Can driving a new Mercedes Benz help you sell more homes? Yes, if you believe in perception marketing and behavioral economic theory.
Behavioral economics is the study of human behavior in the marketplace and the factors which influence buying decisions. Behavioral economics has shown that people are moved to action as much by emotions as by rational thought and economic forces like supply and demand. Perception marketing applies principles of behavioral economics to sell stuff, usually expensive stuff.
Here are 10 perception marketing principles used to make a sale:
1. Creating value through desire. The lure of celebrity, sex appeal, beauty, success, money and fame will influence buying decisions and many people will overpay for it. This is the basis for lifestyle marketing. The same effect will occur if you can get someone to fall in love with a product. I gladly overpaid for my house because I loved it and didn’t want anyone else to have it. The best brands are built on love.
2. Materialism as proof of success. Having a Park Avenue address, driving a Mercedes and wearing pricey suits and Patek Philippe create the impression of success. The perception is you must be good at what you do or you couldn’t afford all this bling. Yes, I’ll hire you.
3. The Panic Principle. The idea is to create the impression that you MUST act now or you will have to pay more later or lose the opportunity completely. This is what drives a boom cycle. During the NYC house buying craze, buyers were overbidding out of fear. Supply can be unlimited but if you perceive the supply will run out, you will rush to buy and even pay more. This principle sells shovels and batteries during blizzard warnings. During rising gas prices, I filled my tank at every opportunity.
4. The Esoteric Effect or Professor Principle. The idea that the person who uses the biggest words or crafts the most complex sentences must be smarter than the rest of us and we assign their opinions more value. (I’ve seen this phenomenon in bloggerzonia. )
5. The Secret Seduction. The perception is you can make a quick buck if you only knew the secret. This is the stock-in-trade of the no money down gurus, the foreign currency traders and house flipper how-toers. Arbitrage relies on a secret formula that is very attractive to billionaires.
6. Lady Luck’s Lure. This is why gamblers continue to finance the building of casinos. That’s why coins drop loudly into metal trays and alarms go off. It conveys the impression that on your next pull that alarm will sound for you too, you lucky devil. Buy a lottery ticket. Buy these leads—if you get just one client, it’s worth it.
7. Selling to the Ego. Human beings loved to be loved. The back patting, high fiving, hat tipping ego stroker gains your confidence and trust. Surely anyone who compliments me must really like me and if they really like me, they wouldn’t screw me. But that’s exactly how you get sold. Dale Carnegie preached this, but with sincerity.
8. Loss aversion and the “Endowment Effect”. Adam Smith wrote: “We suffer more… when we fall from a better to a worse situation, than we ever enjoy when we rise from a worse to a better.” In his keynote speech, at Inman Connect NYC, Michael Shermer of Skeptic Magazine claimed the pain of a loss is twice as great as the pleasure of a gain. Many sellers hold fast to their prices because of loss aversion. Hmm.. I guess that’s why I held on to Lucent and watched it go from $80 to $8 back in the 90s.
The endowment effect postulates that something owned is perceived as more valuable than something to be acquired. In a 1990 experiment by Trevsky et al, half of the subjects in a group were given coffee mugs. Those who had mugs were asked the lowest price at which they would sell. Those who did not get mugs were asked how much they would pay. You might think there should be little difference between selling and buying prices. In fact, the median selling price was $5.79 and the median buying offer was $2.25, a ratio of more than two. This result has been repeatedly replicated.
Interestingly, professional investors show less loss aversion– perhaps due to their nonattachment to the product. In their housing study, Genesove and Mayer (2001) found that investors who don’t live in their condos exhibit less loss-aversion than owners.
9. Wisdom of the crowd or Sheeps to the Slaughter. If so many people are doing it, it must be worthwhile. The sign “Last Unit Left”, is meant to create the perception that many wise folks have already bought and you’d be wise to do so too. Charles Ponzi gave great returns to those who would be sure to tell there friends and so on.
10. The Jones Jealousy. Keeping up with the Joneses has caused many a buying decision. We don’t want to be perceived as inferior to others so we try to mirror other people, including their possessions. See also the social comparison theory.
Have you ever been influenced by a perception that made you act irrationally?
Sources and Further Reading:
Nominal Loss Aversion, Housing Equity Constraints and Household Mobility: Evidence from the United States (Gary V. Englehardt, Working Paper 2002-2004, Syracuse University) [pdf]
Behavioral Economics: Past, Present and Future (Colin F. Camerer, CalTech and George Loewenstein, Carnegie-Mellon University, 2002)
Technorati Tags: perception marketing, real estate marketing, sales
This is a fantastic and very interesting post. Behavioural economics is a fascinating subject that defies logic in many ways. When most people are confronted with the facts above they are astonished and think that the facts would never apply to them! I wrote a post last week about price perceptions of quality. Check it out if you’re interested.
Thanks,
Tim Ayres - REALTOR®
Royal LePage Coast Capital Realty
Sooke, British Columbia, Canada
Oops. The post is here.
Tim
I read your post. It is excellent and TRUE.
Here is my real life experience. I used to sell my artwork in art fairs. One experimental piece I could not sell for the life of me. (my wife said it was ugly and thats why it wouldn’t sell– probably right). So, my natural reaction was to lower the price, again and again. Still it never sold. Then one day I decided - heck, I’ll just raise the price higher than any of my other pieces– and, lo and behold, the piece sold as soon as I put it out at that high price— not only did I get the highest price but the buyer wanted the piece as a wedding present with a special engraving. The perception was, I believe, that the higher price indicated higher quality.
To the extent property is not cookie cutter identical, any features which distinguish a property can be used to justify a higher price. Real estate is a very emotional purchase and very often “unzillowable”. How do you put a price tag on a sunset?