A few weeks ago, I attended the Silicon Beach Fest conference for tech businesses and start-ups here in the L.A. area. This conference, held over the three days at the Marina Del Rey Hotel, is produced by DigitalLA, and is now in its 15th year. This year I found informative content panels with interesting and knowledgeable people, discussing relevant topics and emerging trends. While not the largest conference around, it was a great way to assess the health of the Silicon beach start-up community, and understand the key developments and gain insights on the business climate here.

I came away from the conference with 4 key observations about what LA start-ups are experiencing:

1. L.A. startups are growing up and maturing – Based on the panel topics, comments and questions among panelists, and from my conversations with attendees, it is readily apparent that the key focus for many Silicon Beach startups are shifting. Whereas in previous years, when the focus was on engineering & design, product development, and go-to-market strategies, this year seemed different. Entrepreneurs were turning their attention to marketing, revenue & profit growth, and retaining talent - a great sign that businesses are gaining traction and maturing. This, in turn, helps the broader tech & startup ecosystem to solidify and grow.

 

1. Venture capital is expanding but still under-represented in LA – Although the venture funding environment is healthy right now, with over 200 funded deals totaling over $3B in 2015, access to venture capital for LA start-up still more than likely requires the founders and management to take a plane ride. This is especially true for later stage investment rounds, when many investors are coming from the Bay Area, New York and elsewhere. There are no doubt some strong LA-based VC firms that are supportive and well-known in the community (Upfront, Greycroft, Mucker, Crosscut, etc), but many other established firms are still reluctant to set up offices in SoCal. Angel investors and firms focused on early funding continue to be most prevalent. Experts at the conference don’t see this dynamic changing anytime soon.  
   
   
2. Drones, VR, and social influencers were hot topics of discussion – There was an entire VR lounge on display; The Huffington Post covered the conferences “future of VR” track; Prominent experts in drone technology predicted “Billions of Flights from Millions of drones” within 5 years’ time. The advances in drone technology as a business – as well as new FAA regulations - is of special interest to the L.A. tech community, given its roots in aerospace & defense (JPL, Lockheed, McDonnell Douglas, etc.).  Similarly, virtual reality sits at the intersection of technology, media and entertainment so it makes sense that I would be actively pursued by a number of SBF participants. And of course, LA’s fixation on beauty and celebrity means that the rise of social media and influencers’ impact on marketing in some industries – social commerce and related marketing models – was of keen interest.

 

1. Silicon Beach continues to build momentum. LA entrepreneurs and their companies continue to gain experience, garner attention, attract capital, and see positive results. High-profile companies - and successful exits – include Snap, Inc., Oculus, Maker Studios, Dollar Shave Club, and The Honest Company, with several others on the horizon. This brings more credibility to the community and confidence to its participants – that was certainly reflected at this year’s Silicon Beach Fest. LA continues to have a great setup for fostering start-ups: strong research universities, a diverse pool of business talent (attracted to a nice setting), support from the city, and an industrial heritage in entertainment, media, consumer businesses, and aerospace. The pieces continue to fall into place to make “Silicon Beach” (a moniker disliked by many here) a key ecosystem for new business creation, innovation, and economic growth. At last count, there were 1,113 start-ups on the startup map of the LA area, triple the number observed on the map just 4 years ago.

I look forward to continuing to observe (and contribute to) the advancement of the L.A. tech scene. Hopefully the success of L.A.’s start-ups – and its business conferences like Silicon Beach Fest - will generate even more confidence, and bring a larger spotlight on our market. This will, in-turn, attract talent, capital, and more entrepreneurial ideas that can be developed here and enjoyed around the world.

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I am one of those people who actually reads the alumni magazine from their alma mater schools. I think you can often find interesting nuggets of learning in there. One such publication I recently read - Georgetown Business, from Georgetown University’s McDonough School of Business (where I earned my BBA), featured an article that compelled me to think more deeply about one area of my business expertise – e-commerce marketing – and how it could influence my future practices to maximize my business results.

The “Favor Request Effect”
This article, entitled “Favor Pitch – Georgetown McDonough Researchers Uncover a Surprising Negotiation Tactic,” reviewed a research project led by Georgetown University Marketing Professors Kurt Carlson and Simon Blanchard (along with Penn State University PhD Candidate & teaching assistant Jamie Hyodo); the title of the study, published in the Journal of Consumer Research is The Favor Request Effect: Requesting a Favor from Consumers to Seal the Deal. It describes a way for sellers of certain products to improve the outcome of negotiations with buyers. Their study revealed what they refer to as the “Favor Request Effect” – that under certain conditions sellers can achieve better negotiated results when they accompany a (modest) price concession with a request for a favor from the buyer.

According to Professor Carlson, with whom I spoke for this piece, the study focused in on negotiated transaction scenarios that met certain conditions needed for the effect to work. Such conditions being that the offer and request being made dynamically (or at least appearing so to the buyer), and the buyer and seller communicating one-to-one. If a discount offer and favor request is communicated to everyone, the effect will be diminished. Also, the favor requested has to be appropriate to the situation and not overly onerous; examples can include asking for a recommendation or endorsement, a customer referral, or providing certain customer information.
The article states that “The Favor Request Effect is found across multiple shopping contexts and multiple types of favor requests…”1. However, the study was conducted only in the US, and did not explicitly look at other countries or alternative sales channels such as telesales or e-commerce. (They are working on a new study, however, to see if the same principal applies if the seller refers the buyer to a competitor for a complimentary product).

The study’s (seemingly counter-intuitive) conclusions have received a fair amount of attention – even being covered by the Huffington Post - as it could have a meaningful impact on sales negotiation tactics going forward. 

See the article from Georgetown Business here: Favor Pitch – Georgetown McDonough Researchers Uncover a Surprising Negotiation Tactic 

See a Georgetown University press release regarding the study here:  http://msb.georgetown.edu/newsroom/news/favor-request-effect-requesting-favor-consumers-seal-deal 

Why Does it Work? What Are The Implications?
According to the article (and my conversation with Professor Carlson), the Favor Request Effect hinges on the premise that the asking of a favor drives a normally adversarial relationship between buyer and seller towards alignment by virtue of the requested reciprocity. A sales negotiation is typically a situation where buyers are trying to get the best price & value, but asymmetric information (around pricing, costs, and market factors) gives sellers an (at least perceived) advantage.

Professor Carlson explained that the seller offering a moderate discount, along with requesting a favor, sends a strong signal of value credibility - that the sellers bottom line price has been reached. This signal neutralizes the perceived seller advantage, creating buyer-seller alignment that a “win-win” has been achieved, and a deal can be done.

In other words, Carlson says “it’s an alternative to haggling – when the discussion is somewhat adversarial and each party seeks to only maximize benefit for themselves. The favor request effectively aligns the buyer’s and seller’s interest and creates an environment of reciprocity.” The study’s write-up also describes the effect of the seller’s signaling that the advantage has been neutralized:

“While a consumer may, by default, perceive a seller’s willingness to negotiate on price as a self-interested activity, adding the request for a favor should alter the consumer’s perception of this activity, causing the buyer to see it more as the first step in a reciprocal interaction.”2 

No doubt these observations must provide an encouraging new tactic for salespeople – who can now increase sales close rates and achieve better sales results, all while getting customers to do favors that will benefit the overall business. Seems like a “win-win,” and testing it would be a no-brainer.

The Favor Request Effect and E-commerce
However, it did beg a question: what if we were to apply this approach to an e-commerce context? If the right circumstances are presented to an online consumer, would the same effects occur – i.e. would it increase e-commerce conversion? Can a sense of reciprocity and alignment be created within online merchandising pages, in the cart, or in the check-out funnel? How closely would one need to simulate the conditions of the dynamic person-to-person negotiation?

In answering this, a good place to start would be an examination of what (if any) e-commerce techniques or scenarios are currently in use that simulate the favor request. Do these tactics in an online e-commerce situation improve conversion rates and product sales – by as much as 50% as the study found for live negotiations? If so, the implications for e-commerce marketing and merchandising could be huge.

Below I provide some examples of e-commerce tactics similar to a “favor request” in place today that may shed some light on the dynamic. Let’s examine…

Abandoned Cart Offer Coupled With Request For Social Referrals:
Getting customers to return to abandon online shopping carts and complete their orders is a nagging problem for e-commerce marketers, and seems like it would be conducive to the Favor Request Effect. The conditions seem appropriate: discounts or other incentives can be offered to the buyer on a one-on-one basis (albeit online). Such an incentive, coupled with a favor request, could possibly improve abandon cart conversions. In fact, there is currently an app on the Shopify e-commerce platform - Checkout boost by Beeketer – that seems to put this tactic into play. The Checkout Boost description says that it offers a discount to abandoned carts, coupled with a request for a social referral, to get consumers to complete their cart checkouts. According to the app’s reviews, abandoned cart conversion can increase as much as 50%, coupled with a noticeable increase in social traffic. This is a positive indicator that simulating the favor request can help close more online sales with hesitant customers.

Social Referrals, Social Sharing, and Social Proof:
Social referrals are fairly commonplace, and it has been demonstrated that they have a positive effect on e-commerce sales traction. This marketing and merchandising tactic is fairly well-known by e-commerce professionals, and in use on a number of landing pages and product pages of e-business sites. A favor request of a social referral would offer some of the strongest benefit that can help boost conversion on the immediate sale, as well as others down the line.

Similarly, social proof and social sharing (broadcasting a specific purchase or support of a site on social media) legitimizes the transaction and site in other’s eyes and is considered one of the “six pillars of persuasive marketing.” Requesting social proof has effectively improved conversion rates in studies (see link). Asking customers for social proof is common and not a big imposition, so it’s even possible to ask this favor for everyday low prices, while also reaping the other marketing benefits of social proof.

Requesting a Product Review:
Asking customers to write reviews is straightforward and common practice (as it was in the buyer-seller live negotiations). It’s well known that more customer reviews lend credibility to e-commerce sites and their product.  Reviews are a key determinant in search results on Amazon and Google, for example. Asking customers to write reviews makes sense, and gives customer a familiar and easy way to reciprocate for the discount. It may also prove to be quite an effective conversion boost.

Requesting a Site Registration Or E-mail Newsletter Sign-up:
It’s now commonplace for E-commerce sites to offer customers incentives for becoming “registered” customers or signing up for marketing e-mails. These incentives usually comprise of discounts on future purchases, gift cards, or other “preferred customer” perks. But what if the tactic were reversed and tried the other way? What if a small discount on the current purchase was provided to shoppers, in exchange for signing up to an e-mail newsletter? Would this increase conversion for the immediate transaction (due to the favor request effect), while also boosting e-mail address capture? Worth testing, it seems.

Asking to Accept Slower/Downgraded Shipping:
Asking a “favor” of accepting slower shipping (at the same price – or free) may be a lot to ask consumers, but it could be worth trying. Amazon has tried a form of this idea, with its “no rush” shipping program for Prime members. They have offered larger discounts on books, as well as a $1 discount on instant video service. However, I could not find any indication if this increased the conversion rate of these items. It could be worth testing, when tried in conjunction with a free shipping offer.

Has this ever been A/B tested? It should be…  It’s a low (or no) cost way to increase conversion and revenue, while also deepening customer engagement and potentially generating loyalty. 

Final Thoughts: Implications for E-commerce Marketers
Professors Carlson, Blanchard, and Hyodo’s study on the “Favor Request Effect” indicate that sellers asking for a favor from buyers in live negotiations can result in greater sales success. Even though the study didn’t explore whether the effect can work to positively impact e-commerce sales, it seems to me that the general principal can be applied to e-commerce carts, checkout processes, and merchandising. The examples of in-use favor request tactics I provided above indicate solid evidence that these principals are being successfully applied in e-commerce today, with encouraging results. I believe further testing and optimization of some of these ideas would be a worthwhile endeavor. I for one will vigorously test the favor request to boost conversion and accelerate revenue growth in the e-commerce businesses for which I consult and manage.

Thoughts, comments or questions? Feel free to reach out to me directly here at www.lukegrant.net.

1: Simon Blanchard, Kurt Carlson, Jamie Hyodo: “The Favor Request Effect: Requesting a Favor from Consumers to Seal the Deal” Journal of Consumer Research – Oxford University Press,
2: Bob Woods: “Favor Pitch – Georgetown McDonough Researchers uncover a surprising negotiation tactic,” Georgetown Business, Georgetown University Press, May 2016