Archive for June, 2008

Does the price of an item change your perceived value of it? If you price an aspirin at 50 cents will it relieve your headache better than an aspirin priced at a penny? Dan Ariely has quite a bit of research on the subject in his new book, Predictably Irrational.

In the book, Dan explores our perception of an item or service in relationship to its price. And what he found has important implications in our quest for personal development.

Dan and his team created a fictional drug called Veladone-Rx and created marketing materials stating its wonderful pain killing effects. In the test, patients were brought into a room decorated as a high-end doctors office and handed a brochure for Veladone-Rx by a professional looking woman dressed in a business suit.

The full color pamphlet with an impressive logo touts that “Clinical studies show that over 92 percent of patients receiving Veladone in double-blind controlled studies reported significant pain relief within only ten minutes, and that pain relief lasted for up to 10 hours.” The price of one pill is $2.50.

Patients were then taken to a lab room and hooked up to a machine that gave them varying intensity electrical shocks. The participants were asked to record their pain on a computer in front of them after each shock. The  range on the selection line was from “no pain at all” to the “worst pain imaginable.”

After a few minutes this first test is done. Participants are then offered a Veladone capsule and told that the pill will reach its maximum effect after 15 minutes. The test is then run again and almost all of the patients reported significantly less pain.

The results were amazing considering the Veladone pill was actually a standard capsule of Vitamin-C. The placebo effect was very great!

But what would happen if the price of the pill on the brochure was discounted from $2.50 to just 10 cents? The test was repeated on another group of volunteers, but this time the $2.50 price on the brochure was scratched out and replaced with a discount price of only 10 cents.

This time the results were considerably different. In the first test at $2.50, almost all of the participants reported pain relief. When the price was reduced to 10 cents, only half of them did. The effect was more pronounced on patients that regularly experienced pain in their lives.

The bottom line: You get what you pay for. Price can change your experience.

So how would price effect a personal development course?

Consider the following fictional courses.

The first course is a deluxe goal setting course with CD, helpful booklet, and step by step instructions. The benefits are listed in the ad along with a full color cover, motivational picture, and strong brand logo. The price is set at $79.00.

The second is a generic low cost toolkit. It too contains a CD, helpful booklet and step by step instructions. An outline of the contents are listed on the ad, but the whole package has a low cost look and feel to it. There are no implied benefits listed, but the price is a very reasonable $7.95

Looking at the ads, which package would you choose?

1. Do you think you could successfully set meaningful goals with the low cost package?
2. Do you think that the more expensive package would make you more successful?
3. What if you were told that the material was the same, but the deluxe package had pictures, illustrations and video clips compared to the text based generic package. Would you still make the same decision?

Does the price make a difference? 

Let me know what you think in the comments section.

And be sure to download our free goal setting toolkit!

Does free mean less value? Something to think about…

In his best selling book Predictably Irrational, Dan Ariely asks a simple question, “What is the cost of no cost?” Dan and his team of social scientists did some experiments on a group of potential customers to find out how much they prized different types of chocolate.

On a table in a large building they offered two types of chocolate. The prized Lindt truffle was offered along side the common Hershey’s kiss. The truffle was priced at 15 cents and the Hershey kiss was priced at a penny. Both of these prices were less than half the usual cost. There was a large sign at the table that said “One Chocolate Per Customer.”

As you would probably expect, the Lindt Truffle was a runaway hit at 15 cents. Over 73% of the respondents chose the higher priced truffle over the generic Hersheys kiss. But what happened in the next test was very interesting.

Dan and his testers then lowered the price of each Chocolate by a penny and ran the test again? This time the Truffle was priced at 14 cents and the Hershey’s kiss was given away free.

The results were startling. Now the Hershey’s kiss was the favorite by a wide margin. Over 69% of the respondents now chose the kiss over the truffle and the difference in the test was one red cent.

The difference was the word free. Free made all the difference, especially when compared to an item with a cost associated with it.

As Dan alludes to in the book, this comparison of a free item to an item that we have to pay for can lead us to make irrational or poor decisions. How many times have you chosen the buy one, get one free item only to get home and find it was not the quality you expected.

Let’s say you went to Walmart to buy tee shirts. You usually buy the national brand that doesn’t shrink and holds up well wash after wash. On the same rack is an inferior brand, but the large size package is priced buy one-get one free. Your mind instantly picks up on the deal even though you have to buy two and end up spending more for the large package of shirts.

You get home and after one washing, the inferior shirts shrink 20%. Now you have two packages of shirts that you cant wear but once. The power of free caused you to make a poor decision.

The word free can drive traffic but often relegates the item to something of little or no value. On this blog for example, I provide many free MS Word based templates for a variety of uses. I don’t use the word free but instead use words that explain the benefits.

Instead of Free Flowchart Template, I refer to my flowchart cards as a Five Minute Flowchart, letting the reader know that the flowchart can be created on their desk in under five minutes.

Given the premise that the word free is a powerful motivator, would people be more interested in a free offer or the benefits of a product or service?

Here is a question: What offer would you choose below?

A Free Flowchart Template emphasizing the value of “Free“

A Five Minute Flowchart emphasizing the benefit of “Speed“

Both of these links and graphics point to the same flowchart page. Which graphic would make you click first? The one with the free option, or the one with the time saving benefit?

I would like to hear your comments on this.

I’m going to track this in my stats and see which one is more popular. If you have a minute click on the graphic you would choose. I’ll post the results in an upcoming post in a few days. It will be interesting to see how predictable this choice is.

I picked up an amazing book the other day entitled Predictably Irrational by MIT behavioral economist Dan Ariely. In this best selling hardback, Dan explores the hidden forces that shape our decisions. From the first chapter on, this book had some amazing insights in store for the reader. Things such as …

• Why do headaches persist after taking a one cent aspirin but disappear when we take a 50 cent aspirin?
• Why do we splurge on an extravagant meal, but cut coupons to save 25 cents on a can of soup?
• How did we ever start spending over $4.00 on a cup of coffee when, just a few years ago, we used to spend less than a dollar?

Over the next few days we’ll explore some of the concepts in the book and how they affect our personal productivity on a daily basis. You’ll be surprised just how predictably irrational we are. Stay tuned…

Have you ever had a dream where you could fly or glide through the air? In my dream it’s almost effortless. You just point where you want to go and you zoom off in that direction. Flying through the air with the wind blowing past your face.

Sometimes dreams come true.

My wife and I were in Santa Barbara this week for a short vacation. We stayed in one of our favorite places, the Cheshire Cat Bed and Breakfast. This is a wonderful Victorian residence, designed around an Alice in Wonderland motif. It’s one block off of State street, and a great place to discover the city.

One of the packages they offered this year was a two hour Segway tour of Santa Barbara. We had booked our stay with a restaurant package including dinner at Downy’s and lunch at Louie’s Bistro (delicious mesquite broiled meatloaf), but the Segway tour sounded intriguing. On the second day of our stay we called up Segway of Santa Barbara and signed up for their 2 and a half hour Old Santa Barbara Tour.

We arrived to find a small business across the street from the Santa Barbara pier. they signed us up, provided helmets and took two Segways outside to start our tour and Segway lesson.

Bill was our tour guide and he took a few minutes to familiarize us with the Segway i2 personal transport. He showed us how to power it up with the wireless controller and how to step on the self balancing device. At first my wife and I were both a bit wobbly, but we soon caught on to the controls.

The Segway is very intuitive. You lean forward to go forward, you lean back to stop. You use the handle bars to turn. The built-in gyroscope keeps you magically upright and balanced.

Within minutes we were zipping around the parking lot and doing a quick slalom around some cones. We practiced entering driveways and going up and down hills. The Segway soon became almost second nature. This is one amazing machine.

Once we were able to do the test course with ease, Bill had us follow him as we set off for the city tour. We headed out on State Street and rode down the sidewalks with ease. Since the Segway is classified as a pedestrian instead of a vehicle, we could go almost anywhere on the unit that we could walk.

We were soon zipping past the train station and soon found ourselves under one of the largest trees in Santa Barbara. Bill was an amazing tour guide. He reminded me of a laid-back Indiana Jones. Someone who was incredibly knowledgeable of the history of Santa Barbara and always up for adventure.

And adventure we had… over the next 2 hours we saw more of Santa Barbara than we could have by any other means. We toured many of the downtown streets and drove through a couple of parks. We went down a dirt path to view a Koi pond alive with fish and turtles. We parked the units outside a downtown museum, and Bill gave us a locals-tour of the museum.

Bill had so much trivia and local knowledge it made the history of city come alive. From the early Spanish influence through the Chinese settlers, up to a modern multi-cultural city, Santa Barbara is fascinating.

As the tour wound down, we headed back to the pier at a quick 12 mph pace. The Segways maneuvered through the streets with ease and as we pulled up to the shop after two hours on the machines, we found they still had almost a full charge.

I was blown away by the Segway experience. I haven’t had so much fun in years and now I really would like to own one. With gas over $4.25 a gallon here in California, the electric powered Segway would be a great alternative for short trips around town.

Priced around $5000 and very reliable, this may be the future of urban transportation. It’s certainly the most fun you’ll have commuting!