The Pain of a Loss is much higher than the Pleasure of a Gain

In March last year I had written a post on “Pain & Gain” . At that point in time I had written it more from an experiential perspective of what I had experienced in the market and how the messaging should revolve. It was more about people giving attention to fear/loss based messaging compared to positive/gain messaging.

I was recently reading a book on pricing – “Confessions of the pricing man” by Hermann Simon. Herman Simon is considered to be the “guru” on how companies should do the pricing of their products/services. Its a fascinating book on the kind of mistakes that people do when they do the pricing and how a small change in pricing – negative or positive – can have a major impact on the volumes that the company has to sell and the profitability the company. He has shown various examples of low cost leaders who make a lot of money (Ikea as an example) and how luxury brands can mess up their brand if they try to go mass market. Its a book worth reading especially if you are involved with doing pricing for your products or services.

Now coming back to the pain & gain story with which I started this post. In the book Hermann show cases the prospect theory work done by M/s Kahneman & Tversky. This is the first time I have come across the utility curve for both positive and negative utility.

In our economics class I did study the concept of marginal utility and how it decreases as the amount of the product or service that you use goes up. So the first time you travel economy class in an aircraft, you will feel “awed” by the sheer experience. If you travel regularly, you will slowly start losing the “awe” feeling and after sometime you will find the experience just “okay”. Then its human nature that people will start ten wanting to move to the next higher level. That’s how people move to the business class and some even to the First Class. This how also premium and luxury product companies keep selling even more expensive things.

Human beings are always craving for the next bigger/more luxurious/more exciting thing. Not all may be able to afford it and move higher up the ladder, but there are enough people who do. That’s why companies who want to grow their profit, keep trying to come out with more and more premium brands.

As per Herman if you use the prospect theory, the “Marginal Harm” gets smaller as the overall size of the loss increases. However the bigger issue as per this theory is that compared to the pleasure we feel from the same quantum of “gain” the amount of pain we feel is much much higher. So in absolute terms if there is a $100 gain then the Pleasure is (1.5), but for the same $100 loss the Pain is (-3). This is the theoretical explanation of what we notice in the market on a regular basis. Until I read this book, I did not have a clue behind the phenomenon.

It gives immense pleasure when you find that what you see/experience in the market, also has a theoretical background. It then proves that the experience you have not seen is not limited to only your environment/geography or industry. It is a phenomenon which is observed globally and people have gone through the process multiple times to check its validity, before it is written out in books and presented in conferences.

While Herman has explained the how pricing can get impacted because of this prospect theory, would think it has a role to play even when you are trying to get the attention of the prospect. They will respond more to the possibility of avoiding the loss than to the possibility of gain that you can show them.

If you have also experienced this phenomenon, pls put it in the comments below. Would love to hear from you.

Till next time then.

Carpe Diem!!!

In marketing “failing” is TESTING

Fear, Human Brain, Marketing, Testing

A lot of people in life go about scared of failing. There could be a lot of professions where failing is considered to be a “sin”. In marketing on the other hand if you don’t try different things you won’t know what will work.

You can’t try out different things without failing. If you don’t fail, you can’t succeed in marketing. That’s why in marketing they prefer to use the word testing.

In marketing you have to test everything – from your market, to your message, to your medium.

I have written a lot of posts on the concept of testing in marketing. So why this addition post. Today I was watching a video of Brene Brown on Netflix. I watch this video from time to time.. The video is all about how shame is the primary reason people don’t succeed. Each time I watch, this video, one thing that stands out is that it is the shame of failing that creates the fear in our mind for trying anything.

While I also fall prey to not trying because of fear, I have seen sometimes ,that the thing that I am resisting , is actually what can solve a lot of my problems. But because my brain wants to protect me from the shame, just in case I don’t succeed, it creates this fear inside me.

In early days of human evolution it was the physical fear of getting killed that caused our brains to resist trying something new. But now those kind of things are very few. Its more about ” what people will say” that causes us to not try anything.

While in your life you may decide to take chances or not is your choice. But if you want to succeed in marketing, you will need to test all the time. A lot of the tests will not work, but you learn from them and move forward.

Till next time then.

Carpe Diem!!!

Thinking time

Fear, Human Brain, possibility thinking, Thinking, Worry

Inspite of having so many productivity tools, we are so busy these days that we are not able to take out time to think.

Over the years, I have been sharing how I have tried to regain some of my life by eliminating apps from my mobile phone and tablet, so that they don’t interrupt me. That has definitely helped me regain at least about an hour, but given the amount of travel we have to do, its still a small piece.

Even on weekends, we have chores to run and family and friends to meet and interact with, which eats up time. Now we need to do all these things, because they help us get away from being caught up in our mental rut.

If you can somehow plan out your week, month, year in advance to cover 60% of what you want to achieve and leave 40% slack for unexpected situations, then you can genuinely achieve a lot. But if you have not got time to think, then you can’t plan.

So figure out ways to carve out at least 50 min in a week, in one stretch, when you will plan of the next set of activities. Once you do that, you get a lot of clarity on the next steps you have to take. To give an example, I have been thinking on ways of how I can increase my passive income. However it was always something to do. Today morning I took out about 40 minutes of time to just think of ways, because this was causing me a lot of insecurity. Finally I figured out an action plan, which I will need to put in place from tomorrow.

Now that it’s moved from your brain to the paper for execution, the brain is relieved that it no longer has to bother about protecting me and therefore my fear and insecurity has fallen. Tomorrow onwards, I will just need to ensure that I ticking off the points that we have identified.

Once the brain knows you have an action plan, it stops showing resistance and throwing up all the disaster scenarios.

Take time out for just thinking – put on some soothing music and let your brain dump out all the points it has and then figure out an action plan. This will also showcase possibilities that don’t come up when you are in the transaction mode.

Till next time then.

Carpe Diem!!!

Hard-work + Taking Chances = Success

ego, Fear, Human Brain, losing, Worry

I was watching a video on Netflix, The Call to Courage by author & researcher Brene Brown today afternoon. Its about 80 minutes long, but she keeps you engaged all through the eighty minutes. Her talk is about vulnerability, shame etc. and all its various connotations. I had read a lot about her books, when reading other authors, but never quite got to the stage a actually reading one of her books. Today while doing some research on her, I actually found this video on Netflix, so I decided to spend time watching it. it was time well spent. I would highly recommend watching it. I have downloaded it so that I can watch it a couple of times more.

While there are a lot of Aha moments in the video, one which kinda stuck with me is a statement she made – Success is all bout doing the hardworking and taking chances. You could fail, but its about getting down into the actual field and playing and then figuring out how to win. You can keep sitting in the stands and comment about how things should be, but its all about playing which decides if you have the chops to win.

You cannot lose any game that you don’t play. A lot of us, including me a lot many times, take the easy way out because our brain does not want us to lose. Its hardwired to protect us at all costs. So even failing in front of others is a major set back to our brain. I have written about this in multiple posts over the years. But she put a different perspective and therefore I am recommending, watching the video. It will be time well spent.

Most of the times its our brain, which is the actual culprit – because it doesn’t want us to take chances. When I was watching the video I could recollect so many situations, where I din’t take a chance and maybe things would have turned out to be different. But then that’s history….

Till next next time then…take your chances…don’t have regrets in your life.

Carpe Diem!!!