Psychology plays a critical role in the world of business. Understanding psychology and human nature can give businesses a significant advantage, particularly in regards to pricing and marketing decisions.
Large corporations understand this reality and often have teams within their marketing department focused specifically on the science of consumer decision making. Of course, small businesses typically don’t have the resources to employ highly trained psychologists. However, just because your business doesn’t have a million-dollar marketing budget doesn’t mean that you should be at a disadvantage to your large competitors. So today, we are going to discuss three critical lessons from the world of psychology that can be applied to your business:
1) Create context for your prices. Study after study has demonstrated that humans don’t evaluate prices objectively—we look for context. In other words, if product X costs $30, product Y costs $35, and product Z costs $40, product X seems like a great deal, assuming all three products are comparable. On the other hand, if product Y costs $25 and product Z $20, all of a sudden product X seems expensive. You’ll see this strategy in action at upscale steakhouses and restaurants, for instance. Savvy marketers price their "top cut" of meat at an inflated price—which makes everything else on the menu seem like a bargain.
2) Seduction can be more effective than selling. The blog Neuromarketing noted recent research which indicates that appeals to emotion can often be more effective than advertising which focuses on logic and rationality. Consider spicing up your advertising to include emotional appeals as well as logic—and be sure to track the results.
3) "I’m sorry" is more than just a saying. In Dan Ariely’s book The Upside of Irrationality, he cites experiments in which he demonstrates that the simple act of saying "I’m sorry" can go a long way toward restoring any relationship. Whether it is an angry employee or an unhappy customer, take the time to verbalize an apology (when warranted.) Many experts believe that the act of apologizing has powerful psychological implications—and in some cases, it may be enough to salvage a valuable relationship. Understand the power of the apology and leverage it strategically!
A smart business owner uses every advantage available. While you may not have your degree in psychology, you will be able to find situations within your business in which you can apply these valuable lessons.
[Image: Flickr user dok1]