Purchase behavior just keeps getting more complex. So much information is available from so many sources as prospects research their options. “But consumer decision-making is not…just about availability of information,” notes Ravi Dhar, the Director of Yale’s Center for Customer Insights. Experts tell us that consumer choices are 70 percent emotional. Behavioral economics, which examines the psychology of decision-making, helps to explain selections that sometimes baffle.
Instead of maximizing utility, buyers often make choices intuitively, and their actions can be influenced by subtle cues. Richard Thaler, who just received the Nobel Prize for Economics, has been instrumental in identifying common biases that shape conduct. He developed the concept of “mental accounting,” which considers “the quality of the deal,” in addition to the price-based value of a product or service.
For instance, the way in which price is communicated—its framing or choice architecture—can strongly influence a purchase. Presenting several alternatives at different prices can steer prospects in a desired direction.
Higher prices are often interpreted as evidence of quality, which is an example of irrational value assessment. So diners who choose the second-most-expensive wine on a restaurant’s list may feel they are buying quality but avoiding extravagance.
This is related to the concept of anchoring, which is a person’s tendency to be overly reliant on the first information presented to them. If they’re initially offered a relatively expensive product, the next one they consider is likely to be viewed as a good deal if it costs less.
Enough Is Enough
People like simplicity and they tend to satisfice. They’re likely to stop considering options when they identify something that’s good enough.
In fact it’s definitely possible to have too much of a good thing. Choice overload is a well documented phenomenon whereby purchasers faced with too many alternatives become paralyzed. Making a decision becomes too much work. If they don’t simply walk away, chances are they’ll be dissatisfied with what they end up with, since any selection involves giving up features that would have been available with a different option.
Thaler famously identified the endowment effect, which describes the tendency for individuals to over-value something they own. It’s one explanation for the effectiveness of money-back guarantees. Once someone has a product in hand, they’re less likely to relinquish it.
As pointed out by Dan Ariely, Duke University Professor of Behavioral Economics, the power of customization is about more than addressing individual preferences. When a product or service is customized, buyers identify with it, often making them willing to pay a premium at the same time that it increases engagement and loyalty. A related concept is loss aversion, the willingness to go to greater lengths to avoid loss or pain than to pursue gain.
Goals, Beliefs and Habits
Consumers approach each decision with a set of beliefs that can affect not only their likelihood to purchase, but their subsequent experience with a product or service, as well. And even the most persuasive information may fail to overcome the inertia resulting from long habit
So how can marketers hope to shape opinion? One way is to understand what goals your audience is concentrating on at a given time. Your message won’t penetrate if it reaches them when they’re focused on a different issue.
This is one reason that posting information to specialized blogs, websites and social media pages can be so effective. If, for instance, you publish an article on a blog that focuses on health, certain goals are likely to be top-of-mind with readers. Consistently contributing content to pages that cater to a particular community of interest gives you an opportunity to influence beliefs and build momentum for changed behavior.
In a New York Times article on “The Power of Nudges for Good and Bad,” Thaler emphasizes that behavioral economics should never be used to mislead. Rather, it should be undertaken to encourage behavior that will benefit the person being influenced. Good advice. Aside from the ethics involved, if consumers believe they’re being manipulated, a brand is bound to suffer. But used judiciously, behavioral economics can deepen marketers’ understanding of the customers they serve and result in more effective campaigns.
Contributed courtesy of Cathleen Bahan (https://cathleenbahanconsulting.com)