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I’m a big fan on focusing on getting the “copy” (the words on the page) right to drive behavior. I’ve posted in the past about Cialdini’s great book, Influence, The Psychology of Persuasion, and how the principles outlined in it can be used for structured brainstorming to improve copy to drive the results that you want. Of course, all this needs to be A:B tested, but it provides great ideas to test.

Sunday’s NY Times has a great story on how behavioral science can help drive policy, and how a change in copy helped increase tax collection in the UK by 15 percentage points:

One early success story involves an attempt to collect taxes from people who fail to pay on time. Most British citizens pay their taxes promptly because it is a simple tax system with few deductions, so that most taxes are collected via payroll withholding. (That’s “make it easy” in action.) But small-business owners and individuals with significant nonpayroll income are expected to save up the money to write a check to the government, and some of them fail to pay on time.

In such cases, the government’s first step is to send a letter asking for payment within six weeks, after which sterner, more expensive measures are taken. The tax collection authority wondered whether this letter might be improved. Indeed, it could.

The winning recipe comes from Robert B. Cialdini, an emeritus professor of psychology and marketing at Arizona State University, and author of the book “Influence: The Psychology of Persuasion.”

People are more likely to comply with a social norm if they know that most other people comply, Mr. Cialdini has found. (Seeing other dog owners carrying plastic bags encourages others to do so as well.) This insight suggests that adding a statement to the letter that a vast majority of taxpayers pay their taxes on time could encourage others to comply. Studies showed that it would be even better to cite local data, too.

Letters using various messages were sent to 140,000 taxpayers in a randomized trial. As the theory predicted, referring to the social norm of a particular area (perhaps, “9 out of 10 people in Exeter pay their taxes on time”) gave the best results: a 15-percentage-point increase in the number of people who paid before the six-week deadline, compared with results from the old-style letter, which was used as a control condition.

The tax authorities estimate that this initiative, if rolled out across the country, could generate £30 million of extra revenue annually. And note that sending an effective letter doesn’t cost any more than sending a bad one.

If you’re in product management and you haven’t read Cialdini’s book, go out and buy it now. Nine out of ten product managers already have! ;-)

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Pretty interesting article in the current edition of the Economist about the psychology of discounting:

A team of researchers, led by Akshay Rao of the University of Minnesota’s Carlson School of Management, looked at consumers’ attitudes to discounting. Shoppers, they found, much prefer getting something extra free to getting something cheaper. The main reason is that most people are useless at fractions.

Consumers often struggle to realise, for example, that a 50% increase in quantity is the same as a 33% discount in price. They overwhelmingly assume the former is better value. In an experiment, the researchers sold 73% more hand lotion when it was offered in a bonus pack than when it carried an equivalent discount (even after all other effects, such as a desire to stockpile, were controlled for).

This numerical blind spot remains even when the deal clearly favours the discounted product. In another experiment, this time on his undergraduates, Mr Rao offered two deals on loose coffee beans: 33% extra free or 33% off the price. The discount is by far the better proposition, but the supposedly clever students viewed them as equivalent.

73% higher sales is an astonishing number that comes simply from positioning the same discount differently. Of course, this only helps if you are making a positive contribution margin on the sales!

This reminds me a bit of  Prize-Linked Savings accounts, basically savings accounts with a lottery ticket attached (that is bought by slightly lowering interest rates):

One way to think of these “prize-linked” accounts is that they can offer an expected market return, but in an innovative way. They pay a guaranteed return below market interest rates, but also provide a lottery ticket whose value makes up the difference.
To be specific, a lottery-lined savings account could offer a lower rate of interest, but also say a one-in-a-million chance of winning $1m for each $100 deposited. Mathematically, the expected return is the same, but the chance to win $1m makes the account much more attractive.
Britain has historically led the way with these sorts of savings opportunities, starting with the “million adventure” lottery in 1694. Households were offered 100,000 tickets at £10 each, with poorer groups able to club together to buy fractions of tickets. Holders received a 6 per cent annual return for 15 years, plus the opportunity to win a prize of between £10 and £1,000. Historians suggest the programme was popular and successful. More recently, much the same theory was seen in the UK’s Premium Savings Bonds, which offer the opportunity to win a prize but no base interest rate. From Brazil to Germany, Mexico to New Zealand, a variety of other prize-linked savings opportunities already exists.

This is another example where reframing the same economic returns can change user behavior. I wonder if framing a 33% off sale so that people buy at full price but with “Every third purchase free” might increase sales overall. Has anyon had any experience with this?

UPDATE: Recently found a really fun and relevant post on pricing experiments that is worth reading from conversionXL.

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While it almost seems hard to believe, it was just five years ago today that the first iPhones were sold.  I remember the enormous amount of people lined up outside of Apple Stores eagerly waiting for their new device.  It was easy to understand the hype of the device, but what many did not predict would be the way it would shape our behaviors and give birth to an entire industry.

The iPhone itself is a game changer, few could deny that, but much like iTunes was the real power behind the iPod, the App Store has been the big game changer for our industry.

We didn’t all immediate realize the power of the App Store, in fact my partners wrote an interesting post in 2009 about how little revenue Apple was making from apps.  But today, we have seen companies emerge as App providers and other that have started as popular Apps and then expand to other platforms.  Rovio, makers of Angry Birds, Pulse*, Instagram, Uber and Foursquare are just a few examples of companies that have seen incredible success as mobile apps.

In addition, the iPhone has played a big role in reducing the friction for consumers to use products from businesses that were previously web-centric such as TaskRabbit*, LivingSocial* and GrubHub* as well as retailers like Gilt.  These companies not only built better customer engagement through the iPhone but also attracted new users who discovered the brand for the first time on a mobile device.

Despite all of these early successes, the market is still in its infancy in many ways.  While it may seem that everyone we know has an iPhone or Android device, Nielson recently reported that only about 50 percent of US consumers have a smartphone today.  As that number grows, the audience and demand for new applications and types of mobile solutions will grow too.

For my part, I feel fortunate to have the opportunity to watch the market emerge and evolve and help companies take advantage of this amazing platform.

*Lightspeed portfolio companies

If you found this post useful, follow us @lightspeedvp on Twitter.

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I posted recently about discovery being the challenge in gaming. This is very true of mobile gaming where the level of noise is very high.

I think that iPads, and tablets broadly, present a current opportunity for game developers. …

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I’ve posted before on how tablet and kindle are changing reading, and how fan fiction is changing writing. The WSJ has another good example of how writing is changing, when it describes how Seth Godin used Kickstarter to

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This weekend I had the opportunity to join AngelHack, a hackathon event that took place in Palo Alto, New York, Boston and Seattle, to help judge the finalists in Palo Alto.  Over 1,500 people participated in the event around …

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As a follow up on my guest post at Pando Daily about why ecommerce startups come in waves, I did a follow up post making the case that celebrities will drive the next wave of ecommerce startups. Check …

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Check out my guest post on Pando Daily about why ecommerce startups come in waves.…

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I’ve posted in the past about how tablets and kindle will change reading. Friday’s WSJ had a big story on the fan fiction phenomenon that is well worth reading. One of the companies that they call out is Wattpad

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A couple of years ago I did a post on how to estimate lifetime value for a subscription business where I uploaded a sample cohort analsyis that others can use as a template.

I’ve been asked several times how the …

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