Drilling for Diamonds

Are we really persuaded when retailers price something at $19.95, rather than $20?

Yes we are!

University of Florida marketing professors Chris Janisewky and Dan Uly investigated the way the human brain thinks about value and shapes bidding.

Their research is reported in Scientific American Mind (April/May 2008). When people judge an opening price they create mental measuring sticks. If they see a $20 Kettle they wonder why it is worth $19 or $18. That is rounded numbers.

But why the starting point is $19.95 our mental measuring sticks change. When we think about what it is worth, we start thinking about nickels and dimes instead of dollars, so a fair price for a toaster might be envisioned as $19.75 or $19.50.

The psychologists also looked at five years of real estate sales in Alachua County, Florida comparing list prices and actual sales prices of homes. They discovered that sellers who listed their homes more precisely at say $495,000 as opposed to $500,000 - consistently got closer to their asking price.

In other words, buyers are less likely to negotiate a price when they encounter a precise opening price.

So, the lesson is, if you are in a buyers’ market you should start with an exact list price.

Popularity: 43% [?]

The late Peter Drucker told us “the purpose of business is to create and keep a customer.” When businesses forget this fundamental fact they soon fall into decline.

When Lou Gerstner took over IBM in the early 1990’s, Big Blue was in deep strife, about to report its biggest loss ever, $8.1 billion. Here is how Gerstner saw his future:

“In the spring of 1993, a big part of what I had to do was get the company refocused on the marketplace as the only valid measure of success. I started telling virtually every audience…that there was a customer running IBM and that we are going to rebuild the company from the customer back.”

Gerstner went on to pull off one of the greatest turnaround stories of modern-day business, turning an $8 billion-plus loss into a $5 billion gain in 5 years by focusing on the needs of critical crown-jewel customers.

Popularity: 43% [?]

John Robert’s Spa owned by service guru John R. Dijuluis III, an American chain of high-end salons and spas whose is policy is that a ‘smile is part of the uniform’.

When you train your staff to greet your customers, ask them to notice the colour of the customer’s eyes.

Scientists using MRI scan machines show the names associated with smiling faces activate the orbitofrontal cortex – an area of the brain involved in reward processing.

People remember smiling faces. It’s simple - we want to remember people who were kind to us, especially when we are likely to come across them again in the future.

Even mega retailer Wal-Mart understands this. Staff follow a “10 feet greet” rule. Every time a staff member comes within 10 feet of any other customer or coworker, you must smile. If you run a service firm, make smiling a ‘non-negotiable’ behaviour.

The Chinese proverb ‘Don’t open a show unless you like to smile’, has more than a ring of truth to it.

Popularity: 38% [?]

Liz Bigham SUP/Director of marketing for Brand Marketing for Jack Morton Worldwide tells us just 9% of the 91 million viewers who watched the 2006 Superbowl ads could remember the ads a week later.

Combine that figure with the massive increase in consumers who distrust advertising (the number or complaints about deceptive advertising doubled between 1997 and 2001) and you have a serious disconnect.

If consumers can’t remember what you’ve said and don’t trust the medium you’re using to talk to them its time to change. Its time to reallocate your brand dollars to experiential activities that will generate advocacy for your brand.

Popularity: 87% [?]