Kristen Berman

Netflix once told us that “love is sharing a password.” And now, they’re putting that love to the test with new restrictions on password-sharing.

They have this funny tendency of increasing price and taking away services. This feels unfair.

People get mad when things feel unfair.

But the irony is that Netflix may be making things MORE fair with this change.  

Follow me: 40% of Netflix users share passwords now. For the 60% who don’t, this means they’re taking on a larger load on behalf of the community. Every time Netflix has increased prices in the last few years (which they've done a lot) paying customers have been the hardest hit:

The 40% are getting double or even quadruple the value from Netflix (depending on how many people they share with!) since their subscription is going to multiple people.
Meanwhile, the 60% are getting proportionally less value from the same price.

According to the “freeloader effect,” people who use Netflix without paying aren’t just freeloading off their friends, but off the whole community.

In other words, when lots of users don’t pay for Netflix, it becomes a worse service for EVERYONE. So why not frame these new restrictions around fairness—not just for paying subscribers, but for the whole Netflix community?

Because here’s the big idea: having more people “pay in” benefits us all.

At the end of the day, Netflix is a real company with real costs. Yes, they’re profitable—but losing billions of dollars in income seriously impacts the quality of their service.

So let’s hope Netflix sticks the landing—and in the meantime?

Pass the popcorn 🍿

#BehavioralEconomics #ProductManagement #Netflix

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One thing I’m grateful for this Thanksgiving—that I was able to quit smoking.

I was one of those people who smoked at bars and occasionally on the drive home from work.

It took Dan Ariely to stop me in 2013. He was being a friend (and hated that my car smelled of cigarettes).

We are who we surround ourselves with. In this case, Dan helped me. But he also helped all of my other friends. 

When you start smoking, every one of your friends will have one more smoker in their peer group—and every single member of those groups will become more likely to smoke.

The term for this is “behavioral contagion,” popularized by Robert Frank (also the source of the above insight).

How do we stop it?

Until recently, we didn’t. We’re not big on social engineering. American per capita cigarette smoking increased steadily until 1953, slowing only around the Great Depression.

By then, half (47%) of adults smoked. Half of all doctors, too!

The marketing was intense. Camel ads claimed that smoking a cigarette between every course of a Thanksgiving meal was an “aid to digestion.”

It took 40 years, but once the health risks were known, smoking numbers went down.

By 2011, fewer than 20% of Americans smoked, though lower socioeconomic status is linked with higher rates.

What worked?

Smoking has a negative externality. And we called attention to this: your smoking can cause harm to me.  Even for strict libertarians, this is inexcusable (shoutout to John Stuart Mill)!

Because of this idea, stuff changed:

😷 Norm changes: Banning cigarette ads from radio and TV, graphic warning labels, media campaigns.
😷 Regulation that drove norm changes: Smoke-free workplace and restaurant policies (29% reduction!) that drove us outside
😷 Enforcing child anti-smoking laws

What didn’t work?

🚬 Text warnings on cigarette packs. Pictures work better!
🚬 Tax increases. They work, but only if they’re REALLY high, i.e. 100%—and then they only decrease smoking by  5% (WHO Report on the Global Tobacco Epidemic)

We did all this mostly because of the negative externality of ‘secondhand smoke.’

But the real benefit may have been decreasing the chances that you have a smoker in your peer group. We tend to underestimate these causes.

The flipside of this truth: yes, smoking causes 85%+ of American deaths from lung cancer. But only a fraction of the rest has been linked to secondhand smoke exposure.

But really? It doesn’t matter. Because the truth is, smokers aren’t only harming themselves. They're hurting their friends. Behavior can be contagious.

I don’t know about you, but I want my friends to stick around.

So this Thanksgiving, I say let’s keep our friends close—and if anyone needs a digestive aid, try an after-dinner mint!

#BehavioralEconomics #BehavioralScience #SocialEngineering #smoking

Is someone worried about ChatGPT? :)

Grammarly just launched a 50% discount—and since price signals value, I wonder how people will perceive the offer.

We know from research that when we discount a product down, we may also lower the perception of its quality.

(Grammarly—I know you’re working harder than ever and I see you).
 
But discounts may change our perception of a product’s value for the worse. This is especially true when the product’s value is hard to determine. How much should I pay for a donut? There’s an acceptable range. How much should I pay to write better emails? Unclear.

We solve this complexity by taking every mental shortcut we can. Price acts as a heuristic… We assume it reflects quality.

At first this seems like a good rule of thumb. But price and quality aren’t always related. Take store-brand or generic meds, for example. They contain the same active ingredients as their name-brand counterparts, but not everyone trusts them. Why? People infer they’re inferior because they cost less.
 
Which brings me to the “Veladone” experiment. Maybe you’ve heard of it.

Participants in this study got electrical shocks and were then given a placebo they were told was a painkiller. The catch? Half of the test subjects were given brochures showing that the drug had been marked down from the original price of $2.50 a pill to 10 cents a pill (discount!).

After they got the shocks again, 85% in the full-price group reported pain relief from the painkiller. But only 61% in the discount group reported pain relief.

What happened? Our perception of quality as a reflection of price can impact our product experience. The cheap = low quality association means discounts can erode perceived value.

So the next time you’re using discounts in your pricing strategy, remember:

1️⃣ Price and the perception of a product go hand in hand;
2️⃣ When we discount things down, the perceived quality may go down.

Discounts CAN sell stuff. No denying this. But use them with caution, or you could pay a price in product and brand value perception.

#pricing #psychology #BehavioralScience

P.S. Irrational Labs helps companies solve pricing challenges at scale. Curious how this works? Get in touch 📧