27 September 2012

Linked in Case Study on Decision Design

After presenting a few established psychological effects in Decision Making Psychology I believe it is time to present a case study of how these effects are used in “real life”. In this light, I will present the “Linked in case study”.

I assume that everyone reading this blog knows about or has an account on Linked in (professional) social network. Similarly I would assume that most of you have a basic account and are not users of the paid accounts. However, if you decide to upgrade your account then you will have to make a decision that will be strongly influenced by the people who designed the decision environment.

In order to see the “decision environment” you can log in your Linked in account and click on the top page link that says “Upgrade” Next I’ll present a picture (screen shot) of that page. (Click to enlarge)

Next I’ll present what I believe to be the elements of decision design used. This presentation will be done in a somehow non-intuitive order, so please bear with me and read to the end.

First, and not the most obvious, what type of linked in account is best is quite hard to evaluate since, especially first time users of premium accounts, don’t have much of an idea what they need or even what the features actually mean. This is a case of Ambiguity and we know that psychological effects in Decision Making occur especially when there is ambiguity.

If one would look at the bottom left of the picture she would find a link that says “Show more”. If that link is clicked on, then instead of 5 attributes (features) of each account one would see 11 attributes.  Why do you think that not all features are presented from the beginning? It might be that those features are not important, but if it is so, why even include them in the list. I believe that many people don’t even click on the “Show more” link and those who do are motivated by their wish to get more or “Full information”. However, the reality is that seeing more attributes of a “product” in fact increases the ambiguity and leads to “information overload”. Both ambiguity and too much information to process are causes for the use of heuristics (rules of thumb) and the occurrence of decision making psychological effects.

One proof that the high (11) number of attributes is meant to make comparisons more difficult is that for 5 out of 11 attributes there are no differences between the three types of accounts. For 2 more attributes there is no difference between two of the three options.

Second, (some of) the attributes of each “product” have quite ambiguous names such as: “Zero in on profiles with Premium Search Filters”. What does that really mean? If one does a “mouse over” there will be a text box that appears and explains what it is. See next picture as an example. (Click to enlarge)

But again, what does that really mean? And moreover, do I need it? How many filters do I really need? The more the better, but is it worth the extra price?

Similarly the attribute “See more profiles when you search” has three options (one in each type of account): 300, 500 and 700. But how many extra profiles in your search do you really need?

Third, offering three types of accounts (plus the ambiguity and information overload mentioned above) creates all conditions for the “compromise” effect (or the “Not Too…, But not Too…” effect). As you remember from the post that described it, the compromise effect leads to the choice of the “middle option”. 

So Linked in wants you to choose the “Business plus” account.

Fourth, one option is already preselected and surprisingly or not it is the same “Business plus” account that is set as adefault choice. As we already know from “Just leave it like that” the default option effect is very strong and most people don’t change a default setting or choice.

Thus Linked in not only makes you think that you want the middle option of “business plus”, but encourages you to make that choice by setting it as a default.

Fifth, we know (from previous posts on this blog) that people do what other people do (check “Despite 30People Witnessed a Crime No One Intervened”) and even more so people like to conform to social rules. Thus, Linked in inserted the word “Recommended” in red and capital letters above the “Business plus” account. 

Now, not only Linked in made you think that you want the “Business plus” by using the compromise effect, and not only did it make it easy for you to choose it by setting it as a default choice, but even more it makes you feel that it is a good decision because it is “Recommended”. One simple question: “Recommended by whom?”

Sixth, the “Business plus” option is highlighted by making the background grey instead of white. One might think that the highlighting is due to the fact that this option is preselected, but when selecting another option the highlighting does not change and the “Business plus” is still highlighted. This highlighting draws the attention and visual focus toward the preferred option of Linked in which is “Business plus”.

Seventh, the sequence in which the account options are presented is very interesting. Usually we tend to start from the cheapest and least complex to the most expensive and complex. However, Linked in does something very smart by reversing the sequence. This reversed sequence from the most complex and expensive to the least complex and cheapest makes use and creates conditions for the occurrence of some psychological effects that some have been presented on this blog, others not. First, there are priming and anchoring effects. By presenting first the most complex and expensive account type the person that sees the options has already been primed with a high value. This creates an interesting effect, namely that the “Business plus” seems a very good deal compared to the “Executive” (most complex and expensive type of account). It is cheaper than the first option read (the executive). If the order would have been from the cheapest (“Business”) to the most expensive, then the “Business plus” would seem expensive in comparison with the first option read (The “Business” which is the cheapest and least complex type of account).

The sequence from the most complex and expensive to the least complex and expensive leads to the appearance of “loss aversion (people hate losing) which was presented in “Hard to saygood bye”. Since a person would see first the benefits (features) of the most complex account, he or she would perceive the decreasing benefits of the second and third account as losses. For example the first feature of the three types of accounts is “Contact anyone directly with InMail”. For the most complex and expensive type of account (Executive) the amount per month is 25. For the second most complex (and what Linked in Recommends) “Business Plus” it is 10, while for the cheapest and least complex type of account (Business) it is 3.

Basically people are “primed” with having 25 “direct InMail” and if they go to a less complex and cheaper account they “Lose” out of that amount. If the sequence of account types would have been the other way around (from the cheapest to the most expensive) then people would have “Gained” more “direct InMail”. We know that losses hurt about twice the amount of pleasure given by a gain, thus it is much smarter to make people believe (consciously or not) that they are losing something by going for the cheaper option.

At the same time, we’ve seen that Linked in wants to sell the “Business plus” and not the “Executive” type of account, this meaning that the use of loss aversion might lead people to go more for the “Executive” account. I believe that this is not a real danger and here is why. The “Business plus” account is 45% cheaper than the “Executive” and this means a lot… maybe people don’t think that they need 25 “direct InMail” each month (by the way that represents more than one per working day – 22 working days in a week). Moreover, there is a very interesting sequence in decreasing the “amount of an attribute” in the three options sequence.

If we look at “Executive” vs. “Business Plus” we see that the difference in the amount of “Direct InMail” (25 for Executive, 10 for Business Plus) is of 60%. However, when we look at the “Business Plus” vs. “Business” (10 for Business Plus, 3 for Business) the difference is 70%. Similarly for the amount of other attributes, the relative difference increases more steeply from the second to the third option in comparison with the decrease from the first to the second option.

Moreover, the relative difference in price is not as steep as the difference for benefits. The “Business Plus” costs 45% less than the “Executive” while the “Business” costs 50% less than the “Business plus”. So even if someone would do a thorough “cost – benefit analysis” the most reasonable option would be the “Business Plus”. Now, you might think why I have used relative measures and not the absolute “Cost per unit of benefit”. The answer is that people are very bad at processing absolute values and think in more relative terms. You can check this out in “Despite Having Huge Salaries, Top Managers Have Immense Bonuses”.

Eighth, the price for an annual contract is expressed in “Per month”. The main effect here is that it makes it easy to compare with the price for the monthly contract which obviously is higher. By making this comparison easy it “helps” people make a choice. Now, the choice is obvious because one is better (cheaper) than the other. At the same time I believe that many people are drawn in to get a yearly contract and maybe they don’t really need it. The second effect that occurs here is called “Pennies per day” and it basically means that prices are presented as a small regular payment and not as a big overall cost. In the case of the “Business Plus account” the price for the annual contract is 29.95 Euros / month, but, in fact the price is 359.4 Euros / year. Of course 29.95 / month seems much cheaper than 359.4 / year.

Another thing about presented prices is that they are excluding VAT which means that to each price presented in bigger font sizes and bolded 19% (at least in The Netherlands) should be added. Now this might not be such a big issue for companies since the VAT is deductible, but for people that actually pay themselves it is a bit of an issue. At the same time, it is true that the price including VAT is presented in smaller font size and the customer does not have to compute it him/her-self.

At the end of this analysis the conclusion is that Linked In wants to sell as many “Business Plus” accounts with an annual contract.

Before ending this post, I’d like to make some observations. I have absolutely nothing against Linked In and in fact I believe it to be a very nice service. The analysis was done from a strictly professional perspective on decision making.

I do not know why Linked in wants to sell that type of account. It could simply be that market research has shown that this is what fits best the needs of most premium account users.

Using Decision Design techniques is neither immoral nor illegal. The advantage of “Libertarian Paternalism” is that it still allows for free choice. In more simple words, even if Linked In encourages the choice of “Business Plus” it does not restrict the liberty of choosing one of the other two types of accounts.

I believe that the above presented case study on Linked In is a very good example of Decision Design (or Choice architecture) that makes use of many “tools” and at the same time it allows for freedom of choice.

Like it?  Spice Up  Your Business

No comments: