One of the biggest misconceptions in business is that marketing is synonymous with advertising. Indeed, advertising is an element of marketing, but marketing is so much more than advertising. Indeed, advertising is just a very small part of marketing.
There are many definitions of marketing. The definition that guides my work and which I have promoted consistently for 25 years is as follows:
- Marketing is the management of human behaviour to achieve commercial and/or social objectives
Marketing is all about causing an audience, or more specifically a target audience, do something (behave in a particular way):
- For the first time
- For the last time
- More often
- Less often
This might mean – causing a member of the target audience to go to Coles for the first time, smoke for the last time, fly Qantas more often, or drink less often. In each case, the behaviour caused helps move an individual or an organisation towards achieving an objective or outcome.
Done well, advertising has the potential to influence human or consumer behaviour. However, it is just one of many tools that might do this, and most of the alternative tools are less expensive. They can also be much more effective. In fact, alternative tools are often more scientific and accountable.
Managing human behaviour efficiently and cost-effectively requires an understanding of the audience members whose behaviour is to be managed. The better the understanding, the greater the ability to manage behaviour efficiently and cost-effectively.
Understanding human behaviour is the business of psychology and more specifically, social psychology. This paper looks at the management of consumer behaviour through the application of psychology in a commercial environment. It supports the view that marketing is or should be, much more about psychology than it will ever be about advertising.
CONSUMERS ARE IRRATIONAL
Consumers are irrational. And yes, that includes you … and for that matter, me! It might make us feel better to think we are rational, or at the very least, less irrational than others, but the facts suggest otherwise. Further, evidence suggests that irrationality impacts significantly on consumer behaviour – and in many instances, far more than rational thinking.
1/23 – EMBRACE YOUR IRRATIONAL CONSUMERS
95% of decision making occurs in the unconscious mind
Rational thinking or what Kahneman calls ‘slow thinking’ occurs in the frontal cortex or conscious mind. Irrational ‘thinking’ or what Kahneman called ‘fast thinking’ occurs in the brain stem or limbic system or unconscious part of the mind. Some call irrational thinking – ‘bottom up’ thinking and rational thinking ‘top-down thinking’.
The cortex or neocortex is responsible for cognitive thinking. This is where we consider facts in detail and respond on the basis of the evidence available to us. The brain stem is responsible for instinctive thinking, and the limbic system is responsible for emotional thinking’. Both are absolutely essential in cases where we need to think automatically – as when driving a car. There is no time to think through every action when we drive. That said, a little more thought might help some drivers.
Neurological and psychological research suggests that about 20% of thought occurs in the neocortex and, therefore, is conscious. 80% of ‘thinking’ (if you can call it that) occurs in the brain stem or limbic system and is unconscious. In terms of the purchase behaviour of consumers, research by Harvard Professor Gerald Zaltman suggests that 95% of decision making is unconscious, or what he calls ‘subconscious’.
The point is that consumer purchases are more often irrational than rational, and the purchase decision tends to be more irrational than rational. Indeed, more often than not, rational thinking is used most effectively after the purchase to rationalise the decision already made. Research suggests that over 50% of people experience buyer’s remorse at least sometimes. This suggests a failure to rationalise. The other 50% seem to have been successful in their rationalisation.
It is folly to consider consumers or consumer decision making as a rational process. Indeed, it is folly to consider your own decision making to be entirely rational. Instinct and emotions, neither of which are rational, impact significantly on decision making. Simply presenting facts is rarely enough to cause a purchase.
RECOMMENDATIONS – Accept that human beings are not rational purchasers and understand that influencing decision making will generally involve much more than the presentation of facts. It is important to address instincts and emotions.
2/23 – INSURE FOR STUPIDITY
$12.03 buying more than $14.12
It might be harsh to describe consumers as stupid, but there is compelling evidence to suggest that such a description might be applicable – at least as far as insurance is involved.
A study by four economists from Penn State, Temple University, and the University of Pennsylvania considered how much consumers were willing to pay for $100,000 travel insurance cover for a trip to Thailand. Participants in the study were offered:
- Option 1 – cover for death caused by terrorism
- Option 2 – cover for death by any cause, including terrorism
The findings revealed staggering irrationality, as follows:
- Option 1 – an average of $14.12
- Option 2 – an average of $12.03
Participants were willing to pay more for cover that addressed only terrorism than they were for cover that addressed all potential causes of death, including terrorism. This finding was very similar to that of a study by Kahneman, which found that participants in California were prepared to pay more for earthquake insurance than they were for general disaster insurance which included earthquakes.
These findings demonstrate irrational thinking driven more by an irrational fear than a rational assessment of the insurance options on offer. Of course, the implications of these findings extend well beyond insurance.
It is important to recognise the impact of emotions in decision making. In these cases, media coverage and related factors had caused consumers to feel sufficiently afraid of terrorism and earthquakes that they did not consider the policy in the detail required to make a rational decision. It is also worth noting here that ‘western’ deaths from terrorism are now running at half the number they were in the 1980s, so even the fear of terrorism is irrational.
RECOMMENDATION – Embrace the irrationality of your audience and customise your marketing to address the current mood and issues that are top of mind and impact on purchase behaviour.
3/23 – CUT YOUR LOSSES NOW
60% unhappy and 40% considered separation
Research in the US found that 67% of marriages end in divorce. Another study found that 60% of couples are unhappily married, and 40% had considered separation. The National Opinion Research Centre found that the trend is getting worse, not better. People are becoming less and less happy in their marriages as time goes on.
If 60% of people are unhappy in a relationship, why do they stay in that relationship? There are apparently a number of reasons – including a view that – ‘they have invested so much time and effort in the business that it would be a waste to cut and run now’. While in part driven by socialised thinking, this view is also entirely irrational. It is just as irrational as averaging down when purchasing shares or sitting through a movie that you are not enjoying because you paid $20.00 for the ticket.
The past is in the past and cannot be changed. The only things that matter to anyone thinking rationally are the present and the future. Having endured ten years of unhappy marriage, the past investment does not justify enduring another ten. It is not possible to reduce your losses on shares purchased yesterday by buying shares at an even lower price today. And there is little point in being bored to death watching a movie – when you could be having fun elsewhere – no matter what the movie ticket cost you.
These are examples of where, despite plenty of time to think and apply the neo-cortex, human beings still act irrationally and make irrational decisions. While there may be any number of plausible reasons for this irrational thinking, it remains irrational. All too often, in making decisions about the future, consumers consider irrelevant occurrences and behaviours from the past.
RECOMMENDATION – Understand how consumers apply emotional ‘thinking’ to things that have occurred in the past and allow them to influence decisions about today and the future. Shift the focus to the future.
4/23 – CONSUMERS WANT MORE THAN THEIR NEIGHBOURS
50% preferred $50,000 over $100,000
Intuition would suggest that for the same input, most people would prefer remuneration of $100,000 ahead of $50,000. My intuition tells me that this preference would be even greater for educated professionals who know the value of money. It appears, however, that this is not always the case. Indeed, a Harvard University study suggests that it is not always the case.
The study in question, researchers asked students and faculty to choose between two options:
- Option 1 – earning $50,000 a year when everyone else around them makes $25,000
- Option 2 – earning $100,000 a year when everyone else around them makes $200,000
Of those surveyed, 50% chose option 1 – thus placing a higher priority on earning more than others than on their own income. By any measure, I would have thought this finding suggests a level of irrationality on the part of the participants. What others get paid has no real effect on participants and does not impact their standard of living, and yet, it was of more concern than the actual income for more than half of participants. This suggests a higher priority for many on being richer than rich.
These findings suggest that relative measures are sometimes more important than absolute measures, and that status is sometimes more important than income or standard of living. It certainly suggests that money alone is not the primary motivator for many people and that social status or standing is a powerful driver of human and consumer behaviour.
RECOMMENDATIONS – Embrace the power of social status or standing. Consider using the enhancement of social status or standing to manage the behaviour of your target audience.
5/23 – THEY WILL PAY $500 for $20
$17,000 earned auctioning $20 bills
In a study, Harvard Business School’s Max Bazerman earned $17,000 auctioning $20 bills to his students, with at least one student paying $204 for a $20 bill. It is reported that in all the years Bazerman ran the auction, he didn’t lose a cent.
In a number of studies, psychologists have tested the auctioning of $20 bills, and in most of these studies, while the bidding always started at $1.00, it invariably rose to $20 and then $21 – and in some cases rose to as high as $500. Wharton management professor Adam Grant, who plays this game in consulting sessions, says a military officer once paid close to $500 for a $20 bill.
Why on earth would anyone, let alone multiple people, bid more than $20.00 for a twenty-dollar bill? While there might be a number of explanations for this behaviour, it would suggest that the competitive environment makes winning more important than the potential financial gain, at least to a significant number of people. This behaviour appears to be less than rational.
This points to the competitive sentiments that drive many human beings – a sentiment that is also reflected in the ‘fear of loss’ where the majority of people are more concerned about potential loss and will pay more to avoid a potential loss than they will pay for a potential gain. Indeed, research suggests that fear of loss can cause significant anxiety.
Kahneman & Tversky suggest that the pain of losing is psychologically about twice as powerful as the pleasure of gaining. People are more willing to take risks or behave dishonestly to avoid a loss than to make a gain. Fear of loss is a significant driver of consumer behaviour and is often reflected in response to claims of scarcity. Consumers buy because they do not want to miss out.
RECOMMENDATION – Recognise that consumers are rarely rational, even when it comes to money. Leverage the power of competitive sentiment (fear of losing) and fear of loss (missing out) to influence your consumer.
6/23 – LEVERAGE CONSUMER SHEEP MENTALITY
35% increases to 44.5% with the claim of normality
A 2008 study by Noah J. Goldstein, Robert B. Cialdini and Vladas Griskeviciu found that the rate of bath towel recycling increases significantly when patrons are told that other patrons reuse bath towels, even when the alternative is an environmental message. The study found that:
- An environmental message alone led to a 35% reuse rate
- A message that 75% of people reuse bath towels led to a 44.5% reuse rate
This highlights the power of social norms and the extent to which knowing what others have done can impact the behaviour consumers. It suggests that following the lead of others is more important to many people than doing the ‘right thing’.
Very often, consumers judge the quality or value of a product by its sales to date. This is why many advertisers claim to be the best-selling brand in a category. This is one of the reasons that brands promote the popularity of their product. Consumers want to feel that they are on a winner.
This is why teenagers who think they are individuals and unique dress much the same, and often in a way that is indistinguishable from their peers. They want to believe they are individuals and unique – but at the same time want to fit in and be seen as a part of the tribe.
This is why consumers will walk past a supermarket display without stopping or purchasing – when no one else is viewing the display – but will stop, look, and often make a purchase when a crowd gathers in front of the display. This finding has been replicated in numerous studies.
Rather than assessing a situation on its merits, a significant number of consumers respond irrationally and emotionally, more influenced by social norms than facts, figures or data relating to the qualities of the product. Often, the behaviour of others is seen as proof of the quality or value of a product. This is not the case with the bath towel recycling, however, where social norms alone are driving behaviour.
It is often ,entirely irrational, but consumers are significantly influenced by social norms.
RECOMMENDATIONS – Embrace the power of social norms and create the impression within a target audience that a desirable behaviour is consistent with the likely or past behaviour of others in their cohort or others they respect.
All consumers, indeed, all human beings are biased and the behaviour of all consumers and all human beings is significantly influenced by those biases, irrespective of how irrational they might be. These biases tend to occur within one of three heuristics.
7/23 – POWERFUL HEURISTICS MAKE YOUR CUSTOMERS BIASED
300 attacks in 1972 down to 75 attacks in 2017
There is a myth propagated by the media and self-serving politicians that terrorism is a bigger problem in 2020 than it has been at any time in history. As a result, there is a view in the broader community that we are at higherr risk of a terrorist attack in 2020 than ever before.
This is an excellent example of the availability heuristic. In 2017 there were 80 terrorist attacks in Europe compared with 300 terrorist attacks in 1972.
Heuristics are processes or methods that enable a person to discover something for themselves. Tversky and Kahneman identified three heuristics
- Anchoring and adjustment
The availability heuristic involves making decisions based on the ease of bringing something to mind. This demonstrates the human propensity for drawing conclusions from whatever is top of mind – including media reports.
The representativeness heuristic involves making a decision by comparing the present situation to the most representative mental prototype. This includes making assumptions based on past experiences. It can involve comparing aspects of the individual case to mental examples in the memory.
The affect heuristic involves making choices that are strongly influenced by the emotions that an individual is experiencing at that moment. Consumers are more likely to view a decision as having benefits and fewer risks when they are in a positive mood.
Contrary to popular belief, heuristics are not biases, but rather, the framework within which bias occurs. Understanding these heuristics can help us understand the biases that influence consumer behaviour.
RECOMMENDATIONS – recognise that all human beings are biased and that all consumers bring at least one bias to every purchase decision. Consider the heuristics that frame biased behaviour.
8/23 – ANCHORS EFFECT CONSUMERS MORE THAN SHIPS
87 years old and going strong
My father is 87 years old and appears to be going strong. Many people believe that this fact would indicate that I too can look forward to a long life. When considering their own life expectancy, many reflect on the age now or at the time of death of their parents and grandparents.
Two things can be said about this observation:
- Firstly, this expectation has no merit. Genetics is a poor predictor of life expectancy, and it is eclipsed by two significantly more important factors – lifestyle and connection.
- Secondly, this is a typical example of the anchoring bias – using a fact that may or may not be relevant to draw conclusions about the present and to make predictions about the future.
The all too common ‘anchoring bias’ occurs when – ‘people rely too much on pre-existing information or the first information they find when making decisions.’
Examples of the anchoring bias at work include:
- Viewing a $100 T-shirt as cheap because the last similar T-shirt we saw was $500
- Predicting what Apple share price will be tomorrow on the basis of today’s $266.37
- Viewing a $300 bottle of wine as high quality because most bottles are $100
The fact that the anchoring bias is, indeed, a ‘bias’ is not to suggest that it always delivers the wrong result. It may not. The anchoring bias can provide a very reliable result where the anchor used is the right one. In the case of the Apple share price – today’s price may well be a reliable predictor of tomorrow’s price. In the case of my projected longevity, however, my father’s current age is a poor predictor and, therefore, a poor anchor. My level of exercise and the fact that I am a vegetarian who never eats sugar – might be a far more reliable predictor of my projected longevity.
It is common for consumers to use an anchor, or perhaps more than one anchor to make judgements about a product before they make a purchase. It is, therefore, important for businesses to understand and, where possible, influence the anchor or anchors being used.
RECOMMENDATIONS – Understand the anchors used by your target audience and, where possible, encourage the use of anchors that will present your product in the best possible light based on key criteria.
9/23 – DRIVE SALES BY JOINING OR CREATING A BANDWAGON
69% of fad diets fail
Research in the United States found that 69% of fad diets fail to achieve the target weight. No one is surprised by this statistic. Not one reader just gasped and said something to the effect of – ‘that is high’. We all know that fad diets do not work. Perhaps the only surprise is that the percentage is so low – and that may simply be due to dieters setting low targets.
So, if fad diets and diets, in general, don’t work, why do people go on them in such large numbers? Research suggests that more than half (54%) of US citizens are on a diet. The most recent figures in Australia indicate that more than 2 million Australians are on a diet. By the time the average Australian woman is 45 years old, she has tried an average of 61 diets – and most have failed.
So, if diets don’t work, why do people keep on going on them? A big part of the answer lies in the ‘bandwagon bias’. Rather than assessing each diet on its merits – consumers tend to follow the lead of others and rationalise their diet choice on the basis of second-hand information that they pretend to understand and use to establish a personal rationale.
The bandwagon bias or effect – ‘refers to the tendency people have to adopt a certain behaviour, style, or attitude simply because everyone else is doing it’. Other areas in which the bandwagon effect is common include:
Wherever it occurs, the bandwagon bias involves making a purchase or behaving in a particular way because a lot of other people have. In essence, rather than sourcing and studying the facts, these people are following the leader. What is more, the bandwagon effect is one of the more common, and some would suggest one of the most dangerous biases.
It is important to understand the bandwagon effect, its potential effect on your brand, and how it might be harnessed to drive sales and margins.
RECOMMENDATIONS – Understand the bandwagon effect, and the bandwagons impacting your business. Consider creating your own bandwagon and then leveraging that bandwagon.
10/23 – TELL UNTHINKING CONSUMERS WHAT THEY ALREADY KNOW
42% believe in ‘creation’
Studies have found that 42% of people living in the United States believe in the creationist view of the origins of mankind. That is, they believe the earth is less than 10,000 years old. This is in stark contrast to the scientific view and the weight of scientific evidence suggesting that the earth is 4.5 billion years old.
That said, the most extraordinary thing about the 42% of Americans holding this view is not that they believe the world is less than 10,000 – but rather, that they will not countenance any evidence to the contrary – believing that it is just wrong or a ‘trick of the devil’. Some have even developed a capacity to twist much of the evidence around to make it support their case.
Physicist Lawrence Kraus suggests that the difference between scientists and creationists is that while the scientists are actively seeking facts that can prove them wrong, and in so doing, move science forward – creationists manipulate the evidence to ensure its supports their conclusion. This is, perhaps, the most significant example of confirmation bias.
‘Confirmation bias’ is ‘a type of cognitive bias that involves favouring information that confirms your previously existing beliefs or biases’. In other words, confirmation bias is exhibited when an individual will not readily accept new information, preferring to stand by existing beliefs – no matter how right or wrong they might be.
Blind faith is a prime example of confirmation bias. Another prime example is found in politics. Two people from the left and right can watch the same politician speak and take away an entirely different message and impression of the politician. I am convinced that Donald Trump is an unethical, narcissistic fool – while colleagues I have debated view him as a breath of fresh air who is changing America for the better (and forgive his ‘minor’ foibles’).
Regardless of which one of is right in this debate, or indeed, if we are both right or both wrong – we are both impacted by confirmation bias, and this is reflected in our assessment. Indeed, research suggests that most of us assess an individual within the first 30 seconds of coming into contact with them – and that everything that follows, is viewed as confirming the original view.
It is vital to understand confirmation bias, how it impacts purchase behaviour and the difficulties associated with getting around it. It at least in part explains why Apple buyers are Apple buyers. It can be used to build loyalty and can be an impediment to encouraging brand swapping.
RECOMMENDATIONS – Understand and learn to recognise confirmation bias. Develop strategies to leverage it or counter it for your brand.
11/23 – BUILD LOYALTY BY LEVERAGING THE CHOICE BIAS
50% of people feel buyer’s remorse
AS US study found that up to 50% of US shoppers experience buyer’s remorse, at least occasionally. The situation in Australia is likely to be very similar. ‘Buyer’s remorse’ occurs when a customer regrets a purchase shortly after making it. It occurs when there is an absence of post-purchase rationalisation known as choice bias.
Choice bias, also called post-purchase rationalisation, is the tendency to retroactively ascribe positive attributes to an option one has selected and/or to demote the forgone options. In this regard, Neil Patel notes ‘all of us hold preferences that have little factual evidence to support them. We will defend a preferred flavour of ice cream, type of phone, favourite sports team, political ideology, superstitious hunch, or worldview because we focus on its positives, not giving much consideration to its negatives’. Successful post-purchase rationalisation is the opposite of buyer’s remorse.
According to Patel, choice bias impacts purchase behaviour as follows:
- People tend to buy products and services with which they are familiar
- People tend to trust any piece of information that seems to support this choice
- People tend to forget any information that opposes a strongly held viewpoint
Choice bias most commonly occurs when:
- We make an emotionally driven purchase
- We don’t like to admit we are wrong
- We place a higher value on what we have
Research suggests that choice bias increases as we age.
Rather than being a concern, choice bias can very often represent an opportunity. For this reason, it is not uncommon for businesses to invest heavily in promotion specifically designed to help consumers cognitively rationalise what might have been an emotional purchase. This increases the likelihood of repeat purchase and referral. BMW has been a leading exponent of this strategy.
RECOMMENDATIONS – Recognise the influence of choice bias – and work with your customers to reinforce their purchase behaviour and facilitate post-purchase rationalisation.
12/23 – FORGET THE REAL THING – A PLACEBO CAN WORK BETTER
50% as effective as the real thing, without any substance
A study led by Kaptchuk considered how people reacted to migraine pain medication. Three groups were tested and treated as follows:
- Group 1 – treated with a branded drug
- Group 2 – treated with a labelled placebo
- Group 3 – did not receive any treatment
The findings of the research suggested that the placebo was 50% as effective as the real drug in reducing pain. That is, a treatment with no efficacy at all was effective in half the cases tested. This clearly demonstrates the power of the placebo effect.
The placebo effect is most often a medical intervention — a pill, injection, or sham surgery — that has no therapeutic value. The placebo effect refers to the real benefits that these inert interventions can have. For example, the simple act of taking a tablet can make a person feel its benefits. This definition has a medical orientation as placebos are most commonly used in a medical environment. However, the placebo effect is also found in the commercial environment.
- High prices can have the effect of creating the impression that one product is of a higher quality to another. “It must be better because it costs more’. This is well reflected in the price of many luxury goods.
- The differential pricing of men and women’ shaving products. Despite being on average 7% more expensive, the women’s products are only different from the men’s in that they are packaged in pink instead of black.
- Numerous studies that have shown that participants can lose or put on weight when put on a diet they are told is fattening or slimming. Research has suggested that physical and significant weight loss can occur when a person is told a high sugar food is slimming.
More than anything, the placebo effect is all about the power of what consumers believe. These beliefs can be as powerful, or more so than what is real or true.
RECOMMENDATION – No matter how optimal your brand is, ensure that the target audience believes it is optimal, because ultimately, what they believe is most important.
13/23 – THE UNTHINKING FOCUS ON SURVIVORS
112% ARR is really 71% ARR
Many businesses calculate their annual rate of return from customers (ARR). In one example examined by researchers, the initial calculation suggested an ARR of 112%. This calculation was, however, based on the rate of return from retained users (users who were still customers at the end of the financial year). When a second calculation was completed – including all customers lost during the year by churn – the ARR fell to 71%.
This is an example of survivor bias in action. Survivorship bias occurs when an assessment is based on the outcomes for what might be called ‘survivors’ or focusing on successful people – ignoring the failures and non-survivors. Examples of survivor bias follow:
- The book ‘Seven habits of highly effective people’ by Stephen Covey – provides an overview of habits Covey found to be common to a number of highly effective people. But Covey only spoke to the ‘survivors’ people who were highly effective. What if the seven habits could be found with equal frequency in inefficient people? Would his findings be as valid?
- It is true that Steve Jobs and Bill Gates both dropped out of Ivy League universities and then went on to create multi-billion-dollar fortunes. It would be wrong, however, to conclude, as some have, that a university education is of little value and may even be a hindrance. Many more people dropped out of the same universities and were never heard of again.
- A sales team uses a specific marketing strategy and increases sales by 35%. Therefore, we should all use that same strategy. But how many other sales teams also used that strategy and failed? Was it that specific strategy or something else that made our sales team successful?
There is a tendency among consumers and business people alike to make judgements about what does and does not work on the basis of a handful of so-called ‘survivors’. Consider consumers who might:
- Judge a product as being of high quality because a partner had a good experience with the same product. What about all the people who have had a bad experience?
- Opt for a treatment for a disease because three people who survived, that they heard about, were successfully treated. What about those for whom it was unsuccessful?
- Hear a commercial telling them that 9/10 of all dentists surveyed validated a brand of tooth paste, without being told how many dentists refused to be surveyed because they did not want to comment on a toothpaste with which they had a bad experience.
It is important to understand the impact of survivor bias on decision making. I am very sceptical about anything that starts – ’10 things that …..’, but other people accept such information as factual.
RECOMMENDATIONS – Understand the impact of survivor bias on your decision making and that of your customers. Recognise that the survivor bias can lead to an incorrect assessment of data.
14/24 – REMEMBER THE BLIND SPOT
65% of Americans believe they have above average intelligence
A recent study found that 65% of Americans believe they have above-average intelligence. Another study found that 80% of drivers think they are above average drivers, and 84% of academics think they are above average lecturers.
Clearly, these numbers are absurd and are not even close to reality. They are often cited as examples of the Dunning Kruger effect, which they are, but they are also examples of blind spot bias.
Blind spot bias is the failure to notice your own cognitive biases. The bias blind spot is the cognitive bias of recognizing the impact of biases on the judgment of others while failing to see the impact of bias on one’s own judgment
A colleague of mine once asked my view on a social issue, and I responded with a very progressive view. He responded by suggesting that I am biased because I am a progressive voter (which I probably was). When I suggested that on this basis he was also biased because he was a conservative voter – he denied it strongly. In other words, he could see my bias, but not his own. This is an archetypal example of ‘blind spot bias’ at work.
All human beings have blind spots, and the behaviour of all human beings is impacted by them. The impact of blind spots include:
- A reluctance or inability to be open to new things
- A reluctance or inability to be open to new information
- A reluctance or inability to be open to new ideas
Clearly, blind spots can impact on the consumer’s reception to marketing messages and can, in turn, directly impact on responses to innovation, sales and margins – or the perception of the value of a brand. It is important to understand blind spots and how they can impact on purchase behaviour.
RECOMMENDATIONS – Understand the power of blind spot bias. Identify and eliminate potential blind spots that impact your business. Consider leveraging the blind spots that might favour your business.
15/23 – CONSUMERS ARE MORE SELF-SERVING THAN AT ANY OTHER TIME IN HISTORY
5.1% unemployment and 8.5% underemployment
The Australian government is taking a lot of credit for the number of jobs they are ‘creating’ – citing the 5.1% unemployment rate – the lowest for some time. They have attributed this low rate to their great work with taxation reform, trade deals, and various other strategies. At the same time, however, 8.5% of Australian workers are underemployed (unable to earn a living wage from the work they have secured). The government blames this on the changing nature of work.
In other words, this government, like most of its contemporaries and forebears, is taking credit for good results and blaming others for bad results. This is called self-serving bias – and it is not unique to politicians.
Self-serving bias involves an individual taking credit for positive events or outcomes, and blaming outside factors for negative events. In essence, this is all about people thinking they are better than they are, and thinking others are worse than they are.
An example of this occurs when wealthy people think they made their own luck and got rich because of their brilliance. People who did not succeed in the same way are then viewed not so much as unlucky but as less intelligent or less hard working. Another example might be a job applicant who blames a previous employer for sacking him or her, but their own brilliance for winning the next job. A third example might be Nick Kurios who seems to take credit for his successes and then blames the umpire for his losses.
In the commercial environment, self-serving bias can manifest itself in several ways:
- The golfer taking credit for his or her good shots and blaming a recently purchased club for poor shots;
- A poor driver blaming a faulty vehicle for a car crash and then filing a suit against the manufacturer for damages;
- A fashion guru thinking they look good in an outfit because they are good looking rather than because of the quality of the clothing;
- A businessperson putting successes down to their brilliance and failures down to poor advice from consultants.
Self-serving bias usually involves the consumer taking credit for things that go well and blaming the product, brand or business for those things that go badly.
RECOMMENDATION – Be aware of the self-serving effect and the impact it can have on purchase and post-purchase behaviour. Self-enhancement is an all too common human trait.
16/23 – AVOID THE STUPIDITY OF SUNK COST BIAS
$571 billion in value lost by 2030
Earlier this week, I heard an ignorant Australian politician suggest that when dealing with climate change, it is important not to throw the baby out with the bathwater. He was suggesting that the investment in coal should continue because of the significant investment to date and our current dependence on coal. This is despite the fact that current estimates suggest that, in Australian property alone, climate change will reduce values by $571 billion by 2030.
The ‘ignorance’ I refer to does not relate to the politician’s attitude to climate change (although it well might), but to the assertion ‘we must not throw the baby out with the bathwater’. Why on earth not? If something is not working – the investment to date is irrelevant. The only thing that matters is the best strategy for the future. To do otherwise is to fall for sunk cost bias.
Sunk cost bias occurs when an individual continues a behaviour on the basis of their investment (time, money and effort) to date. It is closely related to loss aversion and status quo bias. Loss aversion refers to the tendency to avoid loss in preference to seeking equivalent gains. Status quo bias occurs when an individual sticks with the current default option irrespective of the results to date. In many respects, sunk cost bias is reflected in the old Australian saying – ‘I may as well be hanged for a sheep as a lamb’.
Examples of the sunk cost bias of fallacy at work abound. Consider:
- An explorer invests $20 million drilling for oil without success, and, without truly considering the high probability there is no oil, – continues drilling because of the investment to date
- A colleague of mine who resisted selling for $5000 a piece of equipment worth less than $5000 and taking up space – all on the basis that he paid $80,000 for it three years ago
- A share trader buying a stock for $1.00 per share a month after buying the same stock at $2.00 all on the basis that he or she wants to ‘average down’.
- Going on a holiday and being miserable in a dreadful hotel but staying there because you have already paid $500 for it.
Of course, in the commercial environment, sunk cost bias can work in a brand’s favour. A golfer who has invested in a brand of clubs might continue buying that brand because of his or her investment to date. More often, however, sunk cost bias will work against a brand. For example, a fisherman who has invested in a brand of motorboat might resist changing brands because of the investment to date and in spite of the potential benefits of a change.
RECOMMENDATION – Be aware of sunk cost bias, loss aversion, and status quo bias. All three can impact purchase behaviour and create opportunities and problems that need to be managed.
17/23 – CONSUMERS RESPOND TO REPETITION
85,000 members and climbing
In 2019 the Collingwood Football Club had 85,226 members – all of whom believed that Collingwood to be the greatest football club in the country – regardless of any evidence to the contrary – and with no definition of what constitutes ‘great’ or criteria for evaluation. Why do they think this? One reason is that they keep on hearing each other say it.
I frequently hear people say that Australia is the most successful multi-cultural society on earth. They are not able to articulate the criteria for evaluating ‘success’, and they fail to cite any data or real evaluation of other nations who also think they are the best – including the US. They believe it nonetheless – largely due to the constant repetition of the observation (NOT FACT) by politicians who know consumers want to hear it.
In the Australian 2016 general election, the Labour Party took votes from the Coalition by suggesting that the latter was going to destroy Medicare. In the 2019 election, the Coalition took votes from the Labour party by suggesting that Labour was going to introduce a death tax. In both cases, the constant and continual repetition of a claim – true or otherwise – led to it sticking and affecting the outcome of the election.
This gives substance to the notion that – ‘If you throw enough mud, eventually some of it will stick’. And it will. This is an example of repetition bias at work. This might also suggest that repeated advertising of a message can, in time, transform a claim into a ‘fact’ – a technique politicians have been using very effectively for many years.
Repetition bias occurs when there is a willingness to believe what we have been told most often and by the greatest number of different sources. Nobel prize winner, Daniel Kahneman, likens this to ‘human gullibility’ – and with considerable justification.
These are just some of the many biases impacting consumer behaviour. Each of these biases can have a dramatic impact on consumer decision making.
Repetition bias clearly works in favour of big advertisers and even more so, in favour of businesses with highly effective social media and media relations programmes. Social media can be highly effective in converting an observation into a ‘fact’ through repetition. It important to understand the impact of repetition and strategies for countering it. Once an observation becomes a ‘fact’, it can be very difficult to change.
‘Everyone knows that!’. Do they indeed?
RECOMMENDATION – Understand repetition bias and leverage it where you can, possibly using social media. Be aware of its impact on your customer – creating ‘facts’ that are not facts at all.
NUDGING CONSUMERS TO CHOOSE WISELY
There is a growing body of research from a growing number of behavioural economists suggesting that there are more cost-effective methods of managing or, indeed, changing consumer behaviour than advertising or overt communication, more generally. Many, including Nobel Prize-winning economist Richard Thaler, have written at length about the power of the ‘nudge’ – psychological triggers that influence behaviour.
To quote Wikipedia – ‘Nudge is a concept in behavioural science, political theory, and behavioural economics which proposes positive reinforcement and indirect suggestions as to ways to influence the behaviour and decision making of groups or individuals. Nudging contrasts with other ways to achieve compliance, such as education, legislation or enforcement.’ Examples follow:
Nudge theory is all about understanding how people think, make decisions, and behave, helping improve their thinking and decisions, managing change, and identify and modify existing unhelpful influences.
Nudge theory is discussed at length in ‘Nudge: Improving Decisions About Health, Wealth, and Happiness‘, by Richard H Thaler and Cass R Sunstein.
18/23 – NAME THAT HURRICANE WISELY
260% more donations for Roberts, Ralphs, and Roses
Psychologist Adam Alter looked at donations made by citizens of the United States after a hurricane. One of his findings was that the name given to the hurricane has a direct impact on the names of the people donating. People tend to donate more when the hurricane name has the same first letter as their name and even more when the hurricane has the same name they do.
In her research, psychologist Jesse Chandler found that for hurricane Rita in 2006, people named Robert, Ralph, Rose, or some other name beginning with ‘R’ donated on average 260% more than other people with other names. Alter found that in 2013 – Hurricane David (shared by 3.5 million Americans) resulted in significantly higher fundraising than hurricane Joyce (shared by 6000 Americans) or hurricane Dorian (shared by 9000 Americans).
These are just two of the many studies that support the observations of Alter in his papers and speeches. They highlight the fact that the name of a hurricane or, indeed, the first letter of that name can provide a nudge or represent a psychological trigger that will encourage a desirable behaviour – in this case, donations. Wise meteorologists will surely take these findings into account when naming future hurricanes.
Psychological triggers or nudges are increasingly used by thinking marketers with a view to maximising the desirable behaviour while minimising the cost of communication. Marketing is all about managing human behaviour to achieve a commercial and/or social objective. Great marketing involves identifying how this might be achieved cost-effectively.
It is very often simpler than we think to cause desirable behaviour to occur. The remainder of this paper addresses five examples of nudges or psychological triggers that have proven far more effective than advertising.
RECOMMENDATION – Consider the psychological triggers or nudges that can be used to influence consumer behaviour without investing significantly in advertising. They abound.
19/23 – HIT THE BULLSEYE AND STOP THE SPLASH
50% reduction in spillage thanks to a fly
This story is not so much about making a splash as it is about reducing the splash. My apologies for the misleading headline.
Research in the United States involved painting an image of a fly at the base of a urinal. What followed was a stream (pardon the pun) of men aiming at the fly when they used the urinal. This led to a 50% drop in spillage on the floor – significantly reducing cleaning costs. A second study conducted at the University of Louisville in Kentucky involved placing the emblem of a rival University of Kentucky at the bottom of the urinal in some of their changing rooms. Similar results were achieved.
Clearly, these findings have little to do with flies or logos. They are about the natural inclination for men when given a target, to aim at that target when urinating. The nudge or psychological trigger is all about tapping into a natural inclination. The brilliance of the idea revolves around identifying this natural inclination and identifying a way to leverage it.
There is little doubt that a sign asking men to aim and avoid spillage would not pay dividends – but giving them something to aim at did. The point is that identifying and linking into natural inclinations can be more effective and more cost-efficient than advertising or communication.
Another, very commercial and common natural inclination is for humans to engage with people who use their name (although not too often) in conversation – showing the interest to ask it and then using it with sincerity. We tend to instinctively like and trust people who use our name sincerely. There are, of course, many other triggers, some of which are addressed in this article.
RECOMMENDATION – Leverage natural inclinations where those inclinations can be encouraged by a nudge or psychological trigger – and watch out for inclinations that drive unhelpful behaviour.
20/23 – CONSUMERS OPT-OUT LESS THAN THEY OPT-IN
17th place for international deceased organ donation
Australia is in 17th place in the world in terms of organ donation. Despite that fact that 69% of Australians believe that organ donation is important, only 33% of people are registered for organ donation. One of the reasons cited for the low level of donations in Australia is the OPT IN system in this country. To donate an organ in Australia, it is necessary for a person to opt-in by completing the relevant section of their driver’s license form.
In many other countries, there is an OPT-OUT system, where every driver is automatically an organ donor unless they complete the relevant section of their driver’s license form to exclude themselves from the scheme. This system is called – ‘presumed consent’ and it leads to a significantly higher rate of donation. As a result, Britain is following the lead of 23 other countries and moving to an opt- out system in 2020. The countries in the world with the highest rates of donation are Spain and Portugal – both of which have an opt-out system.
My point is not to advocate for organ donation (as meritorious as that might be) or to argue for an OPT-OUT system (which has its own inherent problems, especially with regard to family consent) but rather to point to the importance of ‘choice architecture’ and how structuring the presentation of options can impact significantly on purchase decisions and human behaviour more generally.
Choice architecture is a growing area of marketing designed to ensure that consumers make the choices we want them to by using the required psychological triggers, as opposed to excessive communication to achieve the desired outcome. Indeed, in the case of donations, no amount of communication was found to be as effective as using the opt-out system.
It is important to understand the complexities of human decision making. Even though 69% of Australians think organ donation is important – only 33% register. Some 36% of the market is failing to do something they think is important. By contrast, Spain has the highest donation rate in the world because they use a choice architecture that focuses on asking people to opt-out rather than opt-in.
A simple change delivered a significant difference without cost.
Another example of the same effect might be offering a two cone ice cream as standard and the single cone as the alternative, or offering 12-month leases, with six months as a secondary option, or selling a seasons pass as the primary offering and individual shows as the secondary option. This will not always work, but often will, and is worthy of consideration.
RECOMMENDATION – think through the consumer’s decision-making process and how choice architecture should be designed to get the optimal outcome. Structure will generally beat random.
21/23 – CONSUMERS RESPOND TO DECOYS
16% chose the cheaper option, and 84% chose the better option
In a famous study, completed in conjunction with the Economist magazine, Professor of Psychology at Duke University in the United States, Dan Ariely, tested 100 students as follows:
- Group 1
This group was presented with two purchase options:
- The web edition of the Economist only for 50 cents a day; or
- The web edition with the weekend print edition for 50 cents per day
- Group 2
This group was presented with the following three options:
- The web edition of the Economist only for 50 cents a day; or
- The web edition with the weekend print edition 50 cents per day; or
- The web edition and a copy of the print edition daily for $1.00 per day
The findings were as follows:
- Group 1
- Web only – 68%
- Web and weekend print – 32%
- Group 2
- Web only – 16%
- Web and weekend print – nil;
- Web and daily print – 84%
For the subjects in Group 2, the web plus weekend print option acted as a decoy – driving customers to the more expensive option. This is the ‘decoy nudge’ effect – now used by many international corporations, including Apple.
Behavioural Economics.com notes, ‘The decoy effect is technically known as an ‘asymmetrically dominated choice’ and occurs when people’s preference for one option over another changes as a result of adding a third (similar but less attractive) option.’ The Conversation notes, ‘The decoy effect is defined as the phenomenon whereby consumers change their preference between two options when presented with a third option, the “decoy” – that is “asymmetrically dominated”. It is also referred to as the “attraction effect” or “asymmetric dominance effect”.
Decoys can be very effective in influencing customer decision-making. They provide a nudge that is subtle and, potentially, very effective. Many brands use an economy item and a high-end item to sell higher-margin mid-range products. Consumers do not want to be seen as cheapskates by buying the cheap option, and would rather not pay for the expensive option – so they buy the midrange option. For example, a consume might opt for a ‘premium economy’ seat instead of economy or business class seats (often without being able to clearly distinguish the options).
RECOMMENDATION – Consider the potential for a decoy to encourage consumers to opt for a higher margin product and use a decoy to enhance the value of the preferred purchase.
22/23 – CONSUMERS ARE SHEEP
48% decrease in waste following green footprints
Students at Roskilde University in Copenhagen undertook a two-part study looking at littering. In the first part, they handed out lollies in wrappers in the streets of Copenhagen – and then counted the number of wrappers that were on the ground afterwards. In the second part, they preceded the lolly distribution by placing ‘green footprints’ on the ground leading up to rubbish bins. Then they handed out the lollies – and found a 48% decrease in litter afterwards.
They found that the ‘green footprints’ on the ground caused people to visit the bin more often, rather than just dropping the paper. They also found that after the initial people followed the ‘green footprints’ there appeared to be a social norm developing. This, in turn, further increased the proportion of people who walked over to the bins and deposited the wrapper in it.
This all took place in a country where 90% of the adult population claimed to be concerned about littering.
In another study, conducted by a British local government, residents signed up to a scheme which involved them receiving points on the basis of the weight of their rubbish bin. The more they recycled, the more points they earned and the more points they earned, the more they could spend at Marks and Spencers and other local retailers. Recycling rates rose by 36%, despite the maximum annual points value being just 135 pounds Stirling.
According to the designers of the programme, ‘What’s really important about this scheme is that it treats people like adults. There’s no compulsion to participate, no penalties for opting out. It works because there’s a clear incentive to get involved. You put something in, you get something back.’
It appears that all the residents needed to participate in this programme and increase recycling was a gentle nudge.
Studies such as these highlight the power of psychological triggers or nudges, not just in a commercial context, but also in a social context. Secondly, they demonstrate just how easy it can be to create a new social norm and have people follow it. They also add support to the notion that a simple positive nudge can be much more effective than either a sign or penalties.
RECOMMENDATION – Use simple nudges to create new social norms that can influence consumer behaviour in both a commercial and social context – without the need for penalties or advertising.
23/23 – MAKE MORE MONEY BY GIVING CONSUMERS A SMALLER PLATE
50% increase to 32% using a small plate
Eating big is all too common in Australia as, indeed, it is in the United States – CLICK HERE. In fact, some 60% of adults in both countries are now overweight or obese. The habit of overeating is all too evident at a smorgasbord. To counter this – or at least examine strategies for persuading smorgasbord users to consume less, one study presented a sign reading ‘People with big dishes are inclined to eat more’.
The use of the sign saw a 50% increase in the number of people opting for a small plate. This resulted in nearly a third of people doing so. Those people consumed less, thereby, benefiting their waistlines and the restaurant’s bottom line. This significant behaviour change and the favourable outcome was achieved without patrons being told to eat less or lecturing them on the benefits of doing so.
Patrons knew that they should eat less, and many just needed a small and harmless nudge to encourage them to take action that would help them do just that.
Another study looked at the consumption of salads by people in a smorgasbord environment. Researchers noticed that patrons tended to fill their plates with more of the items at the beginning of the smorgasbord, and much less of the items at the end of the smorgasbord. Interestingly, the salads tended to be at the end. By placing the salads at the beginning of the smorgasbord, it was found that patrons loaded up at the beginning – this time with salad.
This demonstrates how effective nudges can develop from simple observation of consumer behaviour and the implementation of small changes to leverage behaviour traits. Nudges do not necessarily need to be contrived. They can also involve leverage or simply exploit established behaviours.
For readers familiar with merchandising, the last example will be no surprise. By taking M&Ms off display and placing then in an opaque box on the smorgasbord line – calorie intake was found to decrease by 9% in the first week alone. This is another example of how consumer behaviour can be altered by making small changes based on observation of existing behaviours.
Each of these studies took place at an office of Google in the United States. They were part of a series of experiments designed to encourage staff to be healthier. These are sound examples of the use of a nudge in a social context – although the outcomes also have commercial implications. They are also examples of how human behaviour can be observed, understood, and leveraged.
RECOMMENDATIONS – Study the behaviour patterns of your target audience and structure interactions in a way that facilitates the desired outcomes. Leverage existing behaviour patterns.
Marketing is NOT about advertising. Marketing is ALL about managing human behaviour with a view to ensuring people behave in a way consistent with the desired social and/or commercial objectives.
Understanding human behaviour and the factors that impact on it is central to managing human behaviour. It is critical to recognise that no two cohorts and no two people are the same. It most certainly involves recognising that consumers, indeed, all human beings are less than rational and open to a raft of biases. It also involves recognising that there are simple psychological triggers that can significantly influence behaviour – without a significant cost.
Advertising is rarely the most cost-effective way of changing or managing human behaviour to achieve a social or commercial objective. Advertising struggles to address the irrational nature of consumers and address their biases. Nudges can prove to be a far more cost-effective way of changing behaviour. Observation and study of human behaviour are central to effective marketing.