Buy Now Pay Later: why it works

The number of times I come across mentions of Buy Now Pay Later (BNPL) has dramatically increased and became ubiquitous in both brick and mortal businesses and the digital landscape in last 6 months. The BNPL concept is based on good repayment behaviour, in exchange for affordable purchases, through flexible payment plans. The market value of BNPL platforms such as Klarna, Afterpay and Sezzle is projected to rise globally at a CAGR of 21.2% by 2027.

Little bit of context for Southeast Asia. Out of the over 670 million people in the region, only 27% of the population have bank accounts. This sizable gap in banking penetration results in approximately 438 million unbanked individuals, with no bank account, credit or debit card or access to lines of credit. In parallel, there has been a shifting trend away from bank accounts and credit cards to services like BNPL, especially in younger consumers, due to debt aversion and ease of use. Hence, BNPL’s huge appeal.

The concept of BNPL is not new. Yet it is becoming increasingly popular and utilised due to a combination of factors, which include how humans are built as well as #COVID19 imposed restrictions (we have lot of spare time, are unable to travel and go shopping and feel the urge to online shop as a means of compensating), among others.

Here we review the main behavioural and psychological factors that drive BNPL:

1) Lose aversion

2) Present bias

Loss aversion

Research has found that spending money triggers areas of the brain associated with pain and disgust and that different forms of payment trigger different levels of discomfort. The pain of making a payment depends on the amount to be paid and on the method by which payment is made. Consumers who paid by credit cards rather than cash seem to experience less of a pain and hence were more willing to incur a given expense. As cash represents a physical representation of value, we feel more pain as people literally see themselves losing money.

Credit cards can be considered a prototype to BNPL as they use the same premise, albeit the only difference is paying the total price at a later date. Paying with credit cards provides a smooth transactional process, essentially decoupling the pain of losing their money in exchange for a product as there is no real money counting/giving process. An MIT study looking at purchasing tickets to a basketball game found that card-paying students were willing to pay twice as much as cash-paying students. Payment via credit cards is perceived as parting with a lower monetary value.

In both cases, the pain is linked to loss aversion, which is the tendency to prefer avoiding losses to acquiring equivalent gains. E-commerce companies are particularly adept at this, and constantly create urgency, offer deadlines for discounts and other ways of creating a psychological phenomenon of FOMO.

In brief, we are built to avoid pain by all means, which, in our daily lives, is recurrent phenomenon every time we pay via cash or credit cards. Perception of payment sometime later feels less painful.

Present bias

We humans are built to be focused/biased in present. We value $100 more today then tomorrow, less the day after and even less in future. In other words, present bias represent that fact that people place a greater value on goods/income achieved in the present moment – rather than receiving the same goods/income in the future. It suggests given a choice between a payoff today and a pay off in the future; we will choose to have the pay off now.

The timing of payments impacts the perceived value of a product. For example, people that pay for gym memberships monthly are more likely to exercise and renew their memberships compared to those that pay annually. These services provide a balance between pain and the perceived value/connection to the product. The focus shifts towards paying in future via smaller instalments, which are perceived as appealing and more affordable. As a result of tangible cash being abstracted away from us, it is harder to resist our impulse not to shop/consume via BNPL.

The BNPL business model is heavily relying on payment in future in various industries. Flexible options from ‘buy now, stay later‘ hotelier packages supporting Asian tourism, to car manufacturers’ deferred payment plans for boosting car sales, all the way to ‘fly now, pay later‘ air travel are increasingly popular.

You may ask what is the result of these two phenomena combined? Studies show that tourists (and pretty much any anyone) with high loss aversion and high present bias are more likely to overspend.

Between love and fear: the most powerful human motivator

There is nothing like the elation and bliss of new love. Especially when you believed you had found ‘the one.’ That took it to another level. You may have felt you never really knew what love was before. You were probably infused with incredible joy and happiness. You finally found what you were searching for, and it was even better than you ever imagined.

And then one day something unexpected happened. You got a queasy feeling that you couldn’t shake. You sensed deep in your gut that he or she was pulling away. Your heart sank and your stomach clenched with fear.

In the process of the psychopathic bond, the moment when the joy at finding love turns into the fear of losing it is called the ‘manipulative shift.’ When that happens, the psychopath takes control. This is when the devaluation stage begins.

Fear takes away our ability to think clearly. It’s an intensely powerful and uncomfortable emotion, and we want it to go away. In this case, fear was caused by the threat of losing our (supposedly) wonderful relationship. When we see someone as being the one who can take our fear away, we will give them just about anything. In this situation, that would be the very person who caused it in the first place — the psychopath. He or she took our fear away by becoming attentive and loving again. If we asked him if something was wrong he told us that we were imagining things, or he blamed us, or made up some excuse for his lapses.

If fear is something we want to avoid, how did the psychopath use it to keep us hooked?

By alternating it with another extremely powerful emotion — love.

Creating fear of losing the relationship — and then relieving it periodically with episodes of love and attention — is the perfect manipulation, one known as Intermittent Reinforcement.

Those positive episodes that banished our fear released a potent dose of dopamine-induced euphoria. We weren’t going to lose the best thing we ever had, after all. We took a deep breath and relaxed.

Have you ever gone to a casino and played a slot machine? You feed in your quarters and pull the handle, over and over, and watch the little colorful images of fruit and numbers and bells whiz by. If you don’t win anything you start to fear that you might lose all the money you already put in, let alone not win the jackpot.

Even though you risk losing more money, you are compelled to keep trying to win. What if you walk away from this machine now, after investing all this time and money, and the next person to sit down and pull the handle wins? You feed in a few more quarters, pull the handle and — amazingly — images of a red number 7 line up and bells ring while colourful lights flash. Handfuls of quarters pour loudly from the machine into your waiting hands. These rewards cause your brain to light up, too, by releasing a burst of pleasure-inducing dopamine, and you want more. Your fear vanishes, and you think that since you now have all these quarters you should keep playing. Who knows, maybe you’ll win the big jackpot next time! You start feeding the machine again. You’re hooked.

Psychology researchers have long considered intermittent reinforcement the most powerful motivator on the planet. It is also the most manipulative. Intermittent reinforcement is simply unpredictable random rewards in response to repeated behavior, but there is no more powerful formula to get someone to feel or act in a desired way. It can be elevated gradually (and subtly) to increasingly extreme levels, creating compliance that is obsessive and even self-destructive. I think this comes as no surprise to many of us. When we look back, we clearly see that intermittent reinforcement was hard at work.

The more infrequently the crumbs of love are offered, the more hooked you get. You become conditioned, like a rat in a laboratory cage. When rats are taught to press a lever that randomly dispenses a delicious morsel, they press the lever obsessively. After a while, they will keep pressing the lever even if no more morsels come out… until they starve to death (I think this is an unconscionable experiment, by the way, one probably carried out by psychopathic researchers).

Similarly, we may have held on even when there was no more “love” to be had.

Morsel-Bombing

Lab rats are taught to press the lever by starting them out with continuous positive reinforcement. In the beginning, every time they press the lever they get a morsel (just like the idealization phase, or ‘love-bombing’). Then the researchers change the game — the rat presses the lever, but a morsel isn’t delivered each time anymore, only once in a while. He is fearful that he won’t get fed but he knows pressing the lever brought food in the past, so he keeps pressing it until he gets some. As long as he gets a morsel once in a while, he keeps pressing it. When the morsels stop coming, he’s sure he’ll get one next time he presses it, or the next time, or the time after that… so he never stops trying.

Intermittent reinforcement plays a big role in traumatic bonding. A trauma bond is a very strong attachment to an abuser that develops not in spite of, but because of the abuse.

“Dutton and Painter have elaborated a theory of ‘traumatic bonding,’ whereby powerful emotional attachments are seen to develop from two specific features of abusive relationships: Power imbalances and intermittent good-bad treatment.”

So what can we do to prevent from being victimized by intermittent reinforcement in the future? It was hard to recognize because it emerged later in the relationship, and it was hard to walk away because we were already attached. Also, we may not have been knowledgeable about this powerful manipulation technique. Now we have that knowledge along with experience to go with it, and we can put it to work for us.

Here are some things to keep in mind for future relationships:

Trust is based on three things: Predictability, dependability and faith. Predictability is based on the consistency of a partner’s behavior, which is in stark contrast to intermittent good-bad treatment. Dependability is the degree to which you trust your partner to be honest and reliable. Faith represents your conviction that your partner will be responsive to your needs, can be relied upon, and be counted on to behave in a kind and caring manner. Don’t judge these things by how they were at one time, in the past — consider how they are at the present time. Psychopaths are good at gaining our trust, but not good at keeping it.
Look for the hallmarks of a healthy relationship: Intimacy, commitment, consistency, balance, progression, shared values, love, care, trust, and respect.
Listen to any alarm bells that go off in your head, and listen to friends and family members whom you know to have your best interest at heart. Don’t ignore them, no matter how much you would like to.
Become and stay very conscious of the dynamic of the relationship, and of the part you play in it. Be aware that when you feel chronically insecure, heartsick, anxious or hurt, you can get caught up in the drama caused by manipulation and become blind to the larger dynamics at play.
Keep in mind the signs in yourself that you’re being manipulated — it is easier than trying to figure out your partner, who will be lying and making excuses. You will not feel like this in a healthy, normal relationship.
Work on developing good, clear boundaries now, before you get involved with someone. This is probably the most important thing you can do.

Rethink sales incentives

Recognise the best, engage the rest

Sales incentive programs are usually aimed at the middle 60%-70% of the population. Some might say “why do I need to incentivise them, it’s what I pay them for.” If there is no gap between your objectives and the performance of the sales force you may well not need an incentive. However, if there is a gap, a well-designed sales incentive program is likely the best way to close it. And there is a reason for that.

Recognising the contribution of top performers is critical, and should be treated as an investment in retention of not only top performers but also middle. If you don’t recognise them, your competitors will. An incentive program that calls for the top 10% of sales reps to qualify for a travel award may engage 30% or so of the population. The remaining 70% feel they have no real chance to earn the award. A sales incentive program is often designed to drive increased unit sales, accomplishment of individual objectives or delivery of incremental volume. In any event, a well-designed sales incentive program will engage all participants because, unlike with a top performer program, the sales rep needs only compete with him/herself, not with the entire group. The ability to be reinforced for individual increment is what differentiates the incentive from recognition. And because top performers are just that, the increment they can generate is often limited.

Just the opposite is true for the middle 70%. Design the program with these sales reps in mind and the sales incentive will often generate more than enough incremental profitability to fund both the recognition and incentive programs.

Why it works

Studies show the most effective way to drive additional sales is to engage those in the middle of your performance curve.

Most top-tier performers are already operating at or near capacity
To gain additional sales, you need to engage the middle of your performance curve
Identify shared behaviours among your top sales reps
Inspire those desired behaviours among middle performers
Use the right mix of culturally-relevant rewards, incentives and recognition

Top 8 psychological hacks to boost you work and social interactions

1) Go into any interaction with acceptance and comfort mindset

2) Pay attention to people’s feet when you approach them

If they turn only their torsos and not their feet, it means they are in the middle of an important conversation and they don’t want you to interrupt them. If they turn both torso and feet, it means you are welcome.

3) When arguing, stand next to the person, not in front and move your eyes around

As subconsciously, this might be perceived as confrontational, and thus exacerbate the argument.

4) Show attention and understanding during conversation

rephrasing what he/she just mentioned
labelling his/her feelings using words (which has deflating and positive effect)
mirroring, i.e. repeating his/her words for more clarification/elaboration – animals mirror each other for comfort and to instil trust
nodding and using “uhm” and other silent confirming sounds
summarise in order to get “That’s right”: this will show that you heard, understood and identify with his/her issue/points and hence the answer “that’s right”
ask open-ended questions using “how” and “what”: both give a chance to the other person to elaborate and clarify, which instills further understanding for you and the longer the other person talks, the better he/she feels about you

5) Use silence in conversations

We tend to think silence is awkward. Don’t shy it, let it flow and let the other person or yourself ponder in the silence periods and then continue answering. Silence periods may seem awkward but they induce understanding and bonding.

6) Enrich your conversations

storytell: package information into stories and anecdotes (using details of colours, music, tastes, smells, movements, etc) – we are evolutionarily wired to buy into stories and trust those who tell them
tone and inflection: no one finds monotone exciting. Switch up your tone of voice from deep for declarative statements, to high inflection when you want to leave them guessing.
ask them to guess what happens next: where relevant/possible, this will create engagement and anticipation
avoid using “I think” and “I believe” where possible: instead use “I will” and “I know” to show a stronger and more confident footing

7) Use Benjamin Franklin effect

A person who has done someone a favor is more likely to do that person another favor than they would be if they had received a favor from that person. Similarly, one who harms another is more willing to harm them again than the victim is to retaliate.

In social situations, you can hack this by making someone do something small for you, then asking for your true favor. It’s such a small favor that they will say yes, and due to cognitive dissonance their brain will rationalize that they must like you enough to do you a favor in the first place. This is also called the foot-in-the-door effect.

8) Frame your request as a choice

No one likes to feel pressured into doing something they don’t want to do. By subtlety rephrasing a request, you can make the person feel like they came to the decision on their own terms.

Also this insightful blog post on overall work ethic touches on some of these and other psychological factors..

Top 5 psychology tricks in sales

1. Give your prospect fewer options

Providing your prospect with too many different options makes it harder for them to make a decision – which increases the odds they’ll walk away without buying anything at all. This is due to what in psychology is called choice overload.

2. Leverage loss aversion and FOMO

Even hesitant buyers have a hard time saying no to a great opportunity – especially if they’re thinking about what they’ll lose by turning it down. You can tap into this by framing your offer as something they’ll miss out on if they don’t make a purchase, rather than just highlighting the added value. Very impactful is to make positive comparison with a competitor, which makes your offer stand out even further.

3. Ask hesitant prospects to explain their reasoning

One of the easiest ways to poke holes in a prospect’s excuse for not buying is to ask to them walk you through their reasoning.

A simple, “What’s holding you back?” can get prospects to open up about their reservations. Whether it’s a matter of budget, timing, or product fit, knowing your prospect’s sales objections gives you a chance to reframe their perspective.

Another method is to ask your prospect to rate their readiness to buy on a scale of one to ten (with one being “not ready at all” and ten being “completely ready”). Regardless of their answer, ask why they chose the number they did.

4. Use storytelling to make an impact

Sharing a relatable customer success story is more powerful than simply listing the benefits of your product. Not only does telling a story allow you to connect more quickly with your prospects (by releasing the “trust hormone” oxytocin), it also helps you motivate your audience to take a desired action.

5. Use extreme anchoring
Anchoring is so powerful that it works even when you know it’s being done to you. You’re better off setting a high anchor that skews the entire negotiation your way than letting the client set a low anchor. The anchor serves as the mental reference point throughout the negotiation. Studies have shown that the higher the anchor, the higher the final price.

Top 10 ways to manipulate people (Chomsky)

Noam Chomsky wrote the article entitled “top 10 ways to manipulate people.” Below is the reprint of this article.

1. The strategy of distraction

The primary element of social control is the strategy of distraction which is to divert public attention from important issues and changes determined by the political and economic elites, by the technique of flood or flooding continuous distractions and insignificant information.

Distraction strategy is also essential to prevent the public interest in the essential knowledge in the area of the science, economics, psychology, neurobiology and cybernetics.

“Maintaining public attention diverted away from the real social problems, captivated by matters of no real importance. Keep the public busy, busy, busy, no time to think, back to farm and other animals” (quote from text Silent Weapons for Quiet Wars).

2. Create problems, then offer solutions

This method is also called “problem -reaction- solution.”

It creates a problem, a “situation” referred to cause some reaction in the audience, so this is the principal of the steps that you want to accept.

For example: let it unfold and intensify urban violence, or arrange for bloody attacks in order that the public is the applicant’s security laws and policies to the detriment of freedom.

Or create an economic crisis to accept as a necessary evil retreat of social rights and the dismantling of public services.

3. The gradual strategy

Acceptance to an unacceptable degree, just apply it gradually, dropper, for consecutive years.

That is how they radically new socioeconomic conditions (neoliberalism) were imposed during the 1980s and 1990s:

• the minimal state
• privatization
• precariousness
• flexibility
• massive unemployment
• wages
• do not guarantee a decent income,

…so many changes that have brought about a revolution if they had been applied once.

4. The strategy of deferring

Another way to accept an unpopular decision is to present it as “painful and necessary”, gaining public acceptance, at the time for future application.

It is easier to accept that a future sacrifice of immediate slaughter.

• First, because the effort is not used immediately
• Then, because the public, masses, is always the tendency to expect naively that “everything will be better tomorrow” and that the sacrifice required may be avoided

This gives the public more time to get used to the idea of change and accept it with resignation when the time comes.

5. Go to the public as a little child

Most of the advertising to the general public uses speech, argument, people and particularly children’s intonation, often close to the weakness, as if the viewer were a little child or a mentally deficient.

The harder one tries to deceive the viewer look, the more it tends to adopt a tone infantilizing.

Why?

“If one goes to a person as if she had the age of 12 years or less, then, because of suggestion, she tends with a certain probability that a response or reaction also devoid of a critical sense as a person 12 years or younger.” (see Silent Weapons for Quiet Wars)

6. Use the emotional side more than the reflection

Making use of the emotional aspect is a classic technique for causing a short circuit on rational analysis, and finally to the critical sense of the individual.

Furthermore, the use of emotional register to open the door to the unconscious for implantation or grafting ideas , desires, fears and anxieties , compulsions, or induce behaviors …

7. Keep the public in ignorance and mediocrity

Making the public incapable of understanding the technologies and methods used to control and enslavement.

“The quality of education given to the lower social classes must be the poor and mediocre as possible so that the gap of ignorance it plans among the lower classes and upper classes is and remains impossible to attain for the lower classes.” (See Silent Weapons for Quiet Wars).

8. To encourage the public to be complacent with mediocrity

Promote the public to believe that the fact is fashionable to be stupid, vulgar and uneducated…

9. Self-blame Strengthen

To let individual blame for their misfortune, because of the failure of their intelligence, their abilities, or their efforts.

So, instead of rebelling against the economic system, the individual auto-devaluate and guilt himself, which creates a depression, one of whose effects is to inhibit its action.

And, without action, there is no revolution!

10. Getting to know the individuals better than they know themselves

Over the past 50 years, advances of accelerated science has generated a growing gap between public knowledge and those owned and operated by dominant elites.

Thanks to biology, neurobiology and applied psychology, the “system” has enjoyed a sophisticated understanding of human beings, both physically and psychologically.

The system has gotten better acquainted with the common man more than he knows himself.

This means that, in most cases, the system exerts greater control and great power over individuals, greater than that of individuals about themselves.

Branding, psychology and why we don’t get Apple

In 1984, Apple launched its Think Different ad. Since then this ad is very much viewed and favorited. However, there seems to be a universal misunderstanding of its message.

Let’s start with Branding 101 before trying to understand the message of Apple. Branding and marketing are two different concepts. Branding has one and one objective only. It aims to establish and cultivate an emotional bond in your heart associated with some specific product or service or process. Marketing rationalizes and appeals to our logic whereas branding caters to our hearts and emotions. Marketing emphasizes quality, features and advantages whereas branding tries to establish an emotional bond, playing on our passions and aspirations or human irrationale, inciting us to act in a desired manner (buy a product/service).

Branding is simple enough to perceive intellectually, but difficult enough for many companies/people, not least because they don’t get the underlying psychology, to implement. Apple, as well as companies like Nike and Disney, is very good at putting into practice this psychology-based business practice. There is no magic here. It is a business practice of branding with expected results coming to fruition.

Coming back to Apple’s message in that ad. Many perceive the Apple message to be, “everyone wants to be a rebel.” In my view this is a wrong perception. Rebel is an outlier, an outcast of a society. He/she is challenging every status-quo and convention, Our societies are made of 98% of the completely opposite stock, i.e. those who care about making living and leading their lives in as predictable and affordable way as possible. About the only time they pay attention to rebels is when a rebel becomes famous, for good or bad reasons.

Costs of being a rebel usually far outweigh advantages. Why then some become rebels and even succeed? Either a combination of character/aspirations/perseverance or purely statistical (for every successful rebel there is many that get thrashed by their societies, friends, etc.).

Successes of those successful ones, rebel or not, appeal to us. We all want to indulge in glories and successes of successful rebels, but we don’t want to shoulder the accompanying costs and challenges.

Apple, because of its “corporate rebel” status has until last few years been an underdog of the corporate world. Its branding has been its forte and that is why its brand value has been so high and still increases. Increasing number of Apple products, not least the notorious iPod, have competitors with in many cases some and in few cases many advantages over their Apple equivalents. We don’t know about those products, some of them with names Sony, Creative, etc., because of Apple’s unsurpassed branding strategy.

Apple’s ad was perfectly in line with its own mentality and branding. What it did was to create a personna of its own brand, associating it with some notorious rebels in science, etc., and by doing so elevating even further our emotional excitement. In this ad, Apple counted itself in ranks with Einstein, Martin Luther King, etc. Apple tried to lure customers to its products as Einstein would have lured students to attend his lectures or read his books.

Apple’s DNA has always been about exclusivity, coolness, simplicity (for customers) and, of course, being a rebel.

Being a rebel is always about bringing forth, advocating and fighting for change, which flies flatly in the face of a society, convention, tradition, or status-quo. We humans, however, are neither comfortable nor happy with change, let alone a dramatic one.