embrace the science of consumer decision making

IDEA 18

PROPOSITION

I have written extensively about the irrational behaviour of consumers and human beings in general. That does not mean, however, that consumer behaviour is not predictable. Indeed, researchers have examined most aspects of consumer decision-making, and the science behind this study is now voluminous.

This paper addresses the science of consumer decision-making. It examines how consumers make decisions, the drivers of those decisions, understanding the journey to purchase, and the strategies that can be implemented to influence consumer decision-making.

The central proposition is that consumer behaviour is predictable, provided you understand the science. Further, developing and implementing strategies that address the consumer decision-making process can drive up the lifetime return from every prospect and drive down the cost of marketing to them.

THE RATIONALE

The rationale for embracing the science of consumer decision-making involves two critical issues:

  • Maximising the lifetime value of clients
  • Minimising the lifetime cost per client

The most effective way to maximise profitability is to maximise the lifetime value of each prospect and minimise the costs associated with attracting, converting, engaging, and securing repeat sales and referrals.

1/23 – USE SCIENCE TO MAXIMISE LIFETIME VALUE

5% can make you a great deal of money

Only fools view marketing as the business of building awareness and encouraging enquiry. Profitable marketing is about much more than this. Few things matter more than the lifetime value of a prospect. Given the cost of securing a first-time enquiry, it makes sense to extract as much value as possible from every enquiry. This involves maximising conversion rates, and increasing the average sale per customer, margins, repeat business rates and referrals. Understanding the decision-making process is central to all of these things and more. It can reduce the length of the purchase process and facilitate superior cash flow by establishing an initial relationship as quickly as possible. This can then be built upon.

The science of consumer decision-making lies at the nexus of psychology, economics, and neuroscience. Decision-making is a critical area of study because of the dramatic impact it can have on the lifetime value of each prospect. The better we understand consumer decision-making, the better we can influence it to drive conversion rates, average sales, margins, repeat business rates and referral rates. Consider:

  • A 5% increase in your conversion rate (say from 100/month to 105)
  • A 5% increase in your average sale per customer (say from $20 to $21)
  • A 5% increase in margins (say from 20% to 21%)
  • A 5% increase in repeat business rates (say from 20/annum to 21/annum)
  • A 5% increase in referral rates (say from 10 in 100 to 10.05 – average 6 months)

I am sure you will agree that these are all modest increases. However, together they will generate a 21.5% increase in profitability in the first year and an even greater increase in the following year. Over a 5-year period, these small increases, with no further increases, will have a dramatic impact on profitability. Each of these increases may be facilitated by developing and leveraging a superior understanding of purchaser decision-making.

RECOMMENDATION – Place the highest priority on the lifetime value of each prospect or enquiry by understanding consumer decision-making.

 

2/23 – USE SCIENCE TO REDUCE MARKETING COSTS

21% increase in profitability with $0.00 additional promotional costs

The last article in the series was entitled, ‘Embrace the science of consumer decision-making’. It looked at the potential impact of focusing on the lifetime value of a prospect, whereby the focus shifted from driving new enquiry to driving conversion rates. This would also increase the average sale per customer, margins, repeat business rates, and referral rates.

We considered this simplistic model:

  • A 5% increase in your conversion rate (say from 100/month to 105)
  • A 5% increase in your average sale per customer (say from $20 to $21)
  • A 5% increase in margins (say from 20% to 21%)
  • A 5% increase in repeat business rates (say from 20/annum to 21/annum)
  • A 5% increase in referral rates (say from 10 in 100 to 10.05 – average 6 months)

The outcome of this model was a 21.5% increase in profitability in year one and a significantly higher increase in profitability in year two. This model demonstrates the impact of focusing on lifetime value. The fact is, in most cases, this model requires no increase in the promotional budget and only a marginal increase in the overall marketing budget. Once the enquiry has been secured, there is no further promotion. While increasing repeat business rates and referral rates will not come without effort, it will generally cost much less than securing another enquiry.

The key is understanding the purchase process and leveraging that understanding to influence the decision-making process. This is the science of decision-making and the application of this science to driving cost-effective marketing. This requires understanding the intuitive, emotional and cognitive processes of consumers within your target market. In many respects, this new frontier in marketing is being facilitated by developments in neuroscience. Leveraging this involves looking beyond intuition to understand the science of human behaviour.

RECOMMENDATION – Embrace the science of consumer decision-making. Leverage the findings in the research to significantly increase profitability at little or no cost.

 

 

STAGES IN CONSUMER DECISION MAKING

Most marketing textbooks addressing consumer decision-making offer a model comprising five distinct stages:

  • Need or problem recognition
  • Information gathering
  • Evaluation
  • Decision-making
  • Post-purchase evaluation

While this model is very generalised, each of the stages is worthy of consideration. Before doing so, however, it is important to consider the three brains that influence decision-making in human beings.

3/23 – FORGET THE NOTION THAT HUMANS AND ANIMALS THINK DIFFERENTLY

3 brains in every consumer

I know, at school, you were taught that human beings only have one brain. Structurally this is true, but from a decision-making perspective, human beings have three brains:

  • Reptilian brain – brainstem
  • Emotional brain – limbic system (including the hippocampus)
  • Thinking brain – neocortex or frontal lobe

The reptilian brain is instinctive. It practises System 1 thinking, which is not really thinking at all, but rather reactive behaviour based on instinct and human urges. The reptilian brain is the most primitive of our brains. It is working in overdrive when we walk past a pizza shop and suddenly feel hungry or see an attractive person and start to worry about our own appearance.

The emotional brain is the part of our brain that is responsible for how we feel and react emotionally. Again, it is questionable whether this brain ‘thinks’ at all. For the most part, it feels and reacts without a great deal of thought at all. It is the part of the brand that kicks in when we decide we absolutely need a new $250,000 BMW when all we actually need is a $10,000 second-hand Hyundai to get us to and from work.

The thinking brain is the brain that sets us apart from non-mammals, and its size sets us apart from most other mammals. In this case, size does matter. The neocortex is responsible for System 2 thinking, the slow, deliberate thinking required for assessment of facts and figures. It is the part of the brain that kicks in or should kick in when we are making a complex purchase such as the purchase of a new house or business. However, even then, the neocortex rarely works alone.

The fact is, very few decisions humans make, and almost NO purchase decisions, are made entirely in the neocortex. Most decisions are made entirely in the reptilian brain and the emotional brain – or, at the very least, with these two brains involved. Some neuroscientists suggest that only 20% of decision-making occurs in the neocortex. Put another way, human beings are not known for rational decisions and rarely (and some would say – if ever) make entirely rational decisions.

All three brains must be taken into account when developing and implementing strategies to maximise lifetime value and minimise the lifetime cost of an enquiry. Appealing just to the neocortex will rarely pay dividends.

RECOMMENDATIONS – Embrace the three brains and consider the influence that each brain has on consumer decision-making. Determine whether yours is a System 1 or System 2 purchase.

 

4/23 – UNDERSTAND THE UNDERLYING NEED OR PROBLEM

81% of purchases influenced by friends

The first stage in the consumer purchasing process is generally thought to be need or problem recognition. The theory is that consumers don’t begin the process of purchasing until they have recognised a need they want to satisfy or problem they want to solve. This is reasonably sound thinking. However, there are two aphorisms worth noting here. They are:

  • Wants are different from needs and often occur before a need
  • In addition to apparent needs and problems, there are often underlying needs and problems

Needs are things we cannot do without, and problems are issues that need resolving. Both can drive purchase behaviour – but so can wants. We can need something to eat, and we can have a problem in terms of an inability to cook. However, in the western world, wants are the most significant driver of fast-food purchases. Consumers want a hamburger, pizza or bucket of chips far more often than they need food and far more often than might be impacted by an inability to cook. Further, needs and problems can stem from a want. Consumers can want something for so long and so hard that it becomes a need (or at least perceived need). In fact, they can want something so much that its absence becomes a problem (or at least perceived problem).

It is often mare productive to target wants than needs or problems, and it is always more productive to target perceptions than reality. Who cares what they really need? It is what they think they need that drives consumers. Targeting what consumers actually need can be a sign of arrogance. It can be counterproductive if sales are to be maximised.

If people cleaned their teeth with health in mind, they would clean them at least three times a day. The fact is, most people clean them before going out or before going to bed with their partner. This,  combined with the fact that most toothpaste has an (unnecessary) mint flavour, suggests that people clean their teeth to stop bad breath. The suggestion that 50-year-old Ferrari buyers are motivated to purchase world-class machinery is absurd. Few understand the machinery, and even fewer use it as it was designed to be used. More often than not, the purchase is associated with ego and to compensate for declining virility. Similarly, if you think that Millennials buy a brand of jeans because they need or like them, you would, in most cases, be wrong. More often than not, the purchase is the result of social pressure or a desire to conform to social norms.

Recent research found that friends influence 81% of purchase decisions. Another study found that consumers are 71% more likely to make a purchase based on social media referrals. These and other studies highlight the power of social referral and norms as a referral mechanism and as a driver of consumer wants, needs, and problems. This suggests two issues for marketers

  • The need to address underlying drivers
  • The opportunity for leveraging social norms

The key is that sales will be facilitated when the marketing targets the underlying need ahead of the obvious need.

RECOMMENDATION – Identify and focus your marketing on the underlying wants, needs and problems of consumers. Embrace the importance of wants ahead of needs and perception.

 

5/23 – REMEMBER THAT YOU ARE NOT THE ONLY SOURCE OF INFORMATION

31% of consumers say they are using social media channels

Once a want, need or problem has been identified, the consumer has two options for most purchases. He or she might purchase a trusted brand, or they might research the options – gathering the information they need to make a decision. Research, or at least information gathering, is a common process for purchasers. Traditionally the majority of the information was drawn from sources associated with one or more of the competitive brands available.

In 2020, however, the majority of information comes from third-party sources. Consider:

 

  • 31% of consumers now use social media channels for research
  • 84% of Millennials use user-generated content to research brands
  • Conversions increase 133% when mobile shoppers see positive reviews before buying

 

Consumers are researching brands more than ever, and there are more sources of information available than ever before with varying levels of reliability. It is critical for brands to address this consumer behaviour by:

 

  • Understanding the sources used by consumers
  • Monitoring and engaging with those sources
  • Providing critical information through preferred sources

 

It is important to use brand websites, but equally important to understand the other sources used and trusted by the target audience. Monitoring sources helps us to know what is being said and to engage with contributors in a way that will encourage factually correct or brand positive comments. Distributing information is essential, through traditional avenues and also through other sources. It is also important to encourage referrals and reviews.

 

RECOMMENDATION – Provide the information purchasers require through the sources that they use. Engage with other sources, and encouraging comments favourable to your brand.

 

6/23 – FACILITATE OPTION EVALUATION

84% evaluate purchases using mobile devices

Once the need or problem has been identified and the options researched, the consumer begins the process of evaluating the information. The fact is, however, there may be more than one evaluation point along the way to the purchase decision.

 

For example, the purchase of a new car may have a number of  evaluation points:

 

  • Type of vehicle (SUV or real car)
  • Age of car (new or used and how used)
  • Brand of vehicle
  • Dealership

 

The process can be complicated by the fact that:

 

  • The evaluations or decisions might not always occur in the same order
  • Some evaluations are more easily influenced than others

 

It is important to know which evaluations to influence and when. This requires a sound understanding of the customer journey and the touchpoints along the way. Facilitating evaluation can include:

 

  • Providing simple and well-targeted data
  • Enabling the easiest possible analysis

 

Ideally, the information provided should be presented as simply as possible. This will include – maximising brevity, using the language of the consumer, answering consumer questions, avoiding jargon and platitudes, providing evidence and substantiation of claims, and using video where possible.

 

Websites such as Compare the Market are becoming increasingly popular as they facilitate the comparison of competing products. There is also a staggering growth in the use of mobile devices to facilitate product comparisons in-store and in general. Research suggests that 84% of women now use mobile devices to compare and evaluate products and prices. Some 64% of women compare apparel purchases using a mobile device – often while they are in a store shopping.

 

It is important to provide critical information and make it accessible on all platforms to allow comparisons with the best outcome for your brand. Making it easy to compare is helpful – especially if this can be combined with a tangible, unique selling proposition that clearly distinguishes your product or brand. A tangible USP that is absolutely relevant to the target market’s needs can be very effective at this point.

 

RECOMMENDATION – make the evaluation process as easy as possible on any device. Ensure that the information is easy to assess and that there is a tangible USP.

 

7/23 – MAKE IT AS EASY AS POSSIBLE

58% use e-commerce because it is easier

Once a potential purchaser has identified the product that might satisfy their need or solve their problem, they process the available information and draw conclusions. The next step in the process is usually the purchase. However, even when the decision is made, the work of the vendor is not done. Critical issues at this stage include:

 

  • Availability
  • Access
  • Ease of purchase

 

In my experience, these are issues which many vendors fail to address.

 

How often do you decide to make a purchase, go to the vendor and find that no one is available to help or the product is not in stock? How often can you be bothered to wait and/or place the product on backorder? How likely are you to just walk away and purchase an alternative? In my case, the answer to this last question is every time. If vendors are not interested enough in my custom to be available or keep the product in stock, my solution is to do business with someone who values my business more. Research suggests that I am in the majority.

 

One of the reasons e-commerce is growing so fast is the ease of access. Contrary to popular belief, the principal driver of online sales is convenience – not price. It is easier to buy online than to drive all the way downtown, park, and walk a kilometre only to be confronted by a salesperson who does not give a shit – or to face the possibility that the product is out of stock. We all want it to be easy and accessible.

 

The principle reason for shopping online is the capacity to make a purchase 24/7. In a recent survey, 58% of respondents cited this as a reason for shopping online. E-commerce is simply easier than traditional commerce.

 

I never go back to a store that refuses to take a brand of credit card, charges a surcharge on a brand of credit card or tells me that I have to spend a minimum amount to use a credit card. Such businesses are not customer-focused for me. It needs to be as easy as possible to make a purchase – by whatever is your preferred means.

 

No matter how you sell and distribute your goods and services, it is important to make the purchase as easy as possible for the consumer.

 

RECOMMENDATION – Eliminate all barriers to your target audience purchasing your product. Ensure that it is readily available, accessible, and as easy as possible to buy.

 

8/23 – KEEP SELLING AFTER THEY PURCHASE

67% more in months 31-36 than in months 0-6

 

Research has found that, on average, customers spend 67% more in the 31st – 36th month of a relationship than they do in the first six months. Another study found that a 5% increase in customer retention can lead to a 25 – 95% increase in profits. Yet another found that repeat customers spend 33% more than first-time customers. Each of these studies underscores the importance of selling after the sale is completed.

 

The first priority after a sale is complete is to ensure that the purchaser has ample rational reasons for their purchase decision. Helping customer to rationalise what might have been a largely emotional purchase helps to encourage future purchases. This is a fact that luxury car owners know all too well and leverage. They continue to tell purchasers why the decision to buy that BMW was the right one. This can also help in explaining the purchase to a partner.

 

It is also important to remind customers of the level of service they received and to assure them that the same excellent customer experience is waiting for them the next time they make a purchase. After-sales service and attention help to complete the purchase process and the reinforce the cycle from – need or problem –> information gathering –> evaluation –> decision-making –> purchase –> after-sales service –>identifying a need or problem, and so on. After-sales service should be seen as a pre-sale service or selling. It should also be viewed as referral generation.

 

Despite the importance and potential of repeat business and referral, most research suggests that less than 30% of businesses have a formal strategy to address these two critical issues. They fail to realise that for a client, the purchase decision-making process begins with the conclusion of the last purchase. After-sales gifts and benefits can be an important part of such a strategy. They reinforce and reward a previous purchase decision to the buyer and other potential purchasers.

 

RECOMMENDATION – Document a repeat business and referral strategy based on after-sales service. Provide information that reinforces the value of the last purchase – even rewarding it.

 

THE CUSTOMER JOURNEY

 

When deciding what to buy and in making the purchase, customers go on a ‘journey’. That journey will vary from product to product. It will be longer for some than others and more complex for some than others. It will involve few customer-brand interactions in some cases and many such interactions in others.

 

Understanding the customer journey supports the capacity to influence the customer at critical points in their journey. This can reduce marketing costs and increase the lifetime value of a customer. This requires understanding the customer touchpoints and the touchpoints in their journey.

 

9/23 – MAP THE CUSTOMERS JOURNEY

63% to increase marketing automation budget in 2020

 

A recent study found that 63% of businesses surveyed intended to increase their marketing automation budget in 2020. The primary reasons for investing in marketing automation are (1) to eliminate repetitive tasks and improve productivity; and (2) to improve the quality of marketing analytics central to effective decision-making. To address either, it is critical to understand the customer journey and the decision-making process consumers move through. This will provide insight into opportunities for influencing the process and the data that can come from it.

 

Understanding and addressing the ‘customer journey’ and ‘decision-making process’ can begin with the ‘mapping’ of the journey. This involves visualising the end-to-end customer experience and identifying all the places and touchpoints where customers come into contact with your brand, both online or offline. It requires looking through the customer’s lens to visualise their journey from their perspective with a view to truly understanding it.

Mapping the customer journey can be achieved in stages as follows:

  • Identifying the primary target audience
  • Understanding the objectives of the target audience
  • Understanding the requirements of the target audience
  • Identifying each of the touchpoints along the journey
  • Prioritising the touchpoints in terms of the potential impact

Ideally, this process will begin with market research designed to amass hard data in relation to each of these points. In the absence of market research, the journey might be mapped using data gathered from the customer service and sales staff together with that arising from observation.

Understanding the customer journey delivers a number of benefits, including a better understanding of the:

  • Time involved
  • Information required
  • Staff required
  • Points of influence
  • Data available

Few things are more helpful in maximising the lifetime value of an enquiry than understanding the customer journey and where decision-making can be influenced. The potential for improving the cost-efficiency of marketing by relying less on advertising and more on the science of gentle nudges and support is also substantial. It certainly helps to make marketing more data-driven and scientific.

RECOMMENDATION – Understand the customer journey and decision-making process as well as you possibly can. Identify where and how to best influence the customer along that journey.

 

10/23 – IDENTIFY AND FULLY LEVERAGE TOUCHPOINTS

14.5% increase in productivity and a 12.2% decrease in overheads

 

A recent study found that marketing automation increased productivity by 14.5% and drove marketing overheads down by 12.2%, thereby making a significant contribution to business performance. Addressing marketing automation requires a sound understanding of the customer journey and each touchpoint along that journey. The customer journey was addressed in the last article in this series. This one focuses on the touchpoints in the customer journey and how to best leverage them to enable automation and facilitate more cost-efficient and effective marketing.

Having ‘mapped’ the customer journey, it is prudent to identify and understand the potential that lies within each touchpoint. Each touchpoint impacts the decision-making process, and the outcome at any one touchpoint might determine whether the prospect moves on to the next touchpoint.

In addition to a sale, the optimum outcome from fully leveraging each touchpoint should be the development of a closer relationship between the business or brand and the customer. This, in turn, should facilitate conversion, maximise margins and average sale, and increase repeat business and referrals. Central to leveraging each touchpoint are:

  • Understanding the journey and identifying each touchpoint
  • Maximising the quality of the customer experience at each touchpoint
  • Providing the information and support customers require at each touchpoint
  • Focusing marketing spend on the most critical touchpoints
  • Monitoring the impact and enhancing the strategy

Market research can be a valuable tool for gathering the data critical to addressing these issues. In the absence of formal market research, observations and discussions with customer service and sales staff may suffice. That said, the better the data, the better the outcome. The richer the data, the better able a business is to identify and fully leverage the most important of the touchpoints.

Identifying and leveraging priority touchpoints has the capacity to inform automation, thereby reducing marketing costs and developing the kinds of relationships that maximise the lifetime value of each and every customer or potential customer. There is real science here that should be leveraged.

RECOMMENDATION – Fully leverage the priority touchpoints in the journey that your enquirers and customers move through by understanding and fully addressing their needs at each point.

CUSTOMER NEEDS

Needs vary from customer to customer and from time to time. However, it is worth spending some time to look at the needs and wants that impact the behaviour of all human beings. While diverse, human beings are also surprisingly similar. There are fundamental needs common to all human beings – and these impact purchase decisions.

11/23 – DON’T COMPLETELY DISMISS ABRAHAM MASLOW

12 characteristics of self-actualising consumers

 

Most readers will have heard of Maslow’s Hierarchy of needs. Abraham Maslow’s paper ‘A theory of human motivation was first published in 1943. It remains a pillar of modern psychology and sociology. This theory proposes five levels of need:

 

  • Physiological – food, clothing and shelter
  • Safety – including personal security
  • Love and belonging – relationships and connection
  • Esteem – accomplishment and prestige
  • Self-actualisation – realising one’s full potential

 

The theory is that an individual only moves to the second level of needs when the first level is fully addressed, and move to the third when second-level needs are met, and so on. Maslow’s theory or model has merit. However, there is increasing doubt in the 21st century world about people not addressing higher-level needs before lower-level needs are fully met. For example, it is not uncommon to see people living on the street using a mobile phone to search the Internet. It is also not unusual for people living in war zones to seek love and accomplishment.

 

That said, Maslow’s theory is useful for identifying the needs that drive consumer behaviour. These are the major needs of human beings, and they impact behaviour, although perhaps not in the linear manner suggested in Maslow’s original paper. There are two aspects of the model that are of most interest:

 

  • The number of people still operating at the lower levels
  • The nature of self-actualisation

 

Even in wealthy countries like Australia and the United States, there are still many people who do not have all of their physiological and safety needs met. In an increasingly fractured society, there is a growing number of people with a lack of love and relationships. For example, 30% of Australians now live alone, and online dating is responsible for 1/6 marriages in the USA today. It is important to remember that opportunities still exist to address these lower-level needs.

 

The number of people in the world who may be said to be ‘self-actualising’ is undoubtedly growing. But what does a self-actualising person look like? A recent paper identified twelve features of self-actualising people. It suggested that they:

 

  • embrace the unknown and the ambiguous
  • accept themselves and all their flaws
  • prioritise and enjoy the journey, not just the destination
  • may be unconventional, but do not seek to shock or disturb
  • are motivated by growth, not by the satisfaction of needs
  • have a purpose
  • are not troubled by the small things
  • are grateful
  • share deep relationships
  • are humble
  • resist enculturation
  • are not perfect, and they know it

 

Based on this description, it would be safe to say that very few people are truly self-actualising. Further, most people have needs at several levels of the hierarchy.

 

RECOMMENDATION – Don’t dismiss Maslow. His hierarchy of needs, developed in 1943, still has much to offer.  

 

12/23 – EMBRACE FREDRICK HERZBERG

2 levels of motivation

 

While his research focused on employees in the workplace, Frederick Herzberg’s work in the 1950s and 1960s on the drivers of human behaviour has a great deal to offer marketers in 2020. Herzberg identified two categories of human need:

 

  • Hygiene
  • Motivational

 

According to Herzberg, hygiene needs were basic needs that while not driving satisfaction, were very effective in driving dissatisfaction. In the consumer context, hygiene needs alone may not motivate a person to buy a product. However, the absence of a need would disqualify a product from consideration. For example, having four wheels would not make a car more appealing to a consumer but the lack of the wheels would disqualify the vehicle from consideration – or comparison with other brands. Hygiene factors must be present for a product to be considered but will not necessarily motivate a purchase.

 

According to Herzberg, motivational needs can encourage specific behaviours. In marketing terms, the capacity to satisfy motivational needs can differentiate one product from another and make one more appealing to purchase. Such factors are not essential for the product or brand to be considered for purchase, but they are important in enabling consumers to differentiate products. The four wheels on a car satisfy a hygiene factor (unless you are looking for a snow vehicle). By contrast, the trim on the wheels, their width, and their general appearance might well be motivational factors.

 

This is an important distinction because:

 

  • Both the vendor and the purchaser need to know that the hygiene factors are adequately addressed;
  • The vendor needs to identify and leverage one or more motivational factors to differentiate their offering;
  • Marketing campaigns should be built around motivational factors – those factors that differentiate the product.

 

It is vital to have the best possible understanding of both hygiene and motivational factors that influence consumer purchase behaviour for each product you sell. It is essential to know the ‘must-haves’ and the ‘motivators’.

 

RECOMMENDATION – Identify the hygiene and motivational needs your product satisfies. Ensure that hygiene needs are clearly evident. Then use motivational needs to differentiate your product.

 

13/23 – UNDERSTAND 21st CENTURY CONSUMER NEEDS

6 core, 21st century consumer needs

 

In recent years, there has been a lot of discussion of six core consumer needs. It is not difficult to argue that these are among the most important needs that marketers can understand and address in 2020. They are among the most consumer-focused needs discussed in the literature and include:

  • Certainty
  • Variety
  • Significance
  • Connection
  • Growth
  • Contribution

Everyone wants to know that their car will start in the morning. This reflects the need for certainty. They also want the newspaper to arrive, for the news in it to be truthful, and for the opinions it offers to be as consistent with their own as possible, thereby reinforcing their beliefs. Paradoxically, certainty is becoming more increasingly important to consumers just as they begin to realise it is largely an illusion. That said, some products deliver more certainty than others.

Unless you are five years of age, watching the same movie day after day holds little appeal. That is why Netflix continually promotes new movies to its members. 21st century consumers want variety. They crave new experiences.

How do you feel when you walk into a store you have visited many times before and not only do they not recognise you but they don’t really give you the time of day or treat you like a ‘credit card courier’ – how do you feel? No one appreciates such experiences because it makes them feel unimportant or insignificant. All human beings want to feel significant and will respond positively to businesses that make them feel so.

Like most western nations, Australia is becoming increasingly disconnected, with some 30% of Australians living alone. This, in part, explains the growth of social media and coffee shops. Interestingly,  connectedness is the major driver of longevity. It ranks above both genetics and lifestyle. Human beings want and need to feel connected, and we are drawn to products that make us feel more so.

Most human beings want to feel that they are making progress, that they are more today than they were yesterday, and will be more tomorrow than they are today. While the thing they want to improve or area of growth varies from person to person, most humans want to feel they are growing. They want to feel they are richer, healthier, fitter, faster, better read or happier today than they were yesterday. They will favour products that make them feel so or make progress in this regard.

Finally, almost every human being wants to feel that the world is a better place because they are in it. They want to feel that they are making a contribution. This is a major driver of volunteering, making donations and playing the good Samaritan. Consumers will favour any product that can help them feel as though they are contributing.

Products that can help consumers better address these underlying needs will be more popular.

RECOMMENDATION – Understand the six core needs of the 21st century consumer and consider how your product can deliver added value in response to these needs.

 

14/23 – UNDERSTAND THE FACTORS THAT INFLUENCE PRODUCT PURCHASES

9 product-related needs considered by consumers

 

The best way to understand consumer needs is by way of well-designed primary research. Sadly, in the business environment, it seems that many businesses are inclined to waste money on advertising rather than investing in market research. It is important to consider needs that are common to all consumers, as identified by academic research. A model put forward by Hubspot, suggests that consumers have nine general needs or criteria against which they assess products:

 

  • Functionality – what need does it address or what problem does it solve?
  • Price – how much does it cost, and is there any added value compared with others?
  • Convenience – does it offer a convenient solution, and is it easy to buy?
  • Experience – is the product easy and fun to use?
  • Design – does the design make it easy to use and good to look at?
  • Reliability – will the product deliver certainty and consistent performance?
  • Performance – will the product achieve the goals it is designed for?
  • Efficiency – is the process of using the product as streamlined as possible?
  • Compatibility – is the product compatible with others it will be used with?

 

The relative importance of each of these factors will vary from product to product, time to time, and market to market. The evidence used to assess a product will vary by product and market, as will the sources of evidence. For a first-time buyer, experience, reliability, performance and efficiency will be judged on the basis of information from secondary sources (increasingly social media) while functionality, price, design and compatibility can be judged based on information provided by the vendor and personal contact.

 

One thing that helps to market and differentiate a product vis-à-vis these needs is the tangible demonstration of their presence. Just telling consumers is no longer enough. Needs should be addressed in a tangible and demonstratable way. After all, seeing is believing.

 

It is preferable to undertake market research to understand the needs of the target market. In the absence of research, Hubspot’s nine factors are well worth the consideration of businesses.

 

RECOMMENDATION – Do some research. Never rely on intuition or guesswork. Talk to customers. If you are too stingy or short-sighted, consider the nine factors that most consumers take into account.

 

15/23 – UNDERSTAND THE FACTORS INFLUENCING SERVICE NEEDS

7 service-related factors considered by consumers

 

Primary market research is almost always the best way of identifying the needs of consumers, along with the nuances associated with each of those needs. In the absence of primary research, businesses have to rely on generalised information derived from academic research.

 

A recent paper suggested that in terms of customer service, the general needs of consumers might be summarised as follows:

 

  • Empathy – the feeling that their needs are understood
  • Fairness – a sense of equity and value for money
  • Transparency – knowing all there is to know
  • Control – feeling they are in control of the interaction
  • Options – a feeling that they have made a choice
  • Information – the ability to get the answers they seek
  • Accessibility – access to service and support

 

The overall and relative importance of these factors or needs will vary by market, individual, product, and timing. They are all, however, factors considered by consumers when making judgements about which service provider to select. Understanding the relative importance of these needs might be determined by observational or market research. Intuition is a particularly dangerous gauge.

 

Identifying problems is easy for most consumers, and it provides vendors with insight into key needs. By contrast, asking people about their needs or wants rarely yields worthwhile information. People struggle to identify their underlying needs and wants but have little difficulty identifying their problems.

 

In terms of market research, perhaps the best questions to ask to identify customer needs are:

 

  • With regards to X (a product category or requirement), what problems do you most commonly experience?
  • When purchasing X (a product), what problems do you most commonly experience?

 

James Dyson developed a cutting-edge vacuum cleaner. In doing so, he made himself a billionaire. Dyson solved a range of problems that consumers experienced with vacuuming. He asked the question ‘what problems do you have when vacuuming?’ He kept asking the question and refining the product on the basis of the information elicited.

 

Apple developed cutting edge retail outlets after identifying what problems consumers experience (standing in line at a check-out, for example) and eliminating those problems (by eliminating the check-out for example). In the process, Apple has developed one of the most popular retail concepts and customer experiences in the world today.

 

RECOMMENDATION – Research customer service needs and expectations by asking the target market what their problems are. If you are too stingy – consider the general needs listed here.

 

FACTORS REQUIRING CONSIDERATION

 

Several factors impact on purchase decision-making. These reflect the science that lies behind consumer behaviour. Each of these factors needs to be understood if behaviour is to be influenced cost-effectively. These factors will be addressed under three headings: (1) personal factors; (2) commercial factors; and (3) persuasion.

 

16/23 – EMBRACE INTERNAL FACTORS THAT INFLUENCE CONSUMER BEHAVIOUR

 

Sustainable products grew faster in 90% of product categories

 

A study reported in the Harvard Business Review found that products marketed as ‘sustainable’ out-sold their competitors in 90% of CPG product categories. The same study identified that sales of products marketed as sustainable were growing in 5 – 6 times faster than their competitors. This reflects a growing trend towards the purchase of products considered to be environmentally friendly, and, more broadly, the extent to which attitudes impact on purchase behaviour.

Psychologists have identified four categories of factors that influence purchase behaviour:

  • Psychology
  • Culture
  • Social
  • Personal

Psychological factors include motivation (consumer needs), perception (sense of the world), learning (research and experience), and attitudes and beliefs (largely emotional factors).

Cultural factors include culture (values, customs and traditions), sub-culture (religious groups, etc.), and social class (socio-economic background).

Social factors include reference groups (groups individuals identify with and follow – social movements etc.), family (relatives and individuals grown up with), role and status (groups individuals belong to and their rank within them).

Personal factors include age and stage in the lifecycle, occupation, financial and economic status, lifestyle, self-concept and personality.

These factors, as a group, are often referred to as ‘psychographic’ factors. Research suggests that they are every bit as important as demographics. In many cases, they can be more important than demographic variables. Many of the world’s great brands now give priority to psychographic factors over demographic factors. They align themselves with the attitudes, culture, personality and lifestyle of their customers. These brands include – Apple, Amazon and IKEA.

Like many of their contemporaries, these three brands target just about every demographic (other than perhaps low income) – but very specific psychographics. Influencing consumer decision-making in 2020 is far more about understanding and embracing psychographics than demographics.

RECOMMENDATION – Target the psychological factors that influence the behaviour of your primary target market. Be aware of demographics but prioritise psychographics.

 

17/23 – EMBRACE 7 EXTERNAL FACTORS THAT INFLUENCE CONSUMER BEHAVIOUR

 

71% of consumers are more likely to purchase after a social media referral

Like so many studies over recent years, a study reported in INVESP found that 71% of consumers are more likely to purchase a brand after a social media referral. This same study found that 78% of consumers now follow a brand on social media. These findings highlight the power of social media as one of the external influencers of purchase behaviour. The more powerful influencers of consumer purchase behaviour in 2020 include:

  • Reviews – the majority of which are online (88% say they trust online reviews)
  • Recommendations – from brands – online and face to face
  • Crowds – social norms and expectations
  • Familiarity – the tendency to prefer familiar things
  • Environment – even the finishing of a building can influence consumers
  • Social media – comment and chatter from knowns and unknowns
  • Advertising – and other forms of paid traditional and digital communication

The influence of these factors varies from product to product and from time to time. In this regard, it is instructive to consider a study carried out in 1960 and replicated in 2000. In 1960, the three most influential external factors (in order of importance) were:

  • Advertising
  • History
  • Other people

By 2000, these factors ranked as follows:

  • Others
  • History
  • Advertising

This is not to suggest that advertising is not important in raising awareness, but in terms of influencing purchase behaviour, what other people say in person or via social media is much more important.

RECOMMENDATION – Use advertising to build awareness – but use social media as the primary influencer of decision-making. Note that few factors impact more on behaviour than reviews.

 

18/23 – EMBRACE 6 TOOLS FOR PERSUASION

 

75% of guests reuse their towel

Hotels encouraging patrons reusing towels can save on dry cleaning and water. There have been several studies testing ways of increasing towel recycling. In one study, patrons were told that recycling was good for the environment. This led to a 20% increase in towel recycling. Another sample was told by way of a sign that 75% of patrons recycle their towels. This resulted in a 40% recycling rate. Patrons were concerned about the environment, but more concerned about behaving in a way consistent with social norms. Social norms are a powerful influencer of purchase behaviour.

A study carried out by academic and psychologist, Dan Ariely, looked at the impact of a crowd on the behaviour of individuals. One sample of patrons entered a display of high-quality foods with no one standing in front of them The second sample involved patrons walking into the same store and seeing the same display – but this time with a crowd looking at it. Very few of the first sample stopped to look at the display, while most of the second sample did stop to look. This behaviour is reminiscent of ‘rubberneckers’ driving past a road crash. People want to behave in accordance with the norm.

Creating social norms is just one of 6 powerful persuaders that can influence purchase behaviour. The full list is:

  • Social norms
  • Reciprocity
  • Authority
  • Commitment
  • Liking
  • Scarcity

While many will not admit it, human beings want to conform to social norms. Their behaviour can be influenced by convincing them that a particular behaviour is consistent with social norms or expectations. If it is the in thing to eat Krispy Kreme, people will be inclined to eat it.

Reciprocity involves giving a customer something in order to create an obligation to give back. The thing given to the customer might be VIP service, a gift, or some other form of added value. More often than not, the thing given back is repeat custom or referral.

Related to the social norm influencer is the authority influencer – where someone the target market trusts recommends an action. This is what an influencer like Kim Kardashian is famous for. Authority influencing works best when the influencer is respected in the market and is relevant to the product.

Commitment is strongly facilitated in a community environment. As a result of being part of a community, consumers feel a commitment to make a particular purchase. For example, a trade union may recommend a product to its members. Commitment drives loyalty.

Liking relates to the human tendency to buy from people with whom we feel a sense of simpatico.  We also tend to buy from people who make us feel special or important.

Scarcity is directly related to the fear of missing out. People want to buy what they believe is rare or may be harder to get in the future. They also want to buy things they think others may not have or be able to purchase.

All six of these tools can be very effective, though each has its strengths and weaknesses. Factors impacting on efficacy include authenticity, timing and tangibility. Scarcity is often overused and, therefore, must be tangibly demonstrated to have an effect. Reciprocity relies heavily on timing – the smaller the gap between the incentive and the response, the better. Liking requires an element of authenticity or at least the perception of.

RECOMMENDATION – Embrace the six tools for persuading the target market to purchase or refer. Use these tools strategically with – authenticity, timing, and tangibility.

 

INFLUENCING CHOICE

At a point in the purchase process, the consumer inevitably has to make a choice. A range of factors can impact that choice, and there are several strategies for influencing the decision. Some of these strategies are addressed here.

19/23 – BECOME A CHOICE ARCHITECT

 

75% choose the option framed in terms of saving lives

 

Nobel Prize-winning Behavioural Economist, Richard Thaler, first presented the notion of ‘choice architecture’. Thaler wrote extensively about how to design a choice in such a way as to ensure the choice made is the right one. Architectural tools identified by Thaler include framing, limiting, defaults, and decoys.

 

Our choices are influenced by how they are ‘framed’. Consider the following:

 

  • ‘95% effective’ condom vs just ‘5% failure’ condom
  • ‘80% lean’ ground beef vs just ‘20% fat’ ground beef
  • ‘just 25% imported’ components vs ‘75% Australian’

Which of these choices would you be most likely to opt for? In each of these options, the offering is the same, but the framing is very different. That difference can have a significant impact on purchase behaviour.

 

Researchers, Tversky and Thaler, considered two treatments of 600 people who contracted a fatal disease:

 

  • Treatment A – would result in 400 deaths
  • Treatment B – had a 33% chance that no-one would die but a 66% chance that everyone would die

 

These choices were framed:

 

  • Positively – how many people will live
  • Negatively – how many people will die

 

It was found that:

 

  • When framed as saving 200 lives – option one was supported by 72% of respondents
  • When framed as losing 400 lives – option one was supported by 22% of respondents

 

Framing can make all the difference in influencing consumer choices and is a potentially powerful tool to be used by marketers.

 

RECOMMENDATION – Embrace the power of language and perception. Frame choices in a way that drives consumers to the option that best serves your objectives.

 

 

20/23 – SIX CHOICES ARE BETTER THAN 24 – FOR VERY GOOD REASON

 

30% purchased when there were just 6 options

Have you ever been to a Chinese restaurant and decided not to order from the menu because it is too long and there are too many options to choose from? I suspect we all have. Most of us feel more comfortable in a restaurant that offers a limited but interesting choice. Indeed, in so many areas of our lives in 2020, we suffer from ‘decision fatigue’. This is often the case with telephone contracts and health insurance policies – where comparisons are very difficult, indeed.

A study entitled – ‘The Art of Choosing’ published in 1995, looked at two purchase options:

  • Choosing from 6 varieties of jam in a supermarket
  • Choosing from 24 varieties of jam in a supermarket

The outcomes of the study included the following:

  • 6 options – 40% of people stopped and 30% of people purchased
  • 24 options – 60% of people stopped and 3% purchased

The smaller range delivered significantly higher sales than the larger one. It was also found that:

  • Purchasers from the range of six were highly satisfied with their purchase
  • Purchasers from the range of 24 wondered if they had purchased the wrong jam

This is one of a number of studies that suggests that less is more. When it comes to choices at the point of purchase, between 3 and 7 choices is considered ideal. Apple products are invariably launched with three options – the basic – the intermediate and the premium – and Apple know that the intermediate option will account for 60% of their sales in the range.

Rather than offering a large range of options, it is generally better to understand the customer well enough and segment it precisely enough, that a small and well-targeted range can be offered. This will almost always drive more initial sales, more repeat business, and higher referrals due to greater levels of satisfaction. More satisfied customers are more likely to repeat purchase and refer.

It is also likely that a smaller range will attract lower production costs – potentially covering any expenditure on the research needed to develop the optimum 6 options.

RECOMMENDATION – limit the number of choices offered in each product category. Target customer needs and drive up initial sales, repeat business, and referrals.

 

21/23 – THE PRESENTATION OF A CHOICE REALLY MATTERS

 

90% registration vs 15% registration

There are a number of decisions involved in a purchase, including – whether to buy, what budget, what features to seek, and what brand to buy. The simpler these decisions, the better. The easier it is for the customer to choose the option you want them to, the more likely it is that they will purchase that option. For many years, there has been a debate regarding whether vehicle drivers should be asked to opt in to organ donation or opt-out of it. In other words, should donation be there to choose or automatic, with the ability to opt-out?

Some 48 counties with organ donation systems have been studied, and recent research suggests that in countries that have an opt-out system (you are a donor until you choose not to be) registration rates are around 90% while in countries like Australia where it is opt-in (people have to tick a box to be a donor) average registration rates are just 15%. As it happens, this is not the whole story – and the capacity of a family member to decline the donation brings the two actual donation rates much closer together – with opt-out – still a little ahead.

Setting aside the moral and emotional issues that some people have with organ donation, this research points to the importance of making a choice as easy as possible. The easier the process of making a choice, the more likely it will be made and made promptly. The easier it is to choose your option, the more likely people are to choose it. I think about this every time I go to purchase a DVD online and get asked by a vendor to open an account in order to make the purchase. Every time this occurs, and irrespective of price, I opt for another site that does not require me to open an account.

Indeed, while recognising the power of data and the desire of online businesses to gather it – I have no interest in actively providing it. Further, while they might think that having to open an account – or making it difficult to purchase without opening an account might build loyalty – for me, it does not. They don’t even get the initial purchase.

The opt-in and opt-out options are also relevant to purchase behaviour when selling products that can be potentially bundled – such as phone contracts. Is it better to advertise a basic product and then leave it up to the salesperson to sell up – or is it better to advertise a comprehensive product and enable purchasers to opt-out of features in order to bring the price down? Intuition seems to suggest to most businesses in most product categories that advertising the lowest price and leaving it to the salesperson to sell up is the better strategy. I question if this approach is supported by the data and lament the infrequency with which opt-out strategies are used.

RECOMMENDATION: Make the choice as simple as possible. Make it as simple as possible to choose the option you are selling. Consider using opt-out as an alternative to the opt-in approach.

22/23 – USE THE DECOY EFFECT TO DELIVER THE DESIRED CHOICE

 

$1,999 outsells $1,799

Apple offered three 13-inch MacBook Pros – the basic model for $1499; the intermediate model for $1799; and the premium model for $1999. In this case, the intermediate model was a ‘decoy’, driving consumers to buy the premium model. Consumers did not want to buy the ‘cheapy’, and since the premium was only $200 more than the intermediate offering felt ‘why not pay the extra $200?’ This was a highly successful strategy for Apple.

Photograph vendor Shutterstock was offering 4 packages – 10 images for $29; 50 images for $99; 350 images for $169; and 750 images for $199. In this case, the 350 images for $169 was the decoy. If the consumer needed more than 50 images per month, the 350 images package feels unreasonable because for $30 more they can enjoy more the twice as many images. The consumer is drawn to the more expensive package.

 

The decoy effect was perhaps best demonstrated by research psychologist and author Dan Ariely working with The Economist magazine. Subscribers were offered two options:

  • Option 1
  • Print and digital – $125.00
  • Digital only – $59.00
  • Option 2
  • Print only – $125.00
  • Print and digital – $125.00
  • Digital – $59.00

The findings were as follows:

  • Option 1
  • Print and digital – 32% of sales
  • Digital only – 68% of sales
  • Option 2
  • Print only – nil
  • Print and digital – 84%
  • Digital – 16%

By adding a third, decoy option (Print Only for $125), the researchers increased the income of the Economist by 43% – without actually selling any of the decoy options. The decoy made the print plus digital (which cost the Economist no more, to appear to be superior value)

The decoy effect can be very powerful in influencing choice – particularly when dealing with price and the perception of value.

RECOMMENDATION – Consider using a decoy as one of your choice-architecture tools to influence consumer decision-making, and driving them to the preferred option.

 

23/23 – NUDGE CONSUMERS TO BEHAVE AS YOU WANT

34% decrease in missed appointments by advising of cost

The concept of a ‘nudge’ was first documented by Richard Thaler. He chronicled the example of a Swedish study in which the behaviour of male tavern patrons was influenced by painting a fly in a white urinal bowl. This simple innovation led to a 30% drop in spillage. This study was repeated at a university in the United States – using the logo of another university instead of a fly. In this case, spillage was decreased by 50%. These are two examples of nudges used to influence behaviour.

More commercially focused examples of nudges include:

  • Asking hamburger customers ‘will you have fries with that?’
  • Making healthier foods easier to buy than unhealthy foods
  • Showing people how much power they are using in order to reduce consumption

In a study of the National Health System in the United Kingdom, it was found that 11.1% of patients were simply failing to show up for scheduled appointments. In response, the NHS began sending a text to patients a day or two before the appointment, advising them that a missed appointment would attract a fee of 160 pounds. Missed appointments immediately fell to 8.4%.

In essence, a ‘nudge’ is a small action designed to have a large impact on decision-making. The discussion of nudges by Thaler and others has led to the development of ‘nudge marketing’. Examples of nudge marketing include:

  • Driving sales by demonstrating that others are buying the product
  • Limiting options to drive consumers towards a favoured option
  • Using games and competitions to engender a competitive response

The potential for nudging is substantial, and the options in terms of potential nudges are almost limitless. Some nudges are obvious, e.g. competitions, while others are quite subtle such as the fly painted in the bowl of a urinal. Effective use of nudges requires a deep understanding of human behaviour – but it can be a very inexpensive way of driving sales.

RECOMMENDATION – Consider using low cost, well-considered nudges to influence the behaviour of your consumers to drive both sales and margins.

IN CONCLUSION

Human decision-making is complex and rarely rational. That said, it can and should be understood so that it can be managed. Marketing is the business of managing consumer behaviour, and a key element is managing the purchase decisions of essentially irrational human beings.

This is augmented by an in-depth understanding of human and, indeed, consumer behaviour. It is important to understand the stages of decision-making, consumer needs, factors influencing decision-making, and the science of choice architecture.

Marketing is a science.  Embracing this fact is the first step towards significantly reducing the cost of marketing and increasing profitability.

No tags