We are increasing prices because …

I saw a notice posted on the external doors of an ice rink that said,

Please close the doors behind you otherwise the rink will fog up

I did not stand around to measure how many followed the advice and whether this number was better than what it would have been if the sign had simply asked “Please close the door behind you”.  But other people have done such studies.

In the book Influence: The Psychology of Persuasion (Collins Business Essentials) author Robert B. Cialdini narrates the work done by Harvard Social Psychologist Ellen Langer on the power of the word “because”.

People simply like to have reasons for what they do.

It does not matter how relevant or meaningful the reason is. The word “because” made the difference in people accepting your request. This isn’t to say that giving reasons for requests works universally but  it does help to reduce resistance.

Take the case of price increases. When a marketer pushes through price increases without extending any reason customers resist those increases and perceive the price increase as unfair. But if the price increase were justified with a reason, a greater number of customers will accept it. In their paper titled, Perceptions of Price Fairness, researchers Gielissen, Dutilh,and Graafland  validated the hypothesis that price increases justified with cost arguments were perceived to be fair by customers.

Ellen Langer’s and Cialdini’s work point to another possible reason for customer acceptance of higher prices – it is not the justification itself but the mere presence of one.  This opens up opportunities for both B2C and B2B marketers to re-price their offering or capture greater value without turning away customers – just give a reason.

We see that in the earnings results of CPG brands that used commodity price increase in 2008 to push through their price increases.

Another case is for two-part pricing – asking customers to pay an upfront fee and then a per unit price.  Examples are mobile phone activation fee or registration fee charged by services. These upfront fees are nothing but pure profit for the marketer and find customer acceptance when justified with reasons, however trivial, like  processing fee or registration fee.  For B2B case, a marketer can charge additional upfront price with reasons like customizations or order processing.

Just give a reason! – “We are increasing prices otherwise we will go out of business”

I should note that this is a pricing tactic and not a strategy – if your strategy is wrong, any number of fine tuning tactics, even with reasons, are not going to help.

Footnote: It is a good idea to A/B test your reasons even though Cialdini and Langer say the specific reason is immaterial.

Fox Tale Soup

There is a children’s book called “Fox Tale Soup“. This is the old story of Stone Soup retold with Fox and farm animals. If you have not read the original I recommend reading this version.

The clever Fox is a great influencer. He starts out by asking for food but was denied any help by the farm animals. After being rejected for his initial request the fox starts with a trivial request,

“just some water please, after all I got the stone to make stone soup”

One of the animals yield and bring water. Of course, if only there was some seasoning, some potato, some rutabaga, …

The fox slowly builds on his seemingly trivial request for water to get to all the ingredients for the soup. The farm animals one after the other ends up bringing salt, potato, rutabaga etc. There are multiple influence principles at play here.

The fox started with an outrageous request, asking for food. Since he was a total stranger the animals so the animals were right in rejecting his request.

Then he followed up with a trivial request, water, which is available in plenty. This is  anchoring.

Once the animal agreed and brought water, there eas no turning back. They ended up giving the rest of the ingredients because of the power of commitment and the inherent need in us to act consistent to our past actions (consistency principle).

There was also consensus effect. Since other animals were helping the fox, any animal that had any misgivings about not helping the fox were nudged by the actions of others and were convinced to help.

That is the power of persuasion.

If you want the psychology behind this you should also read, Influence: The Psychology of Persuasion by Robert Cialdini.

Other book I recommend is Nudge by Sunstein and Thaler.