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The Brainy Business | Understanding the Psychology of Why People Buy | Behavioral Economics

Jul 26, 2019

Last week was the tribute to NASA in honor of the 50 year anniversary of Neil Armstrong’s first steps on the moon. In that episode I told you about the space race, the Cold War, and how that all boiled down into five tips your business can learn and implement from the success NASA saw during the 1960s. If you haven’t listened to it yet, give it a shot!

Today, we are going to talk about partitioning, which I mentioned briefly in episode 56 on mental accounting. This is essentially about how the way things are offered or packaged can either encourage or discourage additional purchases and actions. I will let you know how this works both for physical products and service businesses, and how you can use this concept within your business.

Show Notes:

  • [04:09] Partitioning has shown us that when you put tiny barriers into place, it causes a consumer to consider their options and be presented with a new decision point.
  • [04:46] If you are sitting in front of the TV with a giant, party-sized bag of Cheetos in front of you…how much will you eat? It's likely you will eat more than you intend even if you don't realize it.
  • [05:30] When food items are partitioned into smaller containers, and you're required to take an action like grab another one out of the box, it creates a new decision point. The small transaction cost will drastically reduce the number of people who will go get a second serving.
  • [06:26] An experiment was done with bottomless soup bowls. A group whose bowl kept refilling, without them knowing it, ate 73% more.
  • [07:55] Have you ever found that putting less on your plate and having to go back for seconds caused you to eat less?
  • [09:10] Decision making opportunities increase awareness and the amount of cognitive processing used.
  • [10:31] One study found that once something became common – like a white partition between cookies – it no longer acted as a partitioning mechanism.
  • [11:52] It isn’t just effort that matters, but drawing the attention of the conscious brain really matters too.
  • [13:03] Partitioning and aversion impacts can also be seen in gambling.
  • [13:49] A gambling study featuring partitioned envelopes showed that once an envelope was opened…all the coupons inside were likely going to be bet, but the number of envelopes significantly impacted the total amount gambled.
  • [15:50] Gamblers will think of house money differently and keep cash or chips in different pockets while playing. They have instilled their own method of partitioning, even if they don’t realize it.
  • [16:43] In another study, people with a higher aversion to gambling were significantly impacted by the partitions.
  • [17:57] Partitioning money has also been found to help people save more or spend less.
  • [18:45] The Shopping Momentum effect is where once you start the process of spending, you are more likely to spend again until you hit a partition.
  • [20:32] What does this mean for your business? It's not only impactful on eating and spending, but other behaviors are impacted. It doesn't need to be a physical item that needs to be opened or unwrapped. Any cognitive interventions can trigger partitioning.
  • [22:11] Having an AC that shuts off automatically and you have to walk over and turn back on is a nudge to use less energy.
  • [25:03] Anticipated regret can force you to rethink a decision and possibly change your mind.
  • [26:56] Questioning the price of a customer's purchase is a lose-lose situation where adding a partition is worse for everyone involved.
  • [27:08] It's easy to talk people out of a sale, or make them feel bad about a purchase (or start to regret it) even when you are trying to be helpful.
  • [27:24] If you keep asking someone, “are you sure?” you are creating unnecessary partitions and of course they are going to say, “I guess not” at some point.
  • [28:00] Setting up targets or progress markers, on the other hand, can be great partitions for a business to set up to keep on the radar of their current, past or potential customers.
  • [29:06] Removing partitions and obstacles can be great for businesses and customers alike.
  • [30:08] Schedule a follow up call and get on their calendar RIGHT THEN at the event. I do this all the time thanks to the advice of Sales Maven Nikki Rausch, and it has made such a difference.
  • [32:10] Every piece, whether it is an email or a Facebook ad or a direct mailer should be clear and concise. Can someone look and very quickly know what they are supposed to do? What the next step is? Simplify to eliminate steps.
  • [33:49] The moral: make it easy for people to do business with you. Remove unnecessary partitions in the process and everyone will be happier.

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