Hunkered but Hankering

My husband and I bought a 109 year-old house two years ago. Like any old house, it needs a little love to bring it back to its old glory. Sometimes a “little love” is as unromantic as a new water heater.  This was going to be the summer of lovin’ for the house. And, because we live in semi-arid Colorado and wanted an environmentally friendly option, we looked into the “tankless” type of water heaters which only heat water on demand rather than maintaining 50 gallons of water at the warm and ready. We saved up some money and then, come December, took our seats with the rest of the world and watched for signs of the sliding American economy.

At the same time, we learned that tankless water heaters cost almost three times as much as regular tank water heaters. Given the economic backdrop, we wondered: Is this really the year to be dropping three times the cash on a water heater? What if the economy struggles for a really long time and it turns out we’ll need our home-lovin’ money for something else?

Our need wasn’t immediate and we were only somewhat committed to the tankless concept, so we were paralyzed by the choice. So, what did we do? Nothing. We continue to use our old water heater and hope that the hot water doesn’t run out before our showers are over.

Here’s my personal and non-scientific theory about the state of consumer spending right now: times are bad, sure. But even with unemployment rates going up, statistically, the majority of us have our job which means our personal cash flow situations haven’t changed. It’s our emotional landscapes that have changed. There are lots of people like me out there; people who have some money to spend but are scared by what they don’t know and can’t control and so we sit in a stupefied funk waiting for something to reassure us. We’ve hunkered and not for logical reasons, but for emotional ones.

I asked my psychology friends about this phenomenon and it turns out there’s research on it: It’s called Tversky and Kahneman’s Prospect Theory. Their research found that subjects offered a choice formulated in one way might display risk-seeking behaviors but when offered essentially the same choice formulated in a different way display risk-aversion behaviors.

Researcher Richard Thaler tested the Prospect Theory on students (poor sods). In Thaler’s study, one group of students was told to assume they had just won $30 and were offered a coin-flip upon after which they would win or lose $9. The result? 70% of the students opted for the coin-flip. When another group of students were offered the choice of $30 for certain or a coin-flip in which they got either $21 or $39, only 43%, opted for the coin-flip.  The amounts of cash were the same, but the differences were in the perception of security and risk. Apparently, there’s something about the chance that we could lose that makes most of us want to cling to what we’ve got like grim death. We hunker.

So what does this mean for business leaders, brand strategists, and marketers in this economy? After all, it’s our job to get people to part with their hard earned (or even surreptitiously won) money and feel good about it. Is it best to offer everyone $30 and a coin toss? Sprinkle a million novelty pennies on the ground like Cici’s Pizza? Probably not. But I think there are a few lessons here:

1. If you’ve got a solid product, now would be the wrong time to dilute its value with a give-away because remember, the barrier isn’t only the money; it might be the reassurance they lack. Now is the time to go back to basics of marketing: value = quality + cost.
2. The way you frame the conversation about the sale will matter. Or as the Prospect Theory blurb on the ChangingMinds.org website suggests: to get people to adopt something, focus on the gain. To get them to reject something, focus on the risk of what they might lose.
3. We have to understand and speak to their emotions and there’s no better way to do so than in relationship. Now is the time to look for ways to deepen and strengthen the customer relationship. Remember that they are not just wallets, they are scared people in need of reassurance.

 
​Kyndra Wilson, KW Brand Translation