Here's a second newsletter about psychology and pricing. If you missed it, check out last week's instalment about fairness and pricing.
Did you know that after your first week of training, Zappos will offer you $3000 to quit right then?
$3000 For Your Job
The direct effect of this is that it weeds out less motivated employees. If your Zappos job is only worth $3000 to you, then you probably won’t be very passionate about working there.
But it’s not too big a stretch to imagine that this offer could also have an effect on employees who don’t quit.
As Ian Ayres from the Freakonomics blog puts it:
The vast majority of trainees turn down the offer during training – resisting the temptation to take the money and run. Then almost no one quits in the initial months after training because they’d feel like fools to quit for nothing when they could have quit for money.
This is what psychologists call cognitive dissonance: when your brain has to hold two contradictory ideas at the same time (in this case “I want to quit” and “I turned down $3000 to quit”), it often discards one of them in order to make sense of the situation (“I turned down $3000, so that must mean I don’t want to quit”).
Thinking About Pricing
This got me thinking about pricing. After all, turning down $3000 is the same as spending $3000, economically speaking.
It’s not hard to find courses, videos, and eBooks selling for a couple hundred or even thousand dollars online (usually on the topic of how to make more money). And almost all of them feature glowing testimonials from happy users (which we’ll assume are all real).
I wonder if those testimonials could be a display of cognitive dissonance at work? “This class teaching how to make money online sucks, but I already spent $3000 on it so it must be great”.
In other words, rather than see their ego get hurt, a lot of us are willing to let their wallet cushion the blow…
Looking In The Mirror
I also started wondering about my own pricing strategies. People who buy Discover Meteor’s premium edition generally say they’re happy with their purchase, but is that because they’re genuinely satisfied, or because they’re rationalizing their purchase post-hoc?
Maybe one way to find out is by having an upgrade system or tracking repeat purchases. After all, as long as people keep buying, you can assume they really are happy with their purchase. Otherwise they wouldn't be throwing good money after bad (then again, if you factor in sunk costs… but that's a topic for another time).
Ancient Wisdom
I have to confess I don’t have the answer to all this. But I’ll end this week's email by leaving you with a classic example of cognitive dissonance, and one that should be very familiar to any French schoolchildren:
Driven by hunger, a fox tried to reach some grapes hanging high on the vine but was unable to, although he leaped with all his strength. As he went away, the fox remarked 'Oh, you aren't even ripe yet! I don't need any sour grapes.' People who speak disparagingly of things that they cannot attain would do well to apply this story to themselves.Sacha