So here’s a rundown on the most potent weapons of influence.

Reciprocation

Someone offers me a gift and I want to offer a gift back. Someone does me a favor and I want to return it. That’s a good thing. When my neighbor Bruce offers to take me to the Fresno airport, two hours away, that makes me feel not just a bit obligated, but also like I must be a a pretty good person because why else would he offer? So that’s an obvious gain for me. But when he needs to go to Fresno and pick up his car and I help him out, I not only feel I’ve repaid my obligation, but I again feel like I must be a prett good person, because I’m doing something nice for a friend. I don’t think this is some atypical egomania, but rather pretty normal, though 99% of the time subconscious. We like to do for others and have others do for us and that makes our lives richer. So far so good.

But savvy salesmen and fund raisers will use that against us. The salesman offers us a free gift and we feel like we need to reciprocate by helping him out. So we buy something. You would be surprised how effective this is. When the Disabled American Veterans asked for money, they got an 18% response rate. When they sent out the same appeal with the "free gift" of address labels, they got a 35% response rate (p. 31). The Hare Krishna’s used giving a flower away to similar effect.

Even more subtle, someone asks something onerous of us: "Would you commit to spending one night per week at the homeless shelter for two years?" We say no, and the person then makes a concession: "Could you help out for three hours on Wednesday night?" Studies show that the concession tends to make us feel obligated and the compliance rate soars compared to a direct request to help out for three hours on Wednesday night. Another version is where you go in to buy a camera lens, pool table or an appliance and say you’re looking for a basic version. The salesman starts you off with the most expensive, premium version just to show you what real quality is. Then he backs off to the mid-priced version to show you something more in line with what you want. In this scenario, which invokes both the reciprocal concession and the contrast rule ($500 now seems cheap compared to the $5000 lens). This has commonly been shown to dramatically increase sales (p. 47).

So the truly savvy ask for something they never really expect to get anyway, and then "settle" for what is really their true goal in the first place.

How to Say No. Recognize these practices for what they are — neither gracious nor nefarious, but simple sales techniques employed for the purpose of making a profit. Consider the "free gift" like any other form of advertising. Just because a company spent 26 million dollars to show you an ad during the Super Bowl doesn’t obligate you to anything. Nor does a free home inspection or a free trial of hand lotion. It’s just business. Ask yourself, what would I do if I had not received the free home inspection from them? You would call around and get prices around town, and so you still should.

Social norms and market norms are separate and you must not mix them. Social norms prevail in social situations. For example, if two friends go out skiing and one friend gives the others some pointers just for fun, that’s a social situation and social norms prevail. The instructor would find it absurd to be given cash at the end of it, but might feel slighted if the student didn’t invite him to his Super Bowl party. If a person goes out and hires a professional ski instructor, the ski school requires the student to pay full freight, but the instructor has no expectation of being invited to the student’s party.

In most of our lives, it’s clear which realm were in. However, in Predictably Irrational, which I’ve mentioned before, Dan Ariely shows the danger of mixing these two realms, because if you do, market norms typically win, though by themselves social norms can have a bigger effect. For example, when they pay people to do tasks, the people who are paid tend to perform more work in a given amount of time as their pay increases. But those who do the work as volunteers actually do more work than any of the paid subjects (see pages 70-75). People love to help other people and in the social realm we work for the good feeling that we get from doing something for someone. This is so powerful, in fact, that research shows that giving to others makes us happier than does buying something for ourselves.

You mess this up if you tell Aunt Marge how much your gift bottle of wine cost. Even if she knows it’s cheap or expensive, even if she knows the exact dollar worth of the wine, it fits within the context of social norms until the price is explicitly mentioned. But then, no matter what the price, it fits within market norms.

Companies mess this up all the time by trying to ingratiate themselves, pretend you have a relationship, you and the company are friends. But the second they hit you with a late fee and refuse to budge, the second they tell you that they have policies and can’t treat you differently than everyone else, they have violated the social norm and entered the realm of market norm. If it has always been a market relationship, that presents no problem. But if you’ve been courted like a friend, like your relationship is personal, like you won’t be treated like everyone else, the abrupt reentry into the realm governed by market norms feels like a betrayal. You end up having stronger negative feelings toward the company than you do towards companies for whom they never had any warm fuzzy feelings. It’s like the difference between hailing a cab and, upon reaching the destination, being asked to pay the fare. No problem. But if you ask a friend for a ride to the airport and at the destination you’re asked to pay “just half” of the cab fare because “we’re friends”. It’s a stab in the back and when companies act this way, they should be prepared to have accounts closed and to see virulent blog posts and horrid word of mouth publicity.

Ariely puts it thus:

If you’re a company… you can’t have it both ways. You can’t treat your customers like family one moment and then treat them impersonally — or even as a nuisance or a competitor — a moment later when this becomes more convenient or profitable.

Personally, I never become “friends” with companies, only with people. So no matter how much I respect a business, I don’t buy t-shirts with their logo and I don’t put their stickers on my car. So I’m disloyal, but I’m safe. But what about all those people who not only buy ice cream, but buy a Ben and Jerry’s t-shirt, that is they pay for the right to wear advertising?

Of course, I can be bought cheap. If I don’t hate your company and there’s a free t-shirt in it…

We as humans tend to key on contrast and judge value by the relationship of one thing to another. If we can find a comparable, we always do. The way Starbucks got us to buy $4 cups of coffee (er, you, anyway, since I have never bought a coffee a Starbucks, but I have bought a double chocolate cream frappucino) was to make the experience difficult to compare to Dunkin Donuts. Euro-style tables, funny names, funky music, soft lighting, all contributed to an ambiance sufficiently different to make the comparison difficult. Tough economic times, have made people more willing to see coffee as coffee and refuse to pay for the experience (that and, of course, the fact that the Starbucks experience has become mundane itself, just like Dunkin’ Donuts).

We all know that from personal experience, but I have been seeing it a lot more clearly since reading Dan Ariely’s fun book Predictably Irrational: The Hidden Forces That Shape Our Decisions and the interesting, though a bit more stodgy Robert Cialdini book Influence: The Psychology of Persuasion. So here’s where it gets interesting. Savvy marketers know that we judge value by contrast and relationship. So the Economist offers subscriptions for the following rates (or did when Ariely did his study):

1. $59 for the online-only subscription.
2. $125 for the print-only subscription.
3. $125 for the print and online subscription combined.

What’s going on there? Why even bother to offer option 2? Simple. It isn’t clear which is the better deal between $59 for the online subscription or $125 for the print subscription, but there’s no question which is the better deal between the print-only and the print and online option. Because of that and because those two are obviously comparable — different offers at the same cost — we key in on those two options. When Ariely showed the offer to MBA students at MIT, only 16% went for the online-only subscription, none went for the print-only option and a whopping 84% signed on for the combo. The deal was too good to pass up. But, and this is where it gets really really interesting, what if you eliminate the print-only subscription? After all, not a single person wants it anyway, so it’s not really an important part of the offer, right? Well when he offered only two choices, the online version and the combo (options 1 and 3 in other words) to MBA students, with no “decoy” offer, 68% opted for the internet-only option. So in other words, by focusing the comparison on the $125 option, they shifted from a measly 32% willing to pony up $125 to a whopping 84%. That’s the power of contrast! We are just not wired as humans to think in absolutes, which is usually a good shortcut as historically, evolutionarily (and in most life-threatening situations) we have very few choices and choosing quickly has advantages. In the modern marketplace, though, it’s a different story.

Cialdini has all sorts of examples where the contrast principle is used to influence our decisions. Brunswick pool tables instructed salesmen to start by showing the most expensive pool tables “just to see what the high-end features are” and then bring people down the price ladder. Result: a big increase in the amount people were willing to spend because the mid-range tables now seemed cheap. Some clothing retailer figured out that if a man comes in to buy a suit, always sell the suit first and the accessories second. After making the big purchase, what’s another $20 for a tie? But if they choose the tie first, they’ll go for the $10 tie instead.

This is also why discounts, coupons, MSRPs on cars that nobody pays, and “$97 value, yours for only $27″ work even if nobody in the history of humanity would consider paying $97 for the piece of junk that really isn’t even worth $27. Even though in our rational mind we know with certitude that the list prices are absurd and nobody pays them, they anchor us on high prices and we compare the sales price to the high price put in our mind because we are wired to compare. This is so subtle and so powerful that if you simply ask people what the last two digits of their social security number are, this will actually influence how much they are willing to pay for something later. Those with higher numbers are actually willing to pay more because the higher number is still stuck in their mind and that provides the mental anchor at that moment. In the absence of a meaningful comparison, they are simply comparing the last two numbers they have heard and that makes a price seem reasonable or unreasonable depending on what has become set as their anchor.

So as a consumer, you need to really think about what comparisons you make implicitly, without thinking about it. And as a merchant, of course, you need to think about what comparisons your customer is making.

I’ve been a vegetarian since 1982 if I remember correctly, which is hard what with my brain fried from malnutrition from not eating dead cows and all. Anyway, back then going to restaurants as a vegetarian was a disappointing affair even in lefty liberal bastions like Burlington, Vermont, where I lived at the time. Burlington was on the verge of electing a socialist mayor and had already made minor local celebrities out of two hippies named Ben and Jerry, but it was still quite a challenge to find a vegetarian meal in a restaurant. When my brother took me out to eat and I had to settle for a baked potatoe for dinner, he declared me a cheap date.

Since then, it’s become much easier to find a vegetarian meal, especially in California, but for about the first time in my twelve years in California, I ran up against the wall. We picked up my hungry in-laws at Fresno airport to whisk them off to Yosemite and decided to eat at the rather fancy, supposedly award-winning Steak and Anchor restaurant at the Piccadilly Airport Hotel.
Once seated, it turned out there was not a single vegetarian item on the menu. I mentioned that to the waiter and he said, unhelpfully, that I could look through the menu for ingredients I liked, and ask the chef for something made from those ingredients. Since there were hardly any vegetarian ingredients mentioned, that didn’t get me very far. In similar situations in the past, the waiter has typically offered to go talk to the chef to get a list of options. Anyway, so what they served me was an attrocious salad.

When the restaurant manager came by to ask how everything was, I said politely that it was "fine" and then thought better of it. He would probably want to know how I really felt, right? So I called him back and said I was actually quite disappointed that there wasn’t a single vegetarian option on the menu. He said they used to have one on the menu, but it sold poorly, and therefore they removed it. At that point I had to explain to him that his math for counting vegetarians was wrong.

How the restaurant counts vegetarians

I’m guessing they figure the value of vegetarians like this:

• Add up the number of times a customer orders the vegetarian dish.
• Compare it to the number of times customers order each of the other dishes.
• If you’re planning to cut the three worst-selling dishes and the vegetarian dish is the second worst-selling, it gets cut from the menu.

How they should count vegetarians

But here’s the problem with that: vegetarians do not typically eat alone and they do not typically dine only with other vegetarians. They will not, however, go to a restaurant that has nothing to offer vegetarians. So if you lose the vegetarian’s order, you lose the whole group. So the proper way for a restaurant manager to count vegetarian meals is like this:

• Add up the number of times customers order the vegetarian dish.
• Multiply that number times the size of your average group.
• Now use that number to rank order the importance of offering a vegetarian meal on your menu, because that’s the true income that vegetarian meal represents.

The best estimates are that in 2008, 3.2 percent of Americans are vegetarians, according to research conducted by Harris Interactive and commissioned by Vegetarian Times. Additionally, 10 percent "say they largely follow a vegetarian-inclined diet." Let’s take the real vegetarians only though. That means that only about one in thirty customers should be a vegetarian. But let’s say that the average groups size is three. That means that the chance of there being one vegetarian in the group is 9.3% (see Notes below). But here’s the killer. Occasionally you have groups of 10, which is presumably a nice, high-profit group.
That group has a roughly 30% chance (30.1% actually) of having a vegetarian who will not want to patronize a restaurant with no veggie items. So you could actually lose out on almost 1/3 of all large groups. As group size increases, the chance of taking the vegetarian menu into account increases and your chance of seeing that group in your restaurant goes down.

Most restaurant managers get it. This one did not (though he was real friendly and nice). So here’s the end result of that: I will never go to that restaurant again. It no longer matters if they add a vegetarian item or not. It’s too late. They’ve lost me as a customer. I’m not being petty or vindictive, it’s just that I will never bother to check. I’ll try the Holiday Inn next time and if they have no veggie meals, I’ll just give up on the airport dining, but why would I take the time to go back on the off chance they’ve added something for me? It’s just not a good investment of my time. They’ve also lost as customers every hungry passenger I will ever pick up at the airport, whether vegetarian or not.

So Who Cares? I Don’t Serve Food

Fine. You can do without vegetarians, but that’s just one example of how a small group can cost you a lot of customers. In a similar vein, my mother-in-law is hearing-impaired. If a restaurant is particularly noisy, we don’t go back. Of course this can apply to any type of business. So you have to ask yourself — who can you afford to alienate and how much would it really cost you to minimally accomodate that group?

Notes
Some people assume that you figure cumulative probabilities by adding, so if the chance of any one person begin vegetarian is 3.2%, the chance that a group of ten has at least on vegetarian is 32%. Obviously that doesn’t work, because if you had 100 people the chance would be 320%, which is not possible. Actually, if x is the probability that any one person is a vegetarian and there are n persons in the group:
probability as percentage = 100 * (1 – (1-x)^n)
Got it?