Saturday, March 3, 2012

Explain New User Discounts as Hassle Pay

If you’re a services retailer or selling subscriptions, a time-tested technique for building a client base is to give a discount to new customers. A problem can arise, however, when those who become regulars start wondering why they’re paying more than someone who hasn’t shown long-term loyalty to you. They might become tempted to stop giving you their business so they can then take advantage of the new user rate.
     One solution is to offer rewards to regular customers, such as with frequent shopper programs. Research findings from London Business School and Massachusetts Institute of Technology suggest another tactic: Tell new customers that the reason they’re getting a discount is to compensate for the hassle of changing habits and integrating the service or subscription into their lives.
     This has two helpful effects:
  • It justifies the new user discount in a way that makes the more experienced user not begrudge the benefit given to succeeding generations of new users. This is rationalization.
  • It encourages the new user to pay back the discount by actually working to change habits and/or integrate the subscription into their lives. This is reciprocity. The result is that these well-integrated new habits of using your services or subscription persevere.
     Both rationalization and reciprocity are influential psychological forces in changing attitudes and motivating behavior. Pointing out the barriers to change and then compensating the consumer for the hassle can be a winning combination.
     Recognizing the hassle can, in itself, increase value in the mind of the consumer. In a classic study based at University of Texas-Arlington, researchers investigated the relationship between the taste of a potato chip and the ease of opening the package. For some participants, the potato chips were packaged in a wax-coated bag which could be easily opened. For the other participants, the polyvinyl bag was so difficult to open that participants resorted to techniques like using their teeth or standing on the bag while pulling at a seam.
     In blind tests conducted before the main study, whether the chips were in the wax-coated bag or the polyvinyl bag had no effect on people’s ratings of crispness or overall taste—as long as the researcher, not the participant, opened the package and served the chips. But when the participants had to open their own packages, which of the two types of bag resulted in higher ratings of crispness and taste?
     Yes, the polyvinyl bag.

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Leverage Barriers to Increase Value

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