What is Framing
Framing in behavioral economics refers to how the presentation of information influences people’s decisions even if the underlying factual information remains the same. It highlights that we don’t always make completely rational choices based on pure logic, and the way something is presented or worded can nudge us in a particular direction. These framing effects are powerful because they tap into our cognitive biases and emotional responses.
Coca-Cola's Thermometer Pricing
In the late 1990s, Coca-Cola CEO Douglas Iverston implemented a seemingly logical strategy: pricing soda based on temperature. As temperatures rose, so would the price of a Coke, and vice versa. From an economic standpoint, this made sense. Increased demand during hot weather could justify a higher price for a refreshing drink.
However, Iverston overlooked the crucial element of framing. When rolled out, the strategy sparked outrage. Customers felt exploited, perceiving Coke as capitalizing on their desire for a cold beverage on a hot day.
Here's where framing could have made a difference. Instead of raising prices with rising temperatures, Coca-Cola could have positioned it as a discount strategy. During hot days, the price would remain the same (regular price), but during cold days, Coca-Cola would offer a discounted price. The core pricing strategy remains unchanged, but the framing shifts the focus to value offered by Coca-Cola.
This reframing would likely have yielded a more positive reception. Customers wouldn't feel like they were being taken advantage of, potentially leading to a more successful campaign.
This case highlights a crucial lesson: even the most meticulously planned strategies can fail if they neglect the power of framing. Coca-Cola's team spent months on pricing, marketing materials, and go-to-market plans. However, without considering consumer behavior and the impact of framing, their efforts ultimately proved ineffective.
Uri Gneezy's Car Study
This concept of framing incentives is highlighted by a recent study conducted by Uri Gneezy in collaboration with Edmunds.com. Their goal was to understand how to motivate customers to click on dealer ads. Interestingly, the study found that offering gas cards, rather than presenting a straight cash discount, led to a higher click-through rate. This showcases the power of framing – presenting a specific reward (a gas card) can be more appealing than a general discount (cash).
The study didn't stop there. They took inspiration from the research to understand the "why" behind incentives. To determine the optimal incentive value, Edmunds.com investigated the "pricing" of this difference – essentially, the cash equivalent value of a gas card in this context. Their findings were striking: a $200 gas card resulted in more clicks than a $500 discount. This highlights the importance of going beyond simply offering an incentive, but also strategically framing it for maximum impact.
Framing back to office
Many companies are struggling to get employees back to the office after the shift to remote work due to COVID-19. Employees have grown accustomed to this new style and may prefer it. How companies position the return to office is crucial. We've seen many companies simply say "it's time to come back" or "we need you back because you're not as productive." These approaches have resulted in low return-to-office rates and, in some cases, employees jumping ship to remote-first companies.
The way companies frame the return to office message reveals their priorities. Behavioral economist Uri Gneezy suggests a more positive approach: acknowledge that employees have been successful working from home and, as a reward, propose a hybrid model with fewer in-office days (e.g., 3 days instead of 5). This framing emphasizes flexibility and appreciation, potentially leading to a more positive employee response.
Framing your internal pitch
The success of your pitch, whether internal or external, hinges on how you frame your message. Take a product decision with potential risks, for example, a 5% chance of negative customer impact. While acknowledging the risk, framing it as a 95% chance of positive impact emphasizes the potential upside and positions the decision more persuasively, therefore giving you more chance of success.
Conclusion
In conclusion, framing presents a powerful tool for influencing decisions across various contexts. From consumer behavior to internal pitches, strategically presenting information can significantly impact outcomes. As the Coca-Cola case demonstrates, neglecting the power of framing can lead to well-intended strategies backfiring.
However, it's important to remember that effective framing doesn't guarantee success. It's more like stacking the deck in your favor. By understanding how framing works and applying it thoughtfully, we can increase the probability of a positive outcome. The more we consistently leverage this approach, the greater our cumulative success over time.
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