Suppose you are a spa owner, and is considering using a new marketing channel for brining in new customers. You have a service that is regularly priced for $90. Suppose you are offered two options for running the promotion, which one are you most likely to prefer:
- For no money upfront, we will deliver you 1000 new customers who will pay upfront for the service. We get paid only when you get paid. You will offer the service at $45 and we take a 50% cut of what the customers pay you. In return you are guaranteed 1000 prepaid customers, most of whom are likely to become regulars, generating future revenues.
- For a cost of $22,500 we will deliver you $45,000 in guaranteed sales from 1000 new customers when you hire us to deliver a coupon offering 50% off. Most of these new customers are likely to become regulars, generating future revenues.
Most people are highly likely to prefer the first option.
Both the options are exactly the same in terms of their cost but differ in framing. The first offer is positioned as a gain with “nothing to lose”. The second option talks about the cost to customers for the same gain. The first option incurs the same cost (ignoring the time value of money for the few days) but does not add the cost over all the units. The second option adds up the cost across all the units.
What we see here is the effect of framing:
Research by Lee and Aaker show, “that gain frames are more persuasive when the appeal is promotion focused and when perceived risk is low”.
After all, there is nothing to lose with Option 1, with no cost ever incurred and 1000 new customers to gain. But when costs are added up and presented upfront, the same no-brainer option does not any more look attractive. Just because the costs are seemingly never incurred, it does mean there are no costs to the option.
So before you dive head first with the latest and greatest promotion plans, shift the frame and do the math and restate the offer in neutral terms. Does it still look attractive?
Next, I will write about making opportunity costs explicit.