Sep 7, 2018
Our brains use relativity to make comparisons when assigning
value. Relativity is one of my favorite concepts and part of the
behavioral economics foundations. Today’s show builds upon last
week’s behavioral economics podcast on anchoring and adjustment,
because these two concepts are closely aligned.
Relativity is all about value. In this episode, I dig deep into
relativity to make sure you really understand what it is. Then I
get into all the examples for varying industries and circumstances,
so that you can apply this concept in your business. I also talk
about how to increase sales by creating three offerings.
- [07:00] Last week we talked about anchoring and adjustment. I
also mentioned relativity several times in the behavioral economics
podcast, because the two concepts are very much aligned.
- [09:59] In behavioral economics, relativity is about
- [10:50] How relativity applies to value. Our brains make
comparisons to assign value to things.
- [11:54] When it comes to value everything is relative. Just
like in the grilled cheese example (episode 8), we know that $200
is a high price for a sandwich because we can compare it to other
- [12:11] Our brains are constantly making comparisons between
items. Even though, those comparisons aren’t always the most
- [12:25] A simple example on how relative values can shift.
- [13:49] The will to save $15 depends on the item it is attached
to. The difference between saving $15 on a dollar item and a $500
item is relative (but it shouldn’t be).
- [14:45] How people will drive across town to save on gas. Even
though, the savings may not compensate for the time and expense of
driving across town to purchase that cheaper gas.
- [16:58] An example of how silver medalists aren't happy with
coming in second.
- [18:40] How to incorporate relativity in a retail shop.
- [18:59] Anchoring and adjustment works together with
relativity. An example where seeing a $99 t-shirt when walking in a
store makes the real price of the shirts seem much lower even
though it may be higher than last year's price.
- [20:28] The purpose of the $99 shirt is to make other prices
- [21:44] An example of how setting an expensive espresso machine
next to another one will help it sell. The high anchor makes the
other pricing look more affordable.
- [23:22] Three option pricing advice. Offer a best thing,
something similar but worse, and something completely
- [23:50] I share how this worked in my online strategy session
Episode 10 On Air Strategy Planning Session with Mariel
- [24:30] In the earring comparison example, find a favorite
color or birthstone to create a comparison example. Have a slightly
more expensive pair that is more than double in size. This uses
relativity to show the better value. Also include a completely
different pair that is at least the price of the best pair.
- [26:07] When given three choices most people will pick the
- [26:09] A furniture store example. Start with the most
expensive option and work your way down. You want to set a high
anchor not a low anchor.
- [28:10] A real estate example by Dan Ariely.
- [29:09] We like to make decisions based upon comparisons. Even
if those decisions aren't rational.
- [30:10] Including a decoy will help create a point of
- [30:52] An example of the value of relativity from The
Economist. Using relativity to sell subscriptions.
- [32:29] How removing an option that no one buys makes sales go
down. This is the power of relativity in action.
- [33:46] When setting prices consider the decoy. If you are
offering a service, look at the packages you are offering. Have a
great value and a worse value and then a completely different
product. Your brain wants to feel like it completed the due
diligence to make the best decision.
- [35:58] An example of how a high priced bundle actually made
another high-priced offering seem affordable.
- [37:22] A diet example that compares calories burned to
calories consumed. You have to run 50 minutes to burn off one can
of soda. Finding the right point of relativity can help encourage
- [39:43] Hopefully you can see ways to incorporate relativity
into your business.
- [42:19] Be sure to tune in next week for one simple mindset
adjustment that will change your life and business forever.
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