Predictably Irrational

I really enjoyed this book. I love learning about how people work subconsciously.

Key takeaways:

- People almost never order the most expensive thing on the menu, but they will order the second most expensive. The example provided: Add a new, more expensive option, and your current most expensive option will look more appealing. Revenue increases, even though few people order the new item. As a practical takeaway, I see this with our account packages.
- People like to make comparisons between things that are similar. The example provided: If you are house shopping and look at three houses, two contemporary houses and one colonial, most of the time you will ignore the colonial because you can't easily compare it to the other two. Then when comparing the two contemporary houses, if one has a bad roof you will likely choose the other because it is the better of the two. Can we recreate this with account packages?
- Anchoring is incredibly powerful, even if the number used to anchor you isn't related to what you are purchasing. If we mention how much higher rates were X number of years ago, would that make the current rates seem better?
- If you see a restaurant with four people waiting outside for a table, you are inclined to think it is a good restaurant and may join the line. The next person to walk by sees five people waiting, and is even more inclined to join the line. It is entirely possible that none of the people in line have any idea whether the restaurant is good or not. You can do this to yourself (self-herding). Say you normally make coffee at home, but one day stop at Starbucks because you didn't have time to make coffee at home. Next time you need coffee you are tempted to think, ‘I purchased coffee there last time. I must have found good value.' So you shop there again. Now you can point to two instances where Starbucks was worth your business, and the ‘line' grows.
- Free is a big motivator. If you have a product worth $5, and you offer it to one group for $0.01 and another group for free, you will have significantly more uptake with the free option, even when controlling for the inconvenience of needing to pull out your wallet.
- If we can find a way to help our members save more money, we will benefit from the increased deposits. We have the same goal. If NCU members save 15% when the average is 5%, we will have a significant advantage.
- Honda had many routine service items on their vehicles. Customers had a hard time staying on top of them and bringing them in every few months to service different parts. They switched to a more generic schedule: bring your car in every six months and have it receive many different service checks in that one visit. Somethings were checked well before they needed service, but customers had no problem following the new schedule. Can we do a similar concept with financial checkups? At 21, come in for a lesson on credit and the benefits of long term investing. At 25 come in for a mortgage preapproval, even if you aren't planning to purchase a house yet. At 30 come in for a conversation about RRSPs. At 45 come in for a conversation about retirement planning. At 65 come in for a conversation about retirement income, etc.
- More exotic, detailed explanations changed the way people view items and made them value them higher.
- Going to the movies, if you tell your friend it received great reviews, they will enjoy it more.
- There are two parts to marketing: Attracting new customers and selling to existing customers.
- Our products should have a unique component that we can point to and say, ‘See, this is better than the competition!'