Do you find that you sometimes have clients who can well afford a $2M renovation, but they want to negotiate a $5K expenditure on a rug? This reaction is Price Anchoring―a mental prejudice in which they may be relying on the first piece of information they receive when making decisions.
That prejudice can tilt their judgment. Choice Architecture refers to how options are presented to influence a choice. Many designers present choices without considering external influences or context, whereas successful, high-performing CEOs use Behavioral Economics to design the decision-making environment.
Behavioral economics is the study of the psychological factors that factor into the decision-making of individuals or organizations. That study includes how those decisions vary from what is implied by traditional economic theory. The psychological factors include cognitive, behavioral, affective, and social factors involved.
Mastering Price Anchoring and Choice Architecture creates an environment where you stop being a suggester and instead become a driver, guiding design clients toward decisive action.
1. The Anchor Price
It’s important to understand the science of how the human brain works. It relies heavily on the first piece of information it receives―the “anchor”―to evaluate everything that follows.
The Concept
Keeping in mind how the human brain works, you might start by presenting a premium product or service to set a high reference point. This approach will make subsequent lower-priced options seem more desirable. In addition, it is important to organize choices that highlight the best value, to guide clients toward preferred selections.
It is also important to highlight the why behind the higher-priced items. Appeal to a client’s sense of luxury and educate your client. Explain that the more expensive sofa is of higher quality construction and will hold up to the wear and tear in a family room with children and pets. By the same token, you may show them a hall table of lesser quality that will only be used decoratively. It just needs to have a great look, but it will receive very little use. Make them understand why you’re presenting a certain choice, so they can consider beyond looks and price tags.
The Professional Fee Anchor
Lead with your highest-value service tier. This approach allows subsequent options to feel like a strategic investment rather than an unnecessary expense. Just as with the sofa example above, always take the opportunity to educate your client. You are immersed in the design field, so you may take much of your knowledge for granted. Don’t forget to share the reasons behind the options you are offering so the client understands the value and quality in front of them.
The Breakthrough
Your aim should be to shift the conversation from “How much does this cost?” to “How does this compare to the value we established?”
Make sure you build trust in the beginning and establish that their vision can be met within the budget they are willing to invest. Then you must paint the picture of that vision so that the first question is not “How much does this cost?” Rather, the first questions are design-related, and quality and value-related―not financial.
2. Choice Architecture
The Concept
Choice architecture relates to organizing how you present options in order to influence the final decision―without removing the client’s freedom. It’s not about the money, but rather the context of the decision―how the information was presented.
Reducing Choice Overload
Too often, designers make the mistake of giving a client too many choices. Having too many options may lead to decision paralysis. If they are paralyzed by these choices, it could also cause project delays. Again, client education from the beginning is important. Share with them the value of working with a professional―it is your job to gather their information and then select options based on the information they share with you. Explain how that saves them time and being overloaded with too many choices, making it easier for them to make a decision more quickly, so that their project is not delayed.
Instead of presenting 10 fabrics, present 3, with one clear “Designer’s Choice”. Three is a great number in the field of design, whether it has to do with grouping accessories or choices presented to clients. This approach makes you come across as confident and knowledgeable.
Default Choices
Setting the “default” as the highest-standard installation or procurement method protects your “Exquisite Service” legacy. If they are your ideal clients, and you have built a relationship based on trust, they will then trust your selections. By incorporating established design principles, functionality, and aesthetic appeal as your “default,” you will ensure consistently high standards. Through your proven strategies, you will also increase the likelihood of meeting client expectations and gaining a reputation for just that. That reputation should also help you streamline the design process―saving time and resources.
3. Framing the Value
Loss Aversion
When framing the value during the design process, clients will be more motivated to make a decision based on loss rather than gain. In other words, it is more effective to focus on a missed opportunity or a logistical error that might occur because of a decision not made. Despite the negativity, this approach will usually motivate them more than highlighting a gain or advantage. Humans make decisions based on fear, but this tendency can be used to guide your clients to a proper decision.
Choice Architecture Invoicing
Just as it is more effective to point out the value and the “why” of procurement choices rather than the cost, the same is true in how you frame the cost of your fees. Use strategic clarity to frame your fees as risk-mitigated and time saved rather than hours spent. Again, communication matters. Think of your invoicing as an additional opportunity to highlight the value your firm offers and reinforce your brand―not just a list of hours spent.
The Reframe
This is another opportunity to shift the clients’ view from the cost and the “can I do this cheaper?” mentality. Help them shift their focus from cost to investment. Then underscore that this investment is necessary to ensure a successful project.
4. Managing Decision Fatigue
The Internal Cost
Consider the cost involved for your firm due to every small decision you force a client to make. Those multiple small decisions increase your administrative burden as well as potentially unbilled “hand-holding” time. It can also create a feeling of overload for them and reduce their enthusiasm for the project. In simple terms, it can cause a mental shutdown.
Designing the Workflow
Having software and systems in place can streamline the process and reduce your administrative costs and the client’s decision-making fatigue. When you create a well-oiled machine, your team will appreciate it, and the client will only see the high-level strategic choices. Streamlined processes reflect positively on your brand.
The Outcome
One of the most effective outcomes of automating much of the decision-making process is the protection of your time freedom. It gives you more time to use in marketing―or to reclaim for your personal life! Imagine that!
5. Trust is the Ultimate Multiplier
The Principle
Don’t mistake the use of these tools as manipulation. They are for leadership, a quality that offers great value for the client. They are coming to you for your expertise in guiding them toward a successful design project. Be their leader, and guide them toward what you know is best.
Maintaining Brand Authority
Often, high-net-worth clients may have successful businesses of their own and so appreciate strong leadership. They actually prefer a designer who narrows their choices and leads with confidence.
The Result
By incorporating these tools, you are building a relationship-driven business where clients feel cared for because you have removed the stress of indecision. They will feel they have been given the personal attention desired and that they are working with a professional firm that values their clients.
The all-important reality check is that if you don’t design the choice, the client will―and it will usually be based on fear and price sensitivity. That will not create a memory of a positive relationship with your firm. Instead, use tools like price anchoring and choice architecture to be a strong leader, and clients will share their great experience working with your team.
Apply now to learn how to implement psychological pricing and leadership like a CEO designer.