Tuesday, 29 July 2014

Changing the choice context can change the game

I saw a number of presentations from various UK startups in the last few weeks and one really caught my attention.

Playmob is a startup focused on linking charitable giving to the purchase of game items/actions.  When CEO/Founder Jude Ower presented she described the positive effect that linking a charity donation to the purchase of a virtual item had.  In one example she detailed how 80% of people who purchased the virtual item had never purchased one before and of those, over 30% went on to purchase more virtual items.

I found these stats pretty amazing.

The 80% alone would be a good result - getting people who hadn’t previously purchased virtual goods to buy them.  You could argue that they weren’t really buying the goods and instead just used the opportunity to be charitable - however, with 30% going on to purchase again, this suggests a change of decision.  

The introduction of the charity element had somehow changed the decision context and caused them to purchase an item they had apparently previously ruled out.

Obviously, as marketers, influencing customer choice is something we do all the time - this is the basis of sales promotions and loyalty programmes.  What intrigued me though was the sheer number of people influenced who had never purchased virtual goods before.  It seems they simply need a little push to flip their decision.

In another charitable example, there was a study by Karlan and List called "Does Price Matter in Charitable Giving?” and they identified that match funding for charitable donations - whereby every $1 the donor gives is matched by another $1 - increases the amount given per donation (by 19%) as well as increasing the number of donations (up by 22%).  What’s really interesting here though is that the amount matched doesn’t actually impact these numbers - whether it’s 1:1 match of a 3:1 match (e.g. $3 matched to every $1 donated), the resulting uplift is the same.

This suggests that when it comes to decisions to do something, it is not just a black and white binary decision - there are lots more variables at play.  

Sure, there will be a segment who will always say yes and a segment that will always say no.  But in the middle, there is a floating segment who just need a little extra nudge to flip a no to a yes.  It also suggests that people don’t commit as much as they could - with the match funding lifting the actual amount donated it suggests that people had a little more headroom but that this only went so far.  The promise of even more match funding would not influence them to go past their personal headroom target.

The decisions people make  - such as whether to buy a virtual item or not - depends on them making a number of decisions that lead up to the final choice.  In doing this, people tend to make compromises and tradeoffs to compare the likely outcome.  Evaluating the cost vs the benefit and looking at the different options in terms of the value they add.  What’s interesting here though is that it’s possible to change the choices people make by introducing additional options, even if they don’t actually go for that option.

This seems to be what Playmob had tapped into.  The game producers already had a model for getting some players to purchase items (typical less than 3%), but they needed something to change the context to influence others.

The decisions people make however really depends on the context of the choices available.

Using the example of a circle, that same circle appears large when surrounded by small circles and small when surrounded by large ones.  In the same way, a purchase choice such as a virtual reward may appear to be unattractive in context of the value it adds to the game, but becomes more attractive when combined with another, real-world benefit such as a charitable gift.  Likewise, in charitable giving - whether to give and how much to give can be manipulated by the introduction of an additional variable or choice such as match funding or gift aid.

Placing more variables into the mix can ultimately change a persons choices in more complex ways.  A good example of this was published in the research report entitled “Choice in Context - Tradeoff Contrast and Extremeness Aversion” by Simonson and Tversky.  

It had a study which provided two groups with two different sets of choices for the purchase of a new microwave oven.  In the first group they had 2 product choices which varied by price and quality, but with the same discount.  The second group had the same choice but with one additional product added with better quality, better price but less discount.  See table below:-

 

Microwave Choice Group 1 Group 2
Emerson (0.5cu. ft. / $109.99 / 35% off 57% 27%
Panasonic I (0.8cu. ft. / $179.99 / 35% off 43% 60%
Emerson (1.1cu. ft. / $199.99 / 10% off n/a 13%

 

What’s intriguing here is that in the first group, the lowest quality product won out with 57% of purchases.  In the second group however, this same product only attracted 27% of purchases because a potentially better product was introduced into the mix.  Participants were forced to make choices using a different context and with different tradeoffs and so in this case, the 2nd product won out overall with 60% of purchases.

Simply by adding in another product - albeit one more expensive - the researchers were able to increase the overall sales revenues by encouraging a greater number to select the higher priced item.

This also worked in reverse.  In a similar study, they introduced a lower quality choice into the mix and demonstrated how this encouraged the participants to then increasingly select the higher value/cost option.

So choice is not a static context - just because your products and offers have influenced some customers doesn’t mean thats the best it can be.  Changing the choice context can shake things up a little and create an additional nudge for customers - whether that’s making their first purchase or increasing/uplifting their planned purchase.

This isn’t just a one-off benefit though as can be seen by the Playmob example.  Having given users a reason to purchase by changing the choice context, they then went on to continue purchasing as this initial choice had broken down the barriers to future purchases, possibly through the forming of a cognitive bias such as the commitment bias.

In the context of loyalty marketing, using the reward currency to provide additional options and to change the choice context can be an excellent way of encouraging consumer trial or repeat purchase - simply by sprinkling a small number of points on different product options.  Also, like the match-funding example, the value of the points given isn’t directly related to the change of behaviour.

Changing the choices changes the context and ultimately can allow you to change the rules of the game.

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