Dan Ariely is one of the most interesting people I have ever come across… I could go on about his various TED talks or the rest of his incredible CV – but you can enter that rabbit hole another time. Today, I wanted to cover Chris Yeh’s Outline of Predictably Irrational: The Hidden Forces that Shape Our Decisions. It’s one of Ariely’s most fascinating books… and takes a peek into the predictable psychology that powers human actions and reactions. As always, I’ll try and pick out some lessons we can apply to our world of watches. Here’s Ariely’s list:
1. The Truth About Relativity
When Williams-Sonoma introduced bread machines, sales were slow. When they added a “deluxe” version that was 50% more expensive, they started flying off the shelves; the first bread machine now appeared to be a bargain.
When contemplating the purchase of a $25 pen, the majority of subjects would drive to another store 15 minutes away to save $7. When contemplating the purchase of a $455 suit, the majority of subjects would not drive to another store 15 minutes away to save $7. The amount saved and time involved are the same, but people make very different choices. Watch out for relative thinking; it comes naturally to all of us.
LESSONS TO APPLY TO WATCHES:
Beware of being offered a premium version of a watch and using it as a trigger to buy the alternative.
Being charged more might reduce your “bargain hunter” mentality be mindful of what you’re giving up, no matter how small a percentage it might be.
Most importantly, gather data thoroughly – relative comparisons are difficult when it comes to watches, because every watch, from every brand, is perceived by any individual uniquely.
2: The Fallacy of Supply & Demand
Savador Assael, the Pearl King, single-handedly created the market for black pearls, which were unknown in the industry before 1973. His first attempt to market the pearls was an utter failure; he didn’t sell a single pearl. So he went to his friend, Harry Winston, and had Winston put them in the window of his 5th Avenue store with an outrageous price tag attached. Then he ran full page ads in glossy magazines with black pearls next to diamonds, rubies, and emeralds. Soon, black pearls were considered precious.
Simonsohn and Loewenstein found that people who move to a new city remain anchored to the prices they paid in their previous city. People who move from Lubbock (lower prices) to Pittsburgh (higher prices) squeeze their families into smaller houses to pay the same amount. People who move from LA (higher prices) to Pittsburgh (lower prices) don’t save money, they just move into mansions.
LESSONS TO APPLY TO WATCHES:
Positioning is critical to the perception of value. You might recall this was my fundamental problem with Furlan Marri – seasoned collectors were placing it as some sort of ‘equal’ in their collections even though they were unlikely to wear it too often. Be mindful of what perceptions you have in your mind, and rigorously question their validity.
Anchoring happens – this is why you often see many collectors with collections comprised of many watches in a similar price range… it takes a mental shift to bring oneself to spend 3-10 times more on a single watch even if the total cumulative value of your other watches might exceed the price of this single piece. Once you get over this hurdle, you move on to the next anchoring point – and this will be determined by your own circumstances and ability to spend these sums.
3: The Cost of Zero Cost
In the real world, this effect was demonstrated by Amazon’s free shipping. After Super Saver shipping was introduced, Amazon saw sales increases everywhere except for France. It turned out that the French division offered 1 franc ($0.20) pricing instead of free pricing.
When this was changed to free, France saw the same sales increases as elsewhere. Another real-world example: People will wait in line for absurdly long times to get something for free. Free is one of the most powerful ways to trigger behavior.
LESSONS TO APPLY TO WATCHES:
Beware of how this is being used against you. If you find yourself being coaxed into completing a purchase via an offer of a few free straps and other random items – be sure you want the watch first. Don’t reject the freebies, in fact, ask for them – but don’t let these be the catalysts/triggers.
For brands, it is obvious that making people do something in return for a free item is a useful way to trigger behaviours that might otherwise cost a lot (e.g. web surveys, feedback etc… use the sheeple wisely!)
4. The Cost of Social Norms
Vohs, Mead, and Goode: Participants were asked to unscramble sentences that were either neutral (“It’s cold outside”) or related to money (“High-paying salary”). Then they were asked to solve a puzzle. The experimenter left the room, and the subjects were allowed to go to him for help.
“Money” participants waited 5.5 minutes to ask for help; “neutral” participants waited only 3 minutes. In other words, thinking about money made people more self-reliant and less willing to ask for help. However, they were less willing to help others.
The conclusion is that thinking about money puts one in a market frame of mind. Subjects were more selfish and self-reliant, wanted to spend more time alone, were more likely to select individual tasks rather than those that required teamwork, and chose to sit farther away from others
A real-life example: The AARP asked lawyers to participate in a program where they would offer their services to needy employees for a discounted price of $30/hour. No dice. When the program manager instead asked if they’d offer their services for free, the lawyers overwhelmingly said they would participate.
LESSONS TO APPLY TO WATCHES:
This is a tough one to connect to watches, but I have one example of my own… Vacheron once reached out to ask for some of my photos and no doubt, I was flattered. I was happy to provide them for free – had they offered a nominal fee per photo, I wonder whether I would have felt differently depending on the amount.
5. The Influence of Arousal
Ariely and Loewenstein conducted an experiment on Berkeley undergrads (Ariely tried to do this at MIT, but couldn’t get the necessary permissions). They asked them a series of questions. Then they had the undergraduates stimulate themselves to a state of sexual arousal, and asked them to answer the same set of questions. The results show that people simply don’t realize how different their decision-making is during a state of arousal.
Implications – Someone may promise to just say no, but that promise is less likely to hold up during a state of arousal.
LESSONS TO APPLY TO WATCHES:
LOL! I shall pass on this one. Proceed as you see fit.
6. The Problem of Procrastination and Self Control
Ariely conducted an experiment on his class and students were required to write three papers.
Ariely asked the first group to commit to dates by which they would turn in each paper. Late papers would be penalized 1% per day. There was no penalty for turning papers in early. The logical response is to commit to turning all three papers in on the last day of class.
The second group was given no deadlines; all three papers were due in the last day of class.
The third group was directed to turn their papers in on the 4th, 8th, and 12th weeks.
The results? Group 3 (imposed deadlines) got the best grades. Group 2 (no deadlines) got the worst grades, and Group 1 (self-selected deadlines) finished in the middle.
Allowing students to pre-commit to deadlines improved performance. Students who spaced out their commitments did well; students who did the logical thing and gave no commitments did badly.
“These results suggest that although almost everyone has problems with procrastination, those who recognize and admit their weakness are in a better position to utilize available tools for precommitment and by doing so, help themselves overcome it.”
LESSONS TO APPLY TO WATCHES:
Interestingly I would connect this to the concept of saving for a watch you cannot afford. Many people tend to get sucked into the cheap opportunities that arise randomly and after a year or two has gone by, they have five watches costing around a grand, and they still cant afford that ‘grail’ they wanted, which costs 5 grand. But his time, the retail price would have risen to 6 grand, and they aren’t any closer. Set goals – use dates and quantify the value you will save… then stick to it. Having a clear and defined end date, and milestones to get there, will ensure you don’t deviate from the plan.
7. The High Price of Ownership
The “endowment effect” means that when we own something, we begin to value it more than other people do.
Ariely and Carmon conducted an experiment on Duke students, who sleep out for weeks to get basketball tickets; even those who sleep out are still subjected to a lottery at the end. Some students get tickets, some don’t. The students who didn’t get tickets told Ariely that they’d be willing to pay up to $170 for tickets. The students who did get the tickets told Ariely that they wouldn’t accept less than $2,400 for their tickets.
There are three fundamental quirks of human nature. We fall in love with what we already have. We focus on what we might lose, rather than what we might gain. We assume that other people will see the transaction from the same perspective as we do.
LESSONS TO APPLY TO WATCHES:
I actually wrote about this before… the true ‘worth’ of anything is indeed the price on the open market i.e. whatever someone is willing to pay for it – our own biases cloud this.
Perhaps the most relevant link to watches is the concept of ‘what we might lose’, particularly in relation to selling watches which might unlock funds to pay for a different watch. My advice here is straightforward – you can love a watch and still sell it, if you love the watch you’re replacing it with even more. To me, the watch you sell, will live on in the memory of your new watch. If you can afford to keep them all, good for you – unfortunately most folks aren’t operating with an unlimited budget.
The biggest lesson perhaps is for watch brands… It is easier to get more money from your existing customers than it is to attract new ones (this marketing wisdom has been around forever, but applies particularly well given this psychology).
8. Keeping Doors Open
In 210 BC, Xiang Yu led an army against the Ch’in Dynasty. While his troops slept, he burned his ships and smashed all the cooking pots. He explained to his troops that they had to either fight their way to victory or die.
His troops won 9 consecutive battles. Eliminating options improved the focus of his troops.
We feel compelled to preserve options, even at great expense, even when it doesn’t make sense.
LESSONS TO APPLY TO WATCHES:
Another big lesson for brands I think… Rolex is a great example – When you narrow your customers’ choices they are more likely to commit.
9. The Effect of Expectations
Ariely, Lee, and Frederick conducted yet another experiment on MIT students. They let students taste two different beers, and then choose to get a free pint of one of the brews. Brew A was Budweiser. Brew B was Budweiser, plus 2 drops of balsamic vinegar per ounce.
When students were not told about the nature of the beers, they overwhelmingly chose the balsamic beer. When students were told about the true nature of the beers, they overwhelmingly chose the Budweiser. If you tell people up front that something might be distasteful, the odds are good they’ll end up agreeing with you–because of their expectations.
Not only do we react differently based on stereotypes of others, we react differently based on stereotypes about ourselves.
Shin, Pittinsky, and Ambady conducted an experiment on Asian-American women. A first group was asked questions related to their gender, then given a math test. A second group was asked questions related to their race, then given a math test.
The second group did better on the math test than the first. “Blind” presentation of the facts (presenting the facts, but not revealing which party took which actions) might help people better recognize the truth.
LESSONS TO APPLY TO WATCHES:
All watch collectors can relate to this… Brands take advantage of expectations. They claim to be selling a product of extremely high quality, and categorised as the epitome of luxury… so the collectors are likely to follow along and actually get more value/enjoyment. That said, sometimes people DO call it out, and this backfires spectacularly like this Ming episode.
Branding is a powerfully ally in value creation – a brand can be positioned so that users expect great things… and they’ll get them, as long as the product passes the basic QC tests.
10. The Power of Price
Ariely, Waber, Shiv, and Carmon made up a fake painkiller, Veladone-Rx. An attractive woman in a business suit (with a faint Russian accent) told subjects that 92% of patients receiving VR reported significant pain relief in 10 minutes, with relief lasting up to 8 hours.
When told that the drug cost $2.50 per dose, nearly all of the subjects reported pain relief. When told that the drug cost $0.10 per dose, only half of the subjects reported pain relief.
The more pain a person experienced, the more pronounced the effect. A similar study at U Iowa showed that students who paid list price for cold medications reported better medical outcomes than those who bought discount (but clinically identical) drugs.
LESSONS TO APPLY TO WATCHES:
Higher pricing will lead to higher expectations, but also likely that you will experience more fulfilment… that’s true even if the product isn’t actually more fulfilling!
The Placebo effect is strong – you can leverage this knowledge to be smart about your own purchases and keep seeking the value-plays in the watch world… don’t overlook the cheaper options just because everyone else is doing so. Two recent examples… the Vacheron Overseas… and it is happening again with the Girrard Perregaux Laureato today.
Conclusion
That’s it! You can read the full piece and perhaps find some other advice/knowledge that you’d apply to watches… I covered it somewhat briefly and suspect there’s a lot more value there if you have the time.
-F