The Psychology Behind Successful Monetization Strategies

Understanding user behavior is paramount for successful monetization strategies. I have compiled some of the most popular psychological factors to consider anytime you are looking at monetization.

Personalization: By understanding user behavior and leveraging relevance and value to the individual user, tailored recommendations and offers can be provided. This works just as well during onboarding as during regular app usage.
Scarcity: Scarcity is a powerful psychological trigger that drives urgency and purchase decisions. By leveraging limited-time offers, exclusive content, or limited stock, apps can drive user engagement and conversions.
Social Proof: People tend to follow the crowd and rely on social proof when making decisions. By showcasing positive feedback and endorsements (e.g. reviews, ratings, quotes), apps can build trust, credibility, and persuade potential users to engage.
Endowment: The endowment effect refers to the tendency for people to value something more highly once they own it. By offering a taste of the app's value and then providing opportunities to upgrade or unlock additional content, apps can tap into users' sense of ownership and attachment.
Decoy Pricing: You can influence users' perception of value by strategically placing higher-priced subscription options alongside a mid-range option. By presenting a decoy with limited features or higher pricing, apps can influence user decisions, making the target option seem like a better value and optimizing monetization strategies based on psychological pricing effects.

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Personalization

Let’s dive a bit deeper into the power of personalization. Personalized experiences have a profound impact on user engagement and willingness to spend. According to the latest "state of personalization" report by Segment, 56% of consumers say they will become repeat buyers after a personalized experience. By tailoring recommendations, offers, communication, and content based on user preferences, you can create a sense of relevance and value, increasing the likelihood of conversions. Here are three great examples of mobile apps that excel at personalization in different industries:

Education: Duolingo offers personalized language learning paths based on the user's skill level and learning progress, adapting the lessons to individual needs and providing a customized learning experience.
Music: Spotify creates personalized playlists, daily mixes, and recommends new music you might like based on your listening history, preferences, and music taste, delivering a tailored music experience.
Fitness: MyFitnessPal delivers personalized nutrition and workout recommendations based on user goals, tracking progress and tailoring suggestions to help users achieve their individual fitness objectives.

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The Scarcity Principle

Who has not seen a countdown running down in an app indicating that your limited-time offer expires soon? Did you stay calm or did you give in and make a purchase? Looking at the wide usage of this principle across major apps, I am probably foolish to think that I am less influenced by scarcity today compared to a few years ago. Scarcity is a powerful psychological trigger that drives urgency and purchase decisions. Limited-time offers, exclusive content or time-limited discounts can tap into users' fear of missing out (FOMO) and motivate them to take action.

Popular mobile apps utilizing the scarcity principle to their advantage include the following:

Booking.com often displays limited-time deals or "Last Chance" offers for hotel rooms, creating a sense of scarcity and encouraging users to book quickly.
Houzz effectively utilizes the scarcity principle by displaying limited-time sales, exclusive product launches, flash sales and also by sending notifications on limited inventory and seasonal promotions. All of these messages create a sense of urgency, motivating users to engage with the app and make purchases.
Groupon offers time-limited deals and promotional codes on various products and services, urging users to make a purchase before the offer expires.

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Social proof

In today’s connected world, we tend to rely more and more on social proof when making decisions. Positive reviews, ratings, awards, user testimonials, and social media influencers are all examples that influence our perception of value and credibility.

Incorporating social proof elements into your app, such as displaying ratings and reviews, can build trust and encourage users to convert. Here are three popular examples:

Strava effectively incorporates social proof in their onboarding flow where they show user testimonials as well as throughout the app, e.g. when searching new routes, looking for challenges, or viewing kudos and comments.
Opal highlights the number of reviews on the app store, their app store rating, testimonials by the popular press, as well as the number of people already using Opal as of today in their onboarding flow. All of these social proof elements increase trust and reliability in the app.
Yelp utilizes user-generated reviews and ratings to provide social proof for local businesses, helping users make informed decisions about where to dine, shop, or visit.

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Endowment effect

Have you ever valued something more highly once you owned it? This is referred to as the endowment effect. Mobile apps leverage this psychological bias for example by providing users a taste of their premium features or content during a free trial period. This experience often creates a sense of ownership and attachment, making users more likely to subscribe and continue using the app. I provide a few examples below:

With Warby Parker users can try on frames through Augmented Reality and thereby can create a sense of ownership before having bought them. In addition, Warby Parker also sends you a number of frames to try on at home creating the very same sense of ownership prior to purchasing the preferred frame.
Medium offers limited access to premium articles and exclusive features, allowing users to engage with the full platform and experience the value of its content.
Blinkist's onboarding gets users to save book preferences to their library so that they have created their own personalized library which encourages users to stick around.

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Decoy pricing

Are you aware of decoy pricing and how it takes advantage of consumers' tendency to make decisions based on relative comparisons rather than absolute value? By strategically introducing a less appealing option (the decoy), businesses nudge users toward their target pricing option and optimize their monetization strategies. The most famous example for decoy pricing is from The Economist which originally offered two annual pricing options:

Online-only priced at $59
Online + print priced at $125

The majority of users chose the lower-priced option of the online-only plan. What The Economist did next was to introduce an additional pricing option for a print-only version that was priced at $125 (i.e. same price as online + print) and acted as a decoy. While this print-only version appeared unattractive, it made the online + print version seem more appealing as it cost the same amount. And how did it change user behavior? The online + print version became the most selected plan leading to a significant revenue increase.

Here are three lesser-known examples that utilize (among other psychological principles) the decoy effect:

Lifesum.com: The 12-month option is only marginally more expensive than the 6-month premium option (=decoy).
Photomath: The 6-month premium option is the decoy, making the 12-month premium option look like a bargain. Notice also how the 12-month plan is positioned in the center.
Impulse: In this example, the yearly plan is the decoy for the lifetime option.

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Summary

Understanding these psychological principles and integrating them into your monetization strategies can yield significant results. And always remember that user behavior is not static - and your monetization strategy should not be either. Regularly analyzing user data and experimenting with monetization is key to staying ahead of the curve. If you are eager to test some of the principles, reach out to Kasva.