shopping for that product, that advertisement that gave you an emotional response will be a somatic marker when deciding which brand to go with. Creating long-term relationships with consumers is a goal every brand has and hopes to achieve.

Which brands are you most loyal to and why? After making a purchasing decision I challenge you to question why you made the decision you did. It may take asking yourself why several times to get to the root answer, but in doing so you can start to better understand your emotional viewpoint on certain things in life.

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Rituals & Superstitions: Fighting for Control

When you wake up in the morning what do you do? Do you immediately jump in the shower to start your day feeling clean of yesterday’s problems? Or do you feel the need to immediately make your bed as tidy as possible? Whatever it is you do, do you ever question why you feel the need to do so? Well, I will tell you why. You need a routine to feel in control of your life.

According to branding expert and neuro-marketing consultant, Martin Lindstrom,

“Rituals and Superstitions are defined as not entirely rational actions and the belief that one can somehow manipulate the future by engaging in certain behaviors, in spite of the fact there’s no discernible causal relationship between the behavior and its outcome.”

When you have a routine that you act out every day, you feel as though you have control over every aspect of your life. You know that you have showered, that you brushed your teeth, that you have eaten, and that when you get home your bed is made and you can relax. It is when we break our routine that we feel we have lost control of our day. Getting out of routine sometimes happens when life doesn’t go as planned. For example, when you get sick and you have to skip the gym or you have to call out of work. This causes an imbalance in your life and is a huge stress factor for most people. These rituals become even more important to us during times of crisis or fear. In fact, studies have shown that there is a significantly higher rate of superstitious beliefs in countries that have been attacked in the act of war.

Did you pick up that penny that was on heads and put it in your shoe? How about that ladder you refused to walk under while walking to lunch? Oh look it’s 11:11, hurry make a wish! Whether we like to admit it or not, all of us are a bit superstitious. In a nine-month extensive research project, worldwide advertising agency BBDO sought to better understand such superstitious behavior and how consumers incorporate brands into their daily routines. Such brands are labeled as “fortress brands” and may include the toothpaste you use or the coffee brand you prefer every morning. The research project was conducted in 26 countries and included interviews with over 5,000 participants including psychologist, sociologists, and even nutritionists. BBDO defined rituals as “a defined series of actions that move people emotionally from one place to another. Rituals are sequences that are developed over time. Rituals make people feel good. While there may be bad habits, there are no bad rituals.”

During the study BBDO focused on the five most common rituals among people all over the world. Those rituals are as follows:

Preparing for Battle: Transforming us from the cocoon to “ready to face the day.”

 

Feasting: The pleasure of eating that “reunites us with our tribes, transforming us from alone to connected.”

 

Sexing Up: A highly pleasurable and indulgent ritual, though not without stress (particularly for women), that transforms us from our everyday selves to our most fabulous selves

 

Returning to Camp: That moment when we unwind and exhale, transforming us from tense to relaxed.

 

Protecting Yourself for the Future: That last ritual of the day that moves us from relaxed to feeling safe and secure before the next day comes around.

 

The study concluded that Preparing for Battle has the most opportunity for brands to become fortress brands and most morning routines averaged more than 7 steps in less than 1 hour. 89% of people rely on the same brands when preparing for battle and 75% of those people became frustrated or angry when their brand was not available. The U.S. was the most brand loyal out of the 26 countries with a 94% brand loyalty rate.

So what does this say about you? Are you specific about your daily routines and the brands you use to help you gain that sense of security in your life? How much are you willing to pay for such brands and how impactful is your switching costs? While having a daily routine is very beneficial for your mental health, it is important to be mindful of when seeking control of our lives through said routines that we don’t lose control of our decision making process. Stop and question why you do every step of your daily routine and reevaluate each step to be sure you are still benefitting from it.

 

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