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Decoy Effect: The Sneaky Sales Trick That Turns Shoppers into Spenders

May 23, 2023 By Nagesh Belludi Leave a Comment

The Decoy Effect: A Sneaky Marketing Technique That Makes You Splurge

Imagine yourself at the movie theater, deciding whether to buy a small popcorn for $5 or a large popcorn for $8. You’re wondering if the extra popcorn is worth the extra money, so you consider the small size. Suddenly, the cashier offers you medium popcorn for $7.50, and you buy it instead of the small one.

However, the medium popcorn is a lure—a true distraction. By introducing it, the theater has made the large popcorn seem like a better value and the small popcorn seem less attractive. This is a classic marketing strategy known as the Decoy Effect, which aims to influence your decision-making.

In essence, the Decoy Effect presents you with two options and then adds a third option designed to make one of the original options more appealing. This can sway your decision-making and lead you to choose the more expensive option.

Studies have shown that framing can influence our decisions, as a well-designed decoy can shift opinions by up to 40%. One well-known example of the decoy effect in action is from The Economist, the influential weekly international news and business publication. Behavioral economist Dan Ariely’s book Predictably Irrational (2008) describes how the magazine offered a digital subscription for $59, a print subscription for $125, and a combined print and online subscription for the same price of $125. The print-only subscription was clearly a decoy, designed to make the combined subscription seem like a better value, and it worked; the presence of the decoy significantly increased the uptake of the combined subscription.

While psychologists are still debating the exact reasons for this cognitive bias, one theory suggests that the decoy provides a straightforward justification for a decision that might otherwise seem arbitrary.

Idea for Impact: If you run a business, you too can use the decoy effect to steer consumers towards certain purchasing decisions that benefit your bottom line. By strategically adding a decoy product to your offerings, you can provide perceived value for your customers while boosting your profits.

Wondering what to read next?

  1. Clever Marketing Exploits the Anchoring Bias
  2. Your Product May Be Excellent, But Is There A Market For It?
  3. The Longest Holdout: The Shoichi Yokoi Fallacy
  4. The Greatest Trick a Marketer Can Pull
  5. The Loss Aversion Mental Model: A Case Study on Why People Think Spirit is a Horrible Airline

Filed Under: Business Stories, MBA in a Nutshell, Mental Models, Sharpening Your Skills Tagged With: Biases, Creativity, Marketing, Persuasion, Psychology, Thought Process

The Greatest Trick a Marketer Can Pull

February 21, 2023 By Nagesh Belludi Leave a Comment

The Greatest Trick a Marketer Can Pull The greatest trick a marketer can pull is making you think it’s not marketing.

Take Southwest Airlines, for example, which has consumers persuaded that it’s got the lowest fares. That was true in the ’70s when the airline spurred demand by keeping costs down and offering low fares. But being able to preserve that “lost cost-airline” aura into its sixth decade is commendable, especially with its bloated cost structures.

How about Hallmark, which contrived no end of commercially driven, proclaimed ‘holidays’ (sweetest day? clergy appreciation day?) to guilt people into buying overpriced greeting cards for no discernible reason? Emotional inflation at its finest: “While we’re honored that people so closely link the Hallmark name with celebrations and special occasions, we can’t take credit for creating holidays.”

Wondering what to read next?

  1. The Loss Aversion Mental Model: A Case Study on Why People Think Spirit is a Horrible Airline
  2. Clever Marketing Exploits the Anchoring Bias
  3. Your Product May Be Excellent, But Is There A Market For It?
  4. Make ‘Em Thirsty; or, Master of the Art of the Pitch
  5. How to Create Emotional Connections with Your Customers

Filed Under: Business Stories, Mental Models Tagged With: Biases, Creativity, Marketing, Persuasion

How You Make a Memorable Elevator Speech

September 29, 2022 By Nagesh Belludi Leave a Comment

How You Make a Memorable Elevator Speech With an elevator speech, you not only have a short time to elicit someone’s interest but also the added challenge of standing out from the crowd.

Your only goal should be to say something intriguing, memorable, and unique, prompting the prospect to lean in and invite, “Wait … do tell me more.”

I’ve listened to hundreds of elevator languages, and the few that continued out are the ones that sparked a conversation. Sameness and clichés are boring—everything sounds more or less the same. If, on the proverbial elevator, one must decide between ‘different’ or ‘better,’ one would choose ‘different.’ People remember ‘different.’

So, presenting yourself in the best possible light involves saying something snappy and ditching the details. Be concise and coherent, but not vague. Appear mysterious and confident, but not arrogant.

Idea for Impact: With an elevator speech, you’ll be forgotten if you aren’t unique and memorable. Rehearse your message well and be ready to perform it flawlessly at a moment’s notice.

P.S. My elevator speech: “Hi, My name’s Nagesh. I’m an investor. I’m just like Warren Buffett, except that I deal with a lot fewer zeros than him.”

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  4. Facts Alone Can’t Sell: Lessons from the Intel Pentium Integer Bug Disaster
  5. Here’s a Tactic to Sell Change: As a Natural Progression

Filed Under: Effective Communication, Sharpening Your Skills Tagged With: Communication, Critical Thinking, Marketing, Meetings, Negotiation, Persuasion, Presentations, Skills for Success

Dear Customer, Speak Early and Have it Your Way!

September 12, 2022 By Nagesh Belludi Leave a Comment

Development of the Boeing 777 Program: 'Working Together' Initiative

At the heart of every successful product is the ability to address a real need or circumstance of struggle—a “job to be done”—in consumers’ lives. Identification of this “job” happens early in the innovation process, as it forms the core insight around innovation development and execution.

Feedback-Influenced Design is a Key Point of Differentiation

Long before its current mess, Boeing was once the pioneer in aspects of product development. No example illustrates Boeing’s inventive stills than the groundbreaking Boeing 777 program, particularly in its use of iterative, paperless computer-aided design, assembly process-planning, and agile product development. Not only that, the Boeing 777 program offers the most high-profile examples of companies tapping consumers as never before to help them create new products.

Knowing very well that the secret to long-term success starts very early in the innovation process, director of engineering Alan Mulally led a “working together” initiative to organize product development around customer input. (Mulally left Boeing after not being named CEO in 2006 and engineered a dramatic turnaround at Ford Motor Co.)

Alan Mulally: Boeing 777 Program's Director of Engineering and Later Vice-president and General Manager

Concept Testing at Every Stage of Development

In the late 1980s, just as the 777 program was being launched, Mulally made a consequential decision to involve its major potential customers in the development of the aircraft specifications. Mulally made up a “gang of eight” comprising All Nippon Airways, American Airlines, British Airways, Cathay Pacific, Delta Air Lines, Japan Airlines, Qantas, and United Airlines. At the group’s first meeting in January 1990, Mulally’s team distributed a 23-page questionnaire asking what each customer wanted in the design. Within two months, Boeing and the airlines decided on a basic design configuration.

The “working together” initiative was a radical departure from the bureaucratic project organization. Internally, Boeing had become bureaucratic and department-focused. Specialists in various departments would design their parts. Then, it was up to the manufacturing team (the system integrators) to figure out how to make it all come together. It was a “throw-it-over-the-wall” environment where the disconnect was a persistent problem.

Having customer input implied that development was centered on customer needs. This would also tear down the walls between departments—designers, suppliers, and assemblers usually separated by organizations or development phases would now be engaged collaboratively and talking and collaborating in real-time.

Boeing and the In an industry where manufacturers classically designed aircraft with only token customer input. Rather than presenting the market with what Boeing perceived as their idea of what was required, customers had direct input. Over the decades, the Boeing 777 became one of the world’s most successful commercial aircraft and continues to be the workhorse of many a customer fleet.

Idea for Impact: Create Something People Want

Whether selling products or services, fast food, or experiential travel, the most innovative companies organize their offerings around customers’ needs. From the very beginning, they tap consumers as never before to help them create new products, and they’re embedding customer knowledge into the business. Early and frequent feedback is one way to cope with the pressure for shorter product cycles and to be prudent about not investing time and resources in unpromising ideas. It also augurs well for the experiences-over-possessions shift in consumer values.

Wondering what to read next?

  1. The Loss Aversion Mental Model: A Case Study on Why People Think Spirit is a Horrible Airline
  2. Your Product May Be Excellent, But Is There A Market For It?
  3. Books in Brief: ‘Flying Blind’ and the Crisis at Boeing
  4. Turning a Minus Into a Plus … Constraints are Catalysts for Innovation
  5. Creativity by Imitation: How to Steal Others’ Ideas and Innovate

Filed Under: Business Stories, Leading Teams, Mental Models, The Great Innovators Tagged With: Aviation, Creativity, Innovation, Leadership Lessons, Marketing, Mental Models

The Loss Aversion Mental Model: A Case Study on Why People Think Spirit is a Horrible Airline

August 11, 2022 By Nagesh Belludi 1 Comment

Why People Think Spirit is a Horrible Airline---Loss Aversion Mental Model

When Spirit Airlines pivoted to competing on price in the late 2000s, it quickly gained a reputation not only for operational inefficiencies but also for its in-your-face, take-it-or-leave attitude towards customer service.

Where other airlines charged by-the-package fares for the flight experience, Spirit pared back service and introduced an a la carte pricing model. Charging for the “ancillaries”—i.e., everything optional, including water—allowed Spirit to keep ticket prices down and appeal to price-sensitive travelers willing to sacrifice the usual amenities for a lower ticket price.

In the ensuing years, the unconventionality of this business model did not go down well with customers. Much of the flying public’s frustration with Spirit had to do with Loss Aversion. That’s the notion that the emotional disappointment of a loss is more extreme than the joy of a comparable gain. If finding a cheaper fare on Spirit felt delightful, giving up some—or all—of the savings to purchase ancillaries and surrender the savings felt utterly miserable.

Passengers felt ripped off by these seemingly hidden fees, especially when the true cost of flying Spirit ended up greater than what the initial ticket price led them to believe.

Spirit 101---Spirit Airlines Perception Problem Spirit became quickly convinced that there was a perception problem—its customers didn’t fully understand how its fares work. Particularly, first-time customers blindly presumed that Spirit Airlines works the same way as other airlines. In reality, there were no hidden or excessive fees, and passengers could only pay for what they need or want. In 2014, the airline introduced its “Spirit 101” campaign to educate customers and alter their perceptions. With time and the increased adaptation of the “Basic Fare” model and curtailed customer service by every other airline, passengers’ expectations have since been right-sized. Spirit Airlines has come a long way, and its customer service has improved vastly.

Further studies on loss aversion have shown that a cascade of successive fees is worse than the cumulative: i.e., three ancillary fees that add up to, say, $70, feel a lot worse than a single $70 fee. Appropriately, Spirit offers a “Bundle it Combo” package.

Wondering what to read next?

  1. Your Product May Be Excellent, But Is There A Market For It?
  2. Make ‘Em Thirsty; or, Master of the Art of the Pitch
  3. Why Investors Keep Backing Unprofitable Business Models
  4. How Stress Impairs Your Problem-Solving Capabilities: Case Study of TransAsia Flight 235
  5. A Sense of Urgency

Filed Under: Business Stories, Mental Models Tagged With: Aviation, Biases, Customer Service, Decision-Making, Emotions, Entrepreneurs, Innovation, Marketing, Mental Models, Parables, Persuasion, Psychology, Strategy

Why Investors Keep Backing Unprofitable Business Models

July 29, 2022 By Nagesh Belludi Leave a Comment

Why Investors Keep Backing Unprofitable Business Models Investors have heaped billions into Q-Commerce—especially the rapid grocery startups—hoping to hook consumers on the convenience of groceries that would turn up immediately, sometimes in minutes.

I’ve never really fathomed how the small-basket orders of low-margin groceries can endlessly compensate for the labor costs and overheads, even after discontinuing the generous referral bonuses, discount codes, and freebies enticing customers. The prospects may evolve if these startups subsist on ever more funding and develop massive businesses with efficiencies from scale. But then they’re right in Amazon’s wheelhouse.

Idea for Impact: Some business models are never created to be profitable, and investors should be wary of encouraging—and funding—loss-making propositions. The lure of backing an initial entrant, capturing market share, and then selling out to a more determined fool isn’t viable! Who needs goods delivered in such a rush for such charges, anyway?

Wondering what to read next?

  1. The Loss Aversion Mental Model: A Case Study on Why People Think Spirit is a Horrible Airline
  2. Your Product May Be Excellent, But Is There A Market For It?
  3. The Myth of the First-Mover Advantage
  4. A Real Lesson from the Downfall of Theranos: Silo Mentality
  5. Fall in Love with the Problem, Not the Solution

Filed Under: Business Stories, The Great Innovators Tagged With: Entrepreneurs, Ethics, Innovation, Marketing, Persuasion, Strategy, Thought Process

Selling is About Solving Customer Problems

December 15, 2021 By Nagesh Belludi Leave a Comment

The best salespeople don’t sway customers through manipulative games and mesmerizing presentations. Instead, they figure out how they can enhance a customers’ lives.

Selling is About Solving Customer Problems If customers believe their problems are real and, more importantly, if they understand them personally, they’re more likely to be persuaded by an image of a satisfying solution.

No product or service is excellent in and of itself. It’s only worthy if it fulfills customers’ needs.

Invest more time in the problem representation stage. Develop a fuller appreciation of your customers’ problems. Make the idea of paying money for the solutions seem natural. Induce consumers to fit your products and services into their long-held routines.

Idea for Impact: Focus on solving customer problems. Don’t find customers for your product. Find products for your customers.

Wondering what to read next?

  1. Make ‘Em Thirsty; or, Master of the Art of the Pitch
  2. The Loss Aversion Mental Model: A Case Study on Why People Think Spirit is a Horrible Airline
  3. Creativity & Innovation: The Opportunities in Customer Pain Points
  4. What it Takes to Be a Hit with Customers
  5. A Sense of Urgency

Filed Under: Leadership, Mental Models Tagged With: Customer Service, Marketing, Mental Models, Persuasion, Problem Solving, Skills for Success

Wouldn’t You Take a Pay Cut to Get a Better Job Title?

August 27, 2021 By Nagesh Belludi Leave a Comment

Venture capitalist Ben Horowitz on giving employees ego-boosting new job titles to appease them for not receiving a promotion or a pay increase:

Marc Andreessen argues that people ask for many things from a company: salary, bonus, stock options, span of control, and titles. Of those, title is by far the cheapest, so it makes sense to give the highest titles possible… If it makes people feel better, let them feel better. Titles cost nothing. Better yet, when competing for new employees with other companies, using Andreessen’s method you can always outbid the competition in at least one dimension.

Wouldn't You Take a Pay Cut to Get a Better Job Title? Millennials tend to consider work as the defining aspect of their identity (see Horowitz’s What You Do Is Who You Are (2019).) Job titles aren’t just descriptors of what they do but a reflection of who they are—not just service technicians at an Apple Store, but Geniuses. A self-elevating job title helps them cling to the notion that work has meaning and, consequently, their work-lives make sense.

Moreover, since they’re experiencing more of their lives online than any generation before them, millennials tend to be conscious of their personal brands on social media. Being a ‘senior numbers ninja’ rather than a mere ‘cost accountant’ offers instant branding appeal.

Idea for Impact: However superficial they sound (“bogus grandeur,” I called them previously,) a fancy title could help you land a better position further down the line. Get creative with your job title even if you have to take a hit on your expected salary—it could pay off in the long term.

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  4. Don’t Use Personality Assessments to Sort the Talented from the Less Talented
  5. Before Jumping Ship, Consider This

Filed Under: Career Development, Managing People Tagged With: Career Planning, Human Resources, Job Search, Marketing, Winning on the Job

Yes, You Can Write a Book. But Should You?

May 20, 2021 By Nagesh Belludi Leave a Comment

Spare Us from Your Fluff - Do You Need to Write That Book?

There’s a disturbingly large number of popular books that have been drawn out from a well-received op-ed (example,) blog article (example,) TED talk (example,) or commencement speech (example.) All puffed up with blather and personal anecdotes and exhortations that are often remotely relevant to the core arguments.

Beyond the obvious motives for writing a book (credibility, publicity, vanity,) many books aren’t really necessary. If they are, they deserve to be no more than page-length articles—paragraphs even.

The rise of self-publishing and on-demand printing has only exacerbated the precipitous decline in originality. Formula writing proliferates. There’re no gatekeepers to decide whether you can publish your book—and save you from your own ego.

If you believe you have a book in you, don’t even think about publishing it. Keep it inside you, where it belongs. Unless you’ve got something worthwhile and unique to say, or you can do good writing for its own sake.

Idea for Impact: Save the time. Save the typing. Save the trees. Spare us from your fluff.

Wondering what to read next?

  1. How to Create Emotional Connections with Your Customers
  2. The More You Write, The Better You Become
  3. Why Amazon Banned PowerPoint
  4. How You Make a Memorable Elevator Speech
  5. Lessons from Amazon: ‘Mock Press Release’ Discipline to Sell an Idea

Filed Under: Effective Communication Tagged With: Books, Marketing, Persuasion, Writing

Avoid Being the Low-Priced Competitor

October 14, 2020 By Nagesh Belludi Leave a Comment

In determining how much you’ll charge for your products and services, explore the “price umbrella”—how others are charging for competitive or comparable products.

The key to pricing is knowing how much your service is worth for your client. Charge too little, and you’re short-changing yourself and making your client speculate, “If she’s decent, why does she charge so little?”

Avoid being a low-price competitor. It’s a terrible habit. Don’t announce, “I’m new. I’m trying to get established. Therefore, I’m offering my service for less than the existing players. Please buy from me.”

Avoid Being the Low-priced Competitor Jim Price, an entrepreneurship lecturer at the University of Michigan-Ann Arbor and author of The Launch Lens: 20 Questions Every Entrepreneur Should Ask (2018,) calls this “apologetic pricing.”

Instead, consider the “proud pricing” approach: “We’re launching this business because we firmly believe in our unique value proposition; we look forward to explaining that to customers and charging a premium price for a superior product.”

Positioning yourself as the low-price market offering is a competitive strategy that tends to only work for large, undifferentiated retailers and similar businesses, and it is a poor prescription for entrepreneurial startup success.

Being the low-priced competitor tends to require massive operational and financial scale and often results in an undifferentiated product or service offering and a business with very narrow profit margins.

Idea for Impact: Don’t get stuck in the race to the bottom to be cheaper. Marketing expert Seth Godin has reminded, “Cheaper is the last refuge of the marketer unable to invent a better product and tell a better story.”

Wondering what to read next?

  1. Leo Burnett on Meaning and Purpose
  2. Fail Cheaply
  3. Clever Marketing Exploits the Anchoring Bias
  4. Beware of Key-Person Dependency Risk
  5. Your Product May Be Excellent, But Is There A Market For It?

Filed Under: MBA in a Nutshell Tagged With: Career Planning, Creativity, Entrepreneurs, Marketing

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About: Nagesh Belludi [hire] is a St. Petersburg, Florida-based freethinker, investor, and leadership coach. He specializes in helping executives and companies ensure that the overall quality of their decision-making benefits isn’t compromised by a lack of a big-picture understanding.

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Unless otherwise stated in the individual document, the works above are © Nagesh Belludi under a Creative Commons BY-NC-ND license. You may quote, copy and share them freely, as long as you link back to RightAttitudes.com, don't make money with them, and don't modify the content. Enjoy!