One of the best things about working at Google is being able to curate and offer your knowledge and skills as part of a program branded G2G (Googler-to-Googler). Soon after I joined Google in 2012, I kicked off the first G2G yoga classes in Google's Dublin office and launched the "Yogler" program's Dublin chapter subsequently. This was a passion project as I had recently completed my foundational yoga teacher training course and was pursuing further advanced education. It was a way for me to share my skills, do something I love, and get practice. I was not exactly self-confident as I didn't have much teaching experience, and it was very much a side project, so I naturally offered the classes for free.
My little initiative seemed to be a great success from the get-go. I got quite a bit of interest, the studio filled up easily, so much so that I had to turn people down. People seemed happy enough during class and gave me positive feedback after class. Somehow, it wasn't the same vibes as studio classes, however. People who came to class weren't coming back even though some would seek me out after class at the cafeteria or ping me later in the week to tell me they loved it and could feel immediate benefits. Some people would roll up their mats and leave in the middle of the class, others would chat and giggle, there were a couple who even played with their phones during class. Why were Googlers -- young, athletic, stressed professionals making them the prime audience for a weekly yoga class -- not taking my class seriously? As much as I lacked self-confidence as a yoga teacher and class curator, I had a gut feeling something (other than me!) was not quite right. Part of it was the fact that we were all still workmates and the classes took place in the office gym. Part of it may have been that I was not the most experienced, hence not the most confident teacher out there. But there was something else— I just didn't know what.
... when we pay for a service, the act of parting with our hard-earned money establishes a reference point, anchoring our perception of its value higher than if it were offered for free.
As it happens, I was reading Dan Ariely's "Predictably Irrational" at the time, where I learned about the "anchoring effect," where we rely heavily on the first piece of information (the anchor) we encounter when evaluating the value of a product or service. According to Ariely, when we pay for a service, the act of parting with our hard-earned money establishes a reference point, anchoring our perception of its value higher than if it were offered for free.
Inspired, I decided to conduct an experiment and announced that I would charge 5 Euros per person for my yoga classes going forward. Just to put things in perspective, a yoga class costs anywhere between 10 to18 Euros in Dublin, so this was very much a bargain. Also, I donated the money we generated to the UNICEF Refugee Fund using Google's gift match program (Google matched all donations, so we donated 10 Euros per person), so it was for a good cause. I wasn't sure how my thought experiment would turn out.
Well, it turned out pretty transformational - the impact was immediate and quite striking! There was even more demand, retention was off the roof, people complimented me for my classes right and left, everyone was tuned in during class, stayed until the end, and if they had to leave for a commitment, they let me know and apologized before leaving quietly. All in all, people respected me, my service offering, and most importantly, themselves more. Only 5 Euros a class and you have yourself the ideal set-up - pretty amazing!
So what is the psychological switch that turned on when Googlers started paying for the classes out of pocket. It turns out, there are a few things at play:
1. The Concept of Perceived Value:
Perceived value refers to the subjective assessment consumers make about the worth of a product or service based on their perception of its benefits and costs. When individuals pay for a service, whether it's a spa treatment, professional consultation, or online course, they have a personal investment at stake. This investment creates a psychological expectation of receiving commensurate value in return.
2. The Influence of Cognitive Dissonance:
Cognitive dissonance theory suggests that individuals strive for internal consistency and harmony in their beliefs and behaviors. When we pay for a service, we anticipate a positive experience to align with our decision to invest in it. If we undervalue or dismiss the service, it creates cognitive dissonance—a psychological discomfort that arises when our attitudes or beliefs contradict our actions. To resolve this dissonance, we are more likely to convince ourselves that the service is valuable and worthwhile.
3. The Principle of Reciprocity:
Reciprocity is a powerful social norm that drives our behavior. When someone provides us with a service or favor, we feel compelled to reciprocate. Paying for a service creates a clear transactional dynamic, reinforcing the expectation that we should acknowledge and appreciate the value provided by the service provider. This reciprocity mindset further enhances our perception of the service's worth.
4. The Role of Confirmation Bias and Sunk Cost Fallacy:
Confirmation bias refers to our tendency to seek, interpret, and favor information that confirms our preexisting beliefs or expectations. When we pay for a service, we actively seek positive attributes and experiences to validate our decision and reinforce the belief that our investment and effort were worthwhile.
A similar human brain tendency is what is called the "sunk cost fallacy." In his book "David and Goliath," author Malcolm Gladwell explores the concept of effort and how it shapes our perception of value. Gladwell suggests that when we invest time, effort, or money into acquiring a service, we attach a greater sense of worth to it. This phenomenon, known as the "sunk cost fallacy," stems from our natural desire to justify our past investments and avoid feelings of regret. As a result, we tend to value paid services more because we have a psychological need to validate our decision to invest in them.
Commitment fosters a sense of emotional investment and ownership, meaning we are more likely to engage actively, provide feedback, and seek ways to maximize the benefits as we are committed to it after having paid for it. The more committed and tuned in we are, the more likely we will receive positive benefits.
5. Emotional Investment and Ownership:
When we pay for a service, we make a conscious commitment. This commitment prompts us to take the experience more seriously, invest our time and attention, and derive greater satisfaction from the service. Commitment fosters a sense of emotional investment and ownership, meaning we are more likely to engage actively, provide feedback, and seek ways to maximize the benefits as we are committed to it after having paid for it. The more committed and tuned in we are, the more likely we will receive positive benefits. If, like in the above example, we don't go to the yoga class regularly, show up late, leave early, and not engage during class, it is unlikely we will think of it as a positive experience. And so we will be less likely to go back—a Catch-22 situation of sorts.
But the fact is, people who don't want to pay are not ready for the services or products offered.
So WHAT?
Not only did this experience teach me about the price-value perception balance, but it also gave me the confidence that I am worth the investment and respect. The more the yoglers who joined my classes valued my teaching and my classes, the more I valued my own teaching and my classes, making me a better, more confident teacher. This self-confidence and self-respect made my classes better—a win-win for everyone involved.
I have since worked with startup founders who have been afraid to go to family and friends to raise money, freelancers who are afraid to charge for their consulting services, successful businesspeople who don't think they are worth the pay raise, and the list goes on. But the fact is, people who don't want to pay are not ready for the services or products offered. They will not value it, respect it, commit to it, and therefore fail to get the benefits of it. So if you want to do yourself and those who benefit from what you have to offer a favor, don't undersell yourself -- put a price tag on your products and services!
Connect with me at leadrisecoaching@gmail.com if you have any thoughts or comments on price and perceived value dynamics.
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