Design a Product Customers
Will Value and Pay For
Dan Ariely on Behavior Change
Design Guide 3
2 HOURS
WHAT YOU’LL LEARN IN THIS GUIDE
“There is a
functional
view of the
product, but
the reality is
that there is
much more
to products
than their
functional
use.
Expectation
plays a huge
role .”
-Dan Ariely
WHAT YOU’LL LEARN IN THIS GUIDE
“Paying hurts.
Every bill, large
or small, pains
us. But if we EFFORT:
understand the
circumstances
under which
paying is most
painful, it’s RELATIVITY:
possible for us to
devise a
payment system
that reduces
that pain.” ENDOWMENT and IKEA EFFECT
-Dan Ariely
EMOTION:
PAIN OF PAYING:
REFLECTION ON YOUR OWN EXPERIENCE
Recall a Time When You Bought Recall a Time When it Was Painful To
Something For Reasons Other than Pay for Something
Functional use
EFFORT
Overview of the Principle
Value and Pricing Principle 1: People are willing to
pay more for something when they can see the
effort that went into creating it.
Words of Wisdom from Dan:
“We pay for effort.
Describing how much
work you are doing
can increase how
much your customers
appreciate and value
your services.”
EFFORT
Examples of the Principle in Action
Examples of Products that Transparently Show the Effort that Went
Into Creating Them:
Markhor, a Pakistani shoe company showcases the effort that goes into
creating their handcrafted leather shoes.
Tegu, a social enterprise in
Guatemala, features a video on
their website that gives you a
behind-the-scenes look at the
factory.
EFFORT
Examples of the Principle in Action
Examples of Products that Transparently Show the Effort that Went
Into Creating Them:
Samasource emphasizes that they provide “hands-on project management”
EFFORT
Exercise: ANALYZE YOUR SIGN-UP FLOW
Now it’s time to apply this principle to your
own product or service.
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RELATIVITY
Overview of the Principle
Value and Pricing Principle 2: People judge
whether something is priced reasonably based on
comparisons to other products in that category.
Words of Wisdom from Dan:
“Prices are relative; they’re determined
by alternatives in the marketplace. This
is why companies that are introducing a
novel product to the world are in a very
powerful position to set a powerful
anchor price. This is the reference point
to which other similar future products
will be compared.
Be sure to build your pricing model so
that it seems reasonable in light of
market alternatives.”
RELATIVITY
Overview of the Principle
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RELATIVITY
Overview of the Principle
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RELATIVITY
Overview of the Principle
ENDOWMENT and IKEA EFFECT
Overview of the Principle
Value and Pricing Principle 3: People overvalue
things that they own or assemble.
Words of Wisdom from Dan:
“We generally like the things that we’ve
spent time, money and energy on more
than things we haven’t. The more you
can get customers to invest in the creation
process, the more they’ll value your
product.”
Research: In a series of experiments Michael Norton
did with IKEA boxes, origami, and Lego structures, he
found that participants who were able to completely
construct one of the above objects valued them
substantially more than identical pre-assembled
versions. There’s something about a sense of
completion that increases our feeling of ownership
and therefore our valuation of the object.
ENDOWMENT and IKEA EFFECT
Examples of the Principle in Action
Examples of Products that Require Assembly
Betty Crocker cake mixes that let
“you add the eggs yourself.”
Kiwi Crate gives kids a box of
thematic supplies each month
ENDOWMENT and IKEA EFFECT
Examples of the Principle in Action
Examples of Products that Require Assembly
Volunteer efforts can also benefit from the endowment effect, but should be cautious
of it too.
Many non-profit organizations will organize “school supply drives” or “food drives”
and then give low-income families a backpack or a box pre-stocked with essentials.
This might not be the best approach.
ENDOWMENT and IKEA EFFECT
Overview of the Principle
How could you apply the Endowment Effect
to your own product or service?
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How could you apply the IKEA Effect?
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EMOTION
Overview of the Principle
Value and Pricing Principle 4: People value
products more when they trigger an emotional
response.
Words of Wisdom from Dan:
“If you can get your users to
associate powerful emotions with
your product, it’s likely
that they’ll pay more for it while
they’re feeling emotional. An
emotional story can also
give your product a greater sense of
meaning that people will pay for.”
EMOTION
Overview of the Principle
Examples of Products that Tell a Story and Evoke Emotion
Me & The Bees Lemonade is a
product made by an 11 year old
entrepreneur that is now
distributed by Whole Foods.
EMOTION
Overview of the Principle
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PAIN OF PAYING
Overview of the Principle
Value and Pricing Principle 5: People feel pain
every time they have to pay for something. Pain is
increased if the transactions happen frequently
and in cash, and as the timing of payment gets
closer to the experience being paid for.
Words of Wisdom from Dan:
“When you’re analyzing the pain your
payment strategy causes, you need to ask
yourself
four questions:
1. How often am I having my customers
pay? (Frequency)
2. Are my customers paying in physical
dollars? (Concreteness)
3. When are my customers paying?
(Timing)
4. Is my main product free? (Free)
In order to reduce the pain of paying, we
first need to decrease the frequency of
payments.”
PAIN OF PAYING
Overview of the Principle
Examples of Products that Potentially create Pain of Paying
Pay-As-You-Go or Micro-payments are
sometimes a popular option among social
enterprises that are trying to make purchases
seem manageable for low-income customers
PAIN OF PAYING
Overview of the Principle
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About Acumen
A nonprofit that raises charitable donations to invest in companies, leaders, and ideas
that are changing the way the world tackles poverty. http://acumen.org/
About Acumen
A global learning community for social change-makers. Be an effective force for change
with Acumen's free online courses and chapters. https://www.acumenacademy.org/
About the Center for Advanced Hindsight at Duke University
The Center for Advanced Hindsight is Dan Ariely's lab where he and his team of
researchers study, design, test and implement behavioral interventions that help people
be happier, healthier and wealthier. The exercises in this Design Guide have been
adapted for the social sector by Acumen based on those found in A Practical Guide to
Behavior Economics by Dan Ariely, Jason Hreha and Kristin Berman and Hacking Human
Nature for Good by Dan Ariely, Jason Hreha, Kristin Berman and Evelyn Gosnell.
