How To Solve Expensive Problems (Without Breaking The Bank)

Read time: 4 minutes

Little did I know that stumbling across a 30-second snippet (of a speech) would help me tackle one of the most complex problems I'd ever been tasked with.

Do you know this man below?

This is Rory Sutherland, and I owe him a huge thank you.

Formally, Rory is the vice chairman of Ogilvy & Mather, an advertising agency. He’s a marketing genius with a deep understanding of human psychology and behavior. (Informally, he’s my go-to resource when thinking about customers and behavior).

Here is why I need to thank him:

A company reached out to me with a severe problem.

• Revenue was stuck

• Costs were increasing

• 75% of the company’s long-term customers were getting some services done "effectively for free" (without even realizing it)

The real problem was that the relationships had evolved so much over the years that what was expected was unclear.

At first, the solution seemed rather obvious – quantify the impact, adjust the service model, and then reprice services. Practical and direct but costly to the business models of both parties.

Making these changes to the relationship was more challenging because the company and its customers were so intertwined.

Here’s where stumbling across Rory’s work was so helpful.

Psychological solutions are as effective as economic solutions (and often less expensive).

A psychological solution changes behavior to address a problem. Let me give you an example involving the London Underground transportation (train) system.

The trains’ punctuality was abysmal.

Passengers expressed their dissatisfaction not only verbally but also with their wallets. They were opting for alternative modes of transportation.

Reduced passengers = reduced revenue.

The London Underground had two economic choices:

• add extra trains

• increase the frequency of trains in service

However, they opted for a psychological solution, not an economic one (a third rail…if you must)

• The London Underground added a display board to show passengers the wait times

Punctuality didn’t change — perception did.

The display board reduced the uncertainty of the wait — which changed the experience and expectations of the passengers.

When you can change the frame of reference, you can change perception — perception creates actual value.

So, back to the problem I was solving.

One key change the company made was psychological: add progress bars.

In essence, the company bolstered project management communication by using software to organize and visually display a progress bar during the execution of a service.

The customer always knew how long it would take (at any time).

The real benefit was that each service could be compared based on the time it took to complete.

These progress bars created tiers of services and set expectations. Customers who wanted any service done faster could opt for a price premium.

So, the result was not directly changing pricing or overhauling the service model — instead, it was a frame of reference change on the value of time.

Now, let’s make this tangible for you.

Here are 3 practical examples of psychological solutions you could use for services, products, or digital/technological applications:

1. Don’t offer discounts; instead, let the customer “buy one for a friend at a discount.

2. Use “chunking” to get customers to complete the product journey and realize the benefits

3. Gamify the process to keep customers wanting more

#1 – Don’t offer discounts, instead let the customer “buy one for a friend at a discount.”

This is great for service businesses.

Discounts often reduce the perceived value (because price matters). You can flip this if you give your customers the power to offer a friend a discount. Now, sharing is a part of the “experience.”

Remember how you felt when you introduced a friend to a band before they got famous?

You both feel good.

#2 – Use “chunking” to get customers to complete the product journey and realize the benefits

This is great for product businesses.

Chunking is grouping elements to make them more digestible.

You can do the same with the product journey, similar to how you would “chunk” a series of numbers to memorize them.

Let’s use a health supplement company that provides a “health box” with a 30-day supply of nutrients. Instead of using 30 individual packets (that look the same), use colors.

Arrange the box with 3 colors of packages: 4 red, 20 white, and 6 blue.

Then, instruct the customer to use the red first, the white second, and then finish with the blue.

The chunking creates mini-milestones. They are signals of progress to drive them to finish and realize the benefits.

(and then buy more)

#3 – Gamify the process to keep customers wanting more

This is great for technology-based businesses (especially when competing for the customer’s time and attention).

Think about some apps you use on your phone — many have “gamified” the experience. Gamification is the process of applying game-like elements or mechanics in non-game contexts. These apps offer badges, rewards, points, and levels to unlock to keep you progressing.

So instead of trying to “buy” your customer's attention, let them play to create progress.

Humans are emotional. Consider the psychological solutions with equal weight to economic ones.

If you’re interested in watching Rory Sutherland’s TED Talk (that inspired this post), watch it below.

Thank you for reading.

Peter

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