Behavioural economics is a branch of the behavioural sciences which has come on leaps and bounds in the last forty years, led by Nobel-prize-winning pioneers of the field Daniel Kahneman and Richard Thaler.
Ideas developed in the field of behavioural sciences have been used for directing government policies, legal judgements, medical diagnosis, as well as in the finance industry. Kahneman and his peers built on these concepts to better understand the mechanisms that drive our economic choices, and marketing professionals have wasted no time asking how they can use these concepts to better understand consumer behaviour and market their products more effectively.
For marketers, the question was posed – how to create alternative approaches by which choices can be presented to target markets in a way that ‘nudges’ them towards better decision-making? The word ‘nudge’ has become an important part of the lexicon of behavioural sciences, with the idea that gentle encouragement is more persuasive than impatient direction.
Edward Bernays was one such marketing guru who recognised the implications of behavioural sciences long before the term was even invented. Indeed many marketers have been using techniques only recently observed and developed in behavioural economics inadvertently before the field of study came into existence. Here’s an example of four concepts that can, and have been, applied to marketing strategies.
The anchoring effect has become a popular method in marketing, and can be seen employed by organisations around the world. The method is based around a cognitive bias innate in people – that often when we are asked to value something, the number we give it is set by ‘anchors’ in our minds that help us come to that decision.
For example - you are asked how much you think a book costs sitting on the table in front of you. You’re told that the book next to it is worth £50. According to behavioural science, your answer would be higher than if you had been told the book next to it costs £20.
The costs of the individual books doesn’t necessarily relate in anyway, but by knowing the value of the other book, it will affect your answer. This is due to the common human tendency to rely too heavily on the first piece of information we’re offered.
So how does this play out in the world of marketing? In an experiment to test this theory, a sign was placed on a display stand saying ‘’Limit of 12 per person’’ on cans of soup. Buyers with the limit placed before them on average purchased 7 cans of soup, compared to other buyers who were not confronted with the sign, averaging 3.3. In this case, the anchor was the number 12.
In digital marketing this method can be seen very often with subscription packages. The value of the ‘premium plan’ might be set on the left hand side, which we see first when reading across the page, making the ‘standard plan’ on the right of it seem more affordable in comparison, increasing the likelihood of consumers purchasing it.
Behavioural scientists have long noticed that loss aversion is a more powerful motivator than the desire to gain something new. People find it at least twice as painful to lose something as to have gained it in the first place.
A good example in marketing can be seen with the ‘Free Trial’ system many subscription plans offer. According to the ‘Ownership effect’, once you’ve had the free trial for a month, losing it becomes more difficult. Perhaps the best current example of this is Netflix, who offer their ‘first three months free trial’ subscription, which has proven to be incredibly successful.
A way in which loss aversion is employed in digital marketing is in the phrasing that can be used to advertise a product, or a promotion. For example, a marketer advertising an upgrade on windows might use the subject line “Stop losing £300 every year in energy, by investing in new double-glazed windows!” rather than the more passive “Save £300 a year in energy by investing in new double-glazed windows!”
Talking about the prospect of what consumers might lose by not investing in the product has proven to be more powerful than persuading people of what they might gain.
We’ve all likely been confronted at some point by the paralysing sensation when being overwhelmed with choice. The celebration of abundant choice is one of the foundation stones of capitalism, but the reality is, according to behavioural economists, that too much choice often detracts us from making the right one, or making any decision at all. Excess choice it is suggested, leads to anxiety, and the brain begins to focus on what it doesn’t have rather than what it has.
The classic case study in this area is the jam experiment carried out by Iyengar and Lepper in 2000. One group of shoppers were presented with samples from a choice of six jams, whilst another group were presented with a choice of twenty-four different types of jam. 30 percent of the shoppers offered the smaller sample of jams went on to make a purchase, whereas only 3 percent of shoppers made a purchase when presented with the larger selection. More options led to fewer actions.
An example of how this conundrum has been addressed in the marketing realms has been by filtering choices to meet consumers’ specific needs. Filtering options, as can be seen on nearly all e-commerce sites which offer numerous products, is a way to narrow the choices down and allow the consumer to think more clearly when making the decision as to what exactly they want.
The analogy of people being like sheep is not an original observation, some even find it a little patronising to our species, but science suggests there’s some behavioural truths to the comparison. The concept of social proofing, or ‘herding’, describes the human tendency to make decisions based on what others around us are doing.
Another classical behavioural economics example published by the Washington Post can demonstrate the effects of this theory in action. Four signs were shown to different groups of people to try and persuade them to save energy.
#1 informed the customer that they could save £40/month on their utility bill. #2 stated that customers could prevent the release of 262 pounds of greenhouse gasses every month. #3 argued that it was socially responsible for customers to save energy. #4 told customers that 77 percent of their neighbours were already actively saving energy using fans. The most effective sign was unanimous, as #4 swept the others away, including, surprisingly, the financial incentive option.
There are many ways in which social proofing can be and is applied to marketing strategies. The term ‘bestseller’ when used for advertising books is an obvious but excellent example, telling potential readers that ‘other people have read and enjoyed it’. Online ratings and reviews can also tell us how people have made decisions and what they thought, and testimonials are arguably one of the most powerful marketing tools available.
Showing people how many other customers/readers/users have made the decision to buy from/read/join them has also proven to be extremely an extremely effective method. Informing people of what others are already doing not only makes the decision making process easier for many individuals, but also exploits that modern phenomenon of FOMO (fear of missing out).
Some of the methods and strategies mentioned above might seem a little cynical and occasionally unethical to those both inside and outside of the marketing industry. Indeed, many have voiced concerns about organisations using the ideas set forth by behavioural economists being used irresponsibly, which of course on occasion does happen. However, using unethical and overly manipulative methods will only erode the relationship between brands and customers in the long run, therefore the vast majority of reputable organisations only use such practices in moderation.
When used correctly, applying behavioural economic, or ‘nudge’ theories can enhance the overall user experience, and improve the consumer decision-making experience. If you’re looking to improve your understanding of the mechanics of marketing, why not consider an online marketing degree or professional course?
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