Costly Signaling

Why are wedding invitations done in a fancy format, on quality paper, and come in thick envelopes?

In practice, an email could convey the same message as the fancy invitation, yet, everybody chooses the expensive approach of the elegantly designed invitation printed on quality paper and packed inside a thick envelope. So why do people put in the extra effort? Precisely because it is expensive: it is a costly signal that promises a good experience at the wedding. The positive costly-signal is: “if they put this effort into the invitation, then it must be a good wedding.” The negative costly-signal of an email would be: “if they put so little effort into this email invitation, then there’s a significant risk I won’t enjoy the wedding.”

Another example of costly signaling is the luxurious lobbies and doormen greeting you at expensive hotels. They are indicating that the hotel spared no expense for the comfort of their guests.

Rory Sutherland presents these as examples of costly signaling in his must-read book Alchemy.

What your shop says about you

Similarly, your customers will look at your online shop and instinctively evaluate you based on it.

If your shop is dated, buggy, slow, or if the content has mistakes or unclear images, they will think about how likely you are to deliver a quality product or help them should they want to return the products.

If, however, your shop is beautiful, fast, and has carefully crafted content, they will likely assume that the care you put into your online presence will translate into the care you put into the other aspects of your business.

The fact that it looks like you invested a lot into your shop signals that you stand to lose that investment if you disappoint customers. So the better your shop looks, and the larger stake you have, the more they will trust you.

By investing in having a beautiful online shop, you will increase your conversions by winning your visitors’ trust.