24 Concepts to Succeed in Business (3/3)
Principles to help you navigate the business world
This is Part 3 (and last one of the series) of the most useful concepts that help me thrive in the business world.
These concepts are psychological effects, observations and principles that can be seen everywhere in business and influence our decision making all the time.
Being aware these exist is the first step to (a) mitigate their impact on us and (b) leverage them to our advantage.
Success means being able to do (a) and (b) everyday.
You can find Part 1 and Part 2 at the end of this newsletter.
Let’s start with Part 3 then!
(Deep dive by clicking on the title of each concept)
17. Choice Overload 🛒
Having too many options can lead to decision paralysis and dissatisfaction.
Example: Customers might struggle to choose a product if presented with too many similar options, leading to dissatisfaction with their final choice or no choice at all.
Why dissatisfaction or no choice?
Because:
1. we inherently feel sorrow about the opportunities that we forego.
2. it becomes more difficult and stressful to determine which option is the best.
3. when it’s not clear which option is best, we’re more likely to regret the decision that we eventually make.
In e-commerce, one solution to overcome choice overload (other than obviously reducing the number of options) is guiding customers with product descriptions, reviews and recommendations.
For example, Deliveroo shows product descriptions, customer reviews and “popular” menu items on the restaurant page to help customers make their choice.
The effect of choice overload on all of us:
18. Decoy Effect 🎯
When we are choosing between two alternatives, the addition of a third, less attractive option (the decoy) can influence our perception of the original two choices.
Example: Subscription-based services like newspapers, magazines, streaming platforms, B2B SaaS solutions, etc., frequently use the decoy effect in their pricing to influence users to choose a slightly pricier option.
19. Hindsight Bias 🔭
The tendency to perceive events as more predictable after they have occurred.
Example: After a stock market crash, many people claim they saw it coming, even if they didn't predict it beforehand.
20. Maslow's Hierarchy of Needs 🏔️
People prioritize certain needs over others in a hierarchical order.
Example: Employees need job security and a safe work environment before they can focus on higher-level goals like personal growth and purpose.
21. Mere Exposure Effect ❤️
Our tendency to like more the things we are familiar with.
Example: A company runs repeated ads on Facebook and Instagram. Users who see the ads multiple times may start to recognize and prefer the brand over competitors, simply because of the repeated exposure.
22. Reciprocity Principle 🎁
We are hard-wired to respond positively to a gift, even if we didn’t ask for it, or even want it. We automatically feel indebted to the giver, regardless.
Example: A free sample encourages people to buy the corresponding product because they feel they have to return the favor of being given something for free.
23. Social Proof 🏆
We tend to make decisions based on the actions and opinions of others.
Example: A new employee might follow the behaviors of his/her colleagues to integrate in the workplace culture.
If you haven’t read it, here I discuss social proof using famous e-commerce examples:
24. Sunk Cost Fallacy 💸
Our tendency to persist in an endeavor because we have already invested time, effort, or money into it, regardless of whether the current costs outweigh the benefits.
Example: Continuing with a failing project because of the significant resources already invested.
In economics, a “sunk cost” is an expense that cannot be recovered.
💰It can be money (you’ve put into a project) or ⏳ time (you’ve spent in a relationship).
We know it is irrational to use irrecoverable costs to justify a present decision.
Only future costs and benefits should be taken into account.
However, we stick with the decision/investment/project, digging ourselves into a deeper and deeper hole.
Part 1 (concepts from #1 to #8):
Part 2 (concepts from #9 to #16):
See you next Sunday 🗓️
Thanks,
Giacomo
As always super interesting!
About choice overload the book "Gastrophysics: the new science of eating" says that restaurant menu should have no more than 7 options for each category, so.... 7 is the perfect food number!
Some very interesting 'snacks' also based on science. This is how I would describe these tips, which I especially appreciated in the way you told them. The theme of the overload of choices is one of the most important for me: from small services to large companies, emphasis must always be placed on helping the most undecided consumers to choose, or to recommend an option in line with their tastes or desires .