The Framing Effect
In the Real World the choices we make are influenced by how they're framed and presented to us.
"We don't have any competitors in the car industry."
I remember reading an interview a few years ago with Peter-Paul Schoppmann. He's Rolls-Royce's Germany, Northern and Eastern Europe Regional Director.
I remember that interview because Schoppmann said something that intrigued me. He said, "We don't have any competitors in the car industry."
Then he explained that the average price of a new Rolls-Royce is $300,000.
So that's why Rolls-Royce doesn't compete with Bentley or Mercedes-Benz. Rolls-Royce competes with art, helicopters, private jets, yachts, and real estate.
And that's also why Rolls-Royce sells more cars at boat shows than at car showrooms. Because at a car showroom Rolls-Royce looks expensive as hell. But at a boat show when you look at 5, 7 and 10 million dollar yachts, suddenly a $300k car sounds like a bargain.
Here's the thing. Standard economic theory assumes that people make prudent, rational and predictable choices. Always, and in any situation.
It says that when we're making decisions, people have limited income. So we have to weigh all the options and take into account all the information available, including probabilities of events (do we expect inflation to up or down? will prices in this category increase soon? Or will they go down?) and potential benefits and costs. Then we choose the option that gives us the highest pleasure or profit.
Now, it’s true that in some situations people are rational. For example, when the price of a product falls, people have the tendency of buying more of that product.
But if our choices are always rational, why does Rolls-Royce sell more cars at boat shows than at car showrooms? After all, they're selling the exact same cars, at the exact same price, right?
In 1981, Amos Tversky and Daniel Kahnemann discovered something surprising.
It turns out that in the real world the choices we make are influenced by how they're framed.
What this means is the exact same problem, thing or product if presented through different settings, situations or words can lead to different choices.
In psychology this is called the framing effect. And this is why Rolls-Royce sells more cars at boat shows than at car showrooms.
Takeaways for your business:
1. Price anchoring: How you frame a product’s price can deeply affect its perceived value.
2007 "People in Need" campaign from Cordaid.
For example, the best way to sell a $50 bottle of red wine is to put it right next to a $300 bottle of red wine.
OR a persuasive way for a non profit organization like Cordaid to raise emergency funds for people in need is...
to dramatize and compare the money we spend on mundane things in our daily lives with real tangible things that can make the difference to people living in disaster areas.
2. The power of context: If you run a wine or food business remember that rosé and white wine taste waaaaaay better if you are by the sea.
Seaglass Wine Company gets this. So their website has a lil section that shares coastal recipes and pairs them with Seaglass wines.
And speaking of reframing how to present your products or services...
If you're an expert in your industry, you can monetize and package your skills & knowledge into an online course or an ebook. But remember that people are willing to pay more for an online course over an ebook, even if the information is exactly the same.
3. Positive Framing vs Negative Framing: When writing copy frame information positively, not negatively.
For example, if you sell greek yogurt frame it as "90% fat-free yogurt", not as "10% fat yogurt".
