Would you want to pay $200 for an item when you can buy the exact same for $20? No, right? Theory states that when many firms sell undifferentiated goods, the prices get driven down quite significantly as each firm tries to undercut the other to get a large share of the market. However, some firms have managed to beat this theory and sell their undifferentiated product at a significantly higher cost. Today, we will look at one such company - Jaden Smith’s ‘JUST Water’. The company sells a pack of 12 water bottles for $34.99 which works out to $3 a bottle. This is thrice as much as what a normal bottle costs! This is especially interesting when you consider that this product is sold in countries where tap water is drinkable and free.
How are people willing to pay more when cheaper bottles of water are readily available?
#1 Making sustainability attractive
According to the official website of JUST Water, the company was inspired by Jaden's quest to design a product that is more sustainable and produces lower carbon footprints. According to the article “The Elusive Green Consumer” by Harvard Business Review, companies with such goals face a frustrating paradox: Most consumers report positive attitudes toward eco-friendly products, but they often seem unwilling to follow through with their wallets. However, there are ways to deal with this using behavioural science:
Social Influence: Humans are social creatures. The development of informal social conventions about right and wrong tend to be followed strictly among communities due to the want of humans to be accepted in social circles and groups. Thus telling consumers what the society is doing around them nudges them to conform.
Shaping Habits: Prompts, feedbacks and incentives can often be used to break old habits and build new sustainable ones in consumers. Making sustainable choice the default habit, helps both companies to become more sustainable while still keeping their customer base intact.
Leverage the Domino Effect: Research has further shown that developing sustainable habits makes an individual more likely to adopt other sustainable habits (a positive spillover). Although there is a possibility that a sustainable action may lead someone to subsequently behave less sustainably, this can be avoided by making the first sustainable action is particularly effortful to build commitment.
Emotional and Rational Appeal: Behaviour which is accompanied with positive feelings tends to be repeated by individuals. Thus advertisements which ignite hope and pride help in developing a positive relationship with the act of buying and consuming a product. Moreover, appeal framed in a way that makes the consumer believe they can make a change which can have an impact is also seen to nudge consumers towards more greener options.
#2 Celebrity endorsement
Jaden Smith is undoubtedly quite famous and so are his parents. Every company spends millions of dollars on celebrity endorsements and not without a good reason. Sales data analysis has shown that celebrity marketing boosts the sales of a company to justify such a big investment. So why are consumers so captivated by celebrities?
The Marketing Psychology Behind Celebrity Endorsements by Knowledge at Wharton discusses a study that showed how celebrities can build consumer confidence.
The researchers believe the ability of celebrities to persuade is rooted in evolution and biology. Both humans and primates will follow the lead of high-status, high-prestige individuals in their group by copying their decisions.
Another article titled Impact of Celebrity Endorsement on Consumer Buying Behavior discusses how celebrity endorsement of products increases recall in consumers.
Consumers show greater recall of products that have been endorsed by celebrities – regardless of whether they are actual fans or not. The human brain recognises celebrities similarly to how it recognises people we actually know. The effect is that, if consumers happen to be fans, they place a higher value on products that celebrities are endorsing – it is as if they are receiving advise from a valued friend.
Lastly, as a fun read also have a look at how some other companies sell highly-priced bottles of water, some well into thousands of dollars for a bottle!
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Brought to you by India Behavioural Economics Network (Facebook | LinkedIn | Twitter) and Beyond Nudge Consulting (Instagram | LinkedIn | Twitter)
Editors: Nehal Kaul, Junofy Anto Rozarina
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What an amazing Friday read. Loved it 😍