Tuesday, March 20, 2007

Caveat Emptor

A friend – an IIT/IIM combo- works for the credit card business of a multinational bank. His job, as I understand it, is to comb and mine the rich data available with the bank on purchases made by millions of customers, identify people with similar spending patterns and lump them in clusters. The bank would then indulge in some ‘focused marketing’ and approach each cluster with appropriate offerings, brochures, etc that would have maximum appeal. Some complex mathematical modeling is involved, but my friend tells me that this is a fairly reliable science and he can claim a success rate of over 90% in his predictions. I have no reason to disbelieve him. After all, his pay and incentives are linked to the accuracy of his forecasting.

It is fascinating how our purchasing behaviour is subtly manipulated by so many different agencies, using methods that have been validated by psychologists in scientific studies. Why do most malls sell perfumes in the ground floor, as close to the entrance as possible? Why not have the perfumes counters in the top floor? That’s probably because some study done by one of the Universities in the US would have shown that more the number of senses that are stimulated, the more favourably disposed the customer would be to part with his money. As he enters the mall, his eyes feast on the colourful displays, his ears hear some soothing music and his nose picks up the fragrance from the perfume spray. He is ‘pre-sold’ by the time he reaches the clothes section. Like those sublimal messages reportedly planted by advertisers, indiscernible to the conscious mind, but perceived by the sub-conscious mind. So, just before the intermission, a sublimal message, “Drink Coke” is embedded on the screen and you, like a zombie, walk to the counter outside and pick up a Coke tin, as if it was the most natural thing to do.

When you went to the white goods shop to buy a microwave oven, were you first shown a model that costs Rs 10000/- , but you ended up buying one that costs Rs 8000/- ? The 10000-Rs model was probably a ‘decoy’ planted there, to provide the right contrast or the frame of reference. In other words, Rs 10000/- was planted in your mind as an anchor and helped in showing subsequent, slightly cheaper models in a favourable light.

Or, when you went in to buy the used car, did the broker say that he had already received better offers and it was already sold, but later called you up to break the news that there was a slight chance that the earlier deal he had may fall through, and you could have it if you paid up the advance amount the same day? The broker is applying the ‘scarcity’ principle. People tend to buy and pay a higher price when there is perceived scarcity.

Did you get an offer from Reader’s Digest to buy a book titled “The Home Cure Manual’ that you could return in ten days if you didn’t like it and get full refund? What they are trying to exploit is the principle that the pain experienced by people in losing what they already possess is far more intense than the pleasure gained when they are acquiring something. So, the trick is to lure you to ‘possess’ a book. You won’t part with it too easily.

Of course, all these studies talk only about probability. That is, they predict that 60-70% of the customers would behave in a certain way under certain conditions. The remaining will not succumb to these methods. The hit rate may therefore vary. That’s the chance that marketing companies take.

The IIT/IIM combo friend that I cited above may be smart, but my favourite salesman is a vegetable vendor near my house. Tomato prices, as we all know, can vary from Rs 5-20 per kg ( or even more). When the ruling price is Rs 5/kg, he would call out, “ Saar, tomato very cheap today. Rs 5 a kg”. When the price shoots up to Rs 20/kg, he would yell out cheerfully, “Saar, Tomato very cheap today. Rs 5 for quarter kg.”

Full disclosure : I am a flag carrying member of the Sales fraternity.


Santhosh said...

I have read about these before.A similar example is the concept of Mail in rebates prevalent in the US. I think you must be aware of it! Will a buyer who is premeditated be influenced by these tactics or are they effective only on those who come with an undecided mind? My opinion is that if a buyer is strong enough mentally, these tactics would not have much of an effect on him/her.

Sowmya said...

what i have noticed is in grocery stores, all the healthy food - vegetables, milk is all stacked towards the back of the store, while all junk food is stacked right at the check out counter. Sounds like driving people towards eating unhealthy!!

Sowmya said...

something went wrong with my English!:-(

Dan said...

Very good article Sir.

Raj said...

santosh, I think this is nothing to do with how strong one is mentally; the decisions are taken by the sub-conscious mind and that's what sellers exploit.

sowmya, yes, people impulse-buy junk food. So,good idea to keep it as close to the cash coutner as possible. And, nothing's wrong with the English.

dan, thank you