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🤔 Did you know... In the video game Grand Theft Auto, you can spend real money on Shark Cards to buy items for your character. The Shark Cards are worth nada in real life, but people buy 'em without thinking twice. Today, the GTA franchise is worth $8.3+ billion. That's a whole lotta Shark Cards, right? But if you were gonna spend the same amount on stuff in the real world, you'd probably hesitate. Why? Because of something called "mental accounting"—read on to learn more. |
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(So your next launch doesn't flop) Imagine this… You've just stepped out of your car in the grocery store parking lot when something on the pavement catches your eye. Is that a…? No way. It's a slightly wrinkled yet still perfectly intact $100 bill. Better yet? There's no one in sight who could've dropped it—SCORE! You've been socking away money for a downpayment all year, so this serendipitous find is a major mood lifter. You came to the grocery store to buy a few missing ingredients for dinner, but now you're thinking of going to your favorite restaurant instead. After all, that unexpected $100 isn't coming out of your budget. Why are you happier to spend this newfound money than to spend your own cash? In today's edition of Why We Buy 🧠 we'll explore mental accounting—why we treat money differently based on how we label it. Let's get into it…
🧠 The Psychology of Mental Accounting You may not be an accountant, but chances are you think of your money in separate categories—like for dining, travel, and so on. That's responsible budgeting after all! But how we categorize money controls how we feel about it... We treat our funds differently based on what we label it for or where we got it from. For instance, studies show... Because of mental accounting, we spend based on our emotions rather than reason. In the case of Grand Theft Auto and other video games, we view game money as a separate account from real money. So thousands of GTA dollars for $10 might seem like a great deal even though we can't use those Shark Cards in the real world. What does mental accounting mean for your business? Customers don't think rationally when it comes to the bigger picture of their finances. You can use this to your advantage in your pricing and promotions—but be careful about exploiting this tendency.
🤑 How To Apply This Alright, so how can you apply this right now to sell more?
E-commerce Let customers pay in installments If you've bought anything online recently, you've probably noticed an uptick in flexible payment options. They let you pay over a few months, even a few years. Businesses make it easy to "buy now, pay later" for good reason. Compared to paying all at once, we're much more likely to buy when we have the option to split up a purchase. This is because of loss aversion—we hate saying goodbye to our hard-earned money! Payment plans lighten that pain, especially if you're selling any big-ticket products.
Subscription Emphasize long-term savings in your pricing tiers Like most freemium software, the writing tool Ludwig offers tiered pricing. While you can get one month's access for $14.99, a yearly subscription costs $59.88. …So with a yearly plan, you're paying about $5 per month. That's a 67% savings compared to the monthly price, which makes the annual plan look like a great deal. Remember to spell out the long-term savings so buyers don't need to do mental math.
Retail & Services Entice customers to return with cash vouchers If you've spent any real time in a casino then you've likely received free stuff—think drinks, food, and other complimentary services. Casinos give away freebies to keep people playing. But to keep high rollers coming back, casinos use even bigger incentives. For example, here's a letter from one of Princess Cruises' casinos offering not just free lodging but also $700 in playing money. The offer feels too good to pass up, even if you didn't have plans to hit the casinos anytime soon. It's like free moola landed in your mailbox. Of course, it doesn't take a PhD to know that coupons can help get more sales. The trick here is how you present them. Percent discounts like "15% off" aren't very tangible. But vouchers that name a specific dollar amount feel like getting handed cash—they're a separate mental account from the rest of your money.
💥 The Short of It How we categorize our money makes a big difference in how we value it—and in turn, how we spend it. Look for clever ways to encourage buyers to spend more by tapping into the mental accounting they're already doing.
🐦 Your Brainy Tweetable
$100 from your paycheck vs. $100 found on the street You'd probably save the first but use the second to splurge Why? Because where we get our money makes a big difference in how we spend it. Smart marketers know how to use this to make buyers feel rich!
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Until next time, happy selling! With ❤️ from Katelyn
P.S. Wanna really get inside your buyer's head? When you're ready, there are a few ways we can help: | 
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