IDEA 24 – 2021 Maximize marketing efficiency by understanding what consumers do and how to change what they do cost-efficiently There is an erroneous view – perpetuated by advertising agencies and digital marketers – that the most effective way to drive sales is through traditional, online advertising or some other form of promotion. In addition […]
IDEA 24 – 2021
Maximize marketing efficiency by understanding what consumers do and how to change what they do cost-efficiently
There is an erroneous view – perpetuated by advertising agencies and digital marketers – that the most effective way to drive sales is through traditional, online advertising or some other form of promotion. In addition to being self-serving, this view is simply wrong!
While advertising and promotion might have a role in driving sales, there are often more cost-effective approaches. Just ask Zara, Krispy Kreme, Rolls Royce and many other businesses that have prospered despite not having an advertising budget.
The starting point for any cost-effective marketing strategy must involve understanding consumer behaviour and leveraging that understanding to change behaviour in a way that drives sales.
- BECOME AN EXPERT IN BEHAVIOUR MODIFICATION
Leverage the power of competitive sentiment and fear of loss to cause a consumer to pay a premium for your product.
Many marketers think they understand consumer behaviour. But do they really? They certainly need to! It would seem rather ambitious to try to change consumer behaviour without understanding its antecedents.
Max Bazerman of Harvard University has raised more than $17,000 for charity by auctioning $20 bills to his students. Students were asked to bid over time for a $20.00 note, with the knowledge that they are in a competitive auction and that all profits from the auction would go to charity. One student bid and paid $204 for a $20 bill. This study has been replicated many times.
Other psychologists have also tested the auctioning of $20 bills, and in most of these studies, while the bidding started at $1.00, it invariably rose to $20 and then $21. In some cases, bidding reached $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 many people, bid more than $20.00 for a twenty-dollar bill?
Students were responding, unwittingly, to the power of competitive sentiment and the fear of loss. Their fear of missing out clouded their judgement and caused them to pay more for the $20.00 than it was worth.
Some 85% of consumer decision making does not involve cognition. It is automating which in turn increases the likelihood that it is irrational – albeit predictably so.
Embrace psychological pricing, including the completely irrational predisposition of consumers to be attracted to pricing that incorporates the number nine.
MIT researchers had a national mail-order company mail different versions of their clothing catalogue to randomly selected customers at various price points. The research found that, among other things, more units of a dress sold at $39.99 than either – $44.00 or $34.00.
Why on earth would consumers buy more at $39.99 than $34.00 and why would a few syllables make a price seem lower and therefore more attractive?
Well, we have all seen prices such as $9.99 used to attract purchasers by creating the impression that the product is competitively priced. We may have even thought that this is ridiculous – but the fact is, it works – at least with low to mid-market products. As irrational as it might be – consumers have a perception that the number ‘9’ means – cheaper.
Responding positively to the number ‘9’ might be irrational, but it is both predictable and robust for lower to mid-market products. Research suggests that at the quality end of the market – rounded prices such as $60.00 – can suggest quality – but this is a subject for another blog.
The critical point here is that while human behaviour is often irrational, it is also almost always predictable.
Price your product higher its direct competitor and leverage the power of price to create the perception of a premium product category.
Software giant – Salesforce consistently uses premium pricing to drive both sales and margins – with the higher price (almost never leveraging the ‘9’ effect) driving the perception of quality. Salesforce uses premium pricing across all product categories and ranges.
Leveraging premium pricing, Salesforce has used quality to help it become a dominant player in the SAAS market.
Research and practical experience suggest that premium pricing can be used to push a product into a higher ‘product category’ where it no longer competes with lower-priced options. Two consumer-oriented businesses that use this strategy very effectively are:
- Sony – selling a Walkman for $3000 while other players sold from $200.
- Apple – which has consistently priced its products higher than its competitors
Why on earth would a consumer pay more for one product than the other when in practical terms there is little difference between them?
Well, the fact is, consumers don’t understand the practical differences between various competitive products – and indeed, often view the product with the premium price as being in a different category to cheaper options. They use price as a measure of quality.
With the right product presented in the right way – a premium pricing model, involving higher margins, can lead to an increase in unit sales.
To create the perception that a price is competitive, avoid the use of punctuation when presenting the price to your target market.
As curious as it might seem, a study found that a product with a price tag reading $1499 outsells a product with a price tag reading – $1,499. This and other studies suggest that consumers view – or interpret $1499 as being less than $1,499.
Why on earth would a consumer perceive a price as less when it is marked $1499 than when it is marked $1,499? The fact is, we don’t really know – although researchers have suggested that it is because there are 10 syllables in $1,411 and just 5 syllables in $1411.
Be that as it may – research has found, time and again, that punctuation can affect the perception of a price point. Punctuation tends to increase the perception that a price is high. It is one of a plethora of simple factors that can impact the consumer’s perception of a price.
Studies like the one referred to here have been replicated and supported with empirical evidence – it is, therefore, safe to say that the behaviour of consumers, while again irrational, is entirely predictable.
While consumers appear to behave irrationally to the presentation of a price – they also behave in a way that is consistent and predictable.
Resist the temptation to use a large font when promoting a ‘special’. The smaller the physical size of the font – the higher the perceived value.
How often have you seen a price tag or advertisement with the ‘standard’ price in a small font, next to the ‘discount’ price in a large font? Often, I suspect. This is a traditional approach to demonstrate just how cheap the discounted price is. As it turns out, however, research suggests that this is the wrong approach for making the discount price appear attractive. The ‘literal human brain’ uses the relative size of the fonts as an indicator of the attractiveness of a price.
Research has demonstrated, time and again, that the effectiveness of a discounted price is enhanced significantly, where the ‘standard’ price is presented in a large font, and the ‘discounted’ price is presented in a small font.
In this case – size matters – but in reverse. The smaller the discounted price font relative to the standard price font, the more attractive it is seen to be.
When presenting a price that is designed to emphasize a discount – make the standard price large and the discounted price small.
These research findings highlight the irrationality of consumers. The fact that all of these experiments have been replicated highlights that, while irrational, these behaviours are also predictable – a point made by Dan Ariely in his book, Predictably Irrational. When it comes to price, consumers do not necessarily behave in a manner economists will consider rational. However, this behaviour tends to be predictable and is generally manageable.
To market cost-effectively, it is important to understand and embrace the drivers of human behaviour that cause human beings to think and act as they do. It is just as important to understand how you can leverage these and other counter-intuitive behaviours – or counter the negative effects they can have on the success of your marketing. The fact is – marketing is (or should be) the business of:
- Applying psychology and neuroscience to manage human behaviour to achieve a social or commercial objective.
Psychology is, of course, the business of understanding human behaviour and when applied with neuroscience to the business of marketing, helps practitioners (or marketers):
- Cost-effectively manage human behaviour to achieve a social or commercial objective.
The application of psychology and neuroscience to the management of consumer behaviour can significantly reduce the cost of marketing and drive a higher return on investment through higher conversion rates, average sale per customer, and margins.
Just as a psychologist can influence the behaviour of a patient by leveraging an understanding of how they think – so marketers can cost-effectively influence a consumer’s behaviour by leveraging a superior understanding of how consumers think. It is, therefore, important for marketers to understand or have access to the best possible understanding of consumer behaviour.
The bottom line here is that the starting point of any great marketing campaign is a sound understanding of the drivers of consumer behaviour, and more specifically, the most cost-effective strategies for causing members of your target market to behave in a way consistent with the achievement of your objectives.
- DRIVE SALES BY EMBRACING THE IRRATIONAL, BIASED CONSUMER
Consumer decision making is most often – less than rational. That said – it is also most often – predictable – and if we can predict it, we can usually manage it or even leverage it.
Understanding predictably irrational behaviour can assist cost-effective marketing.
To boost sales, present your product as having a specific purpose and benefit, rather than a more generalised benefit.
Imagine two scenarios, each with two options tested with separate samples of consumers:
- Scenario 1 – consumers can purchase a specialist earthquake insurance policy or a general insurance policy which includes an identical level of earthquake coverage – for exactly the same price
- Scenario 2 – the consumer can choose between two travel insurance policies – one with specialist terrorism cover and the other with general cover, including the same level of terrorism cover.
In studies completed by Nobel Prize winner Daniel Kahneman, it was found that:
- People in California (an earthquake zone) overwhelmingly opted for the earthquake only insurance
- People travelling to Thailand (after a terrorism incident) overwhelmingly opted for the terrorism only insurance.
It is folly to expect that when offered two choices – consumers will make a rational choice. Many purchase decisions are less than rational – and it is important to understand the factors at play.
Consumers very often see more value in or have more confidence in specialist products. In doing so, they are behaving irrationally – but predictably so.
When structuring the optimal incentive, recognise that money per-se is often a less effective motivator of human behaviour that goods of a similar value.
Consider the following scenarios, in which two options are tested to determine their appeal to consumers:
- A free ice cream or $4.00
- A slab of beer of $35.00
In studies completed by Dan Ariely of Duke University, both sets of options were tested, and it was found that:
- Consumers will line up for a free ice cream but nit $4.00.
- University students will complete charity work for a slab of beer but nit $35.00.
Given that the cost of the ice cream is $4.00 and the cost of a slab of beer is $35.00, and cash offers more flexibility than an item – both outcomes represent evidence of the irrationality of human beings – including consumers. The fact is human beings do not behave rationally and understanding how this affects decision making is central to developing the optimum incentive programme – and cost-effective marketing in general.
These are four examples, supported in numerous other studies, of human (and therefore consumer irrationality). They provide further evidence that human beings are irrational and Make purchase decisions irrationally. Among other things – these findings bring into question the value of education as a means of influencing human behaviour. Human beings are irrational decision-makers, but as:
- Dan Ariely suggests in his book, Predictably Irrational, while irrational, human behaviour is largely predictable.
- Daniel Kahneman suggests in his book – Thinking Fast and Slow, much of this irrationality is the result of automatic thinking, influenced by cognitive biases.
Predictably irrational consumers will very often prefer a gift to a cash reward. A gift – in the form of a product or service – can be a more effective incentive to purchase.
Leverage the sunk cost fallacy to increase customer engagement with your brand and facilitate subsequent conversions.
When, after deciding the movie you are watching is dreadful, you continue to sit in the theatre because you paid $24.00 for the ticket – you are acting irrationally.
I recently heard an ignorant politician who – when responding to questions about climate change – said it is important not to throw the baby out with the bathwater – that we should continue to invest in coal because of the significant investment in and dependency on the mineral. The ‘ignorance’ I refer to does not relate to the politician’s attitude to climate change, but to the assertion – ‘we must not throw the baby out with the bathwater’.
A colleague of mine once resisted selling for $5000 a piece of redundant equipment worth less than $5000 – on the basis that he paid $80,000 for it five years earlier. A share trader I knew would buy a stock for $1.00 per share a month after buying the same stock for $2.00 – purely all on the basis that she wants to ‘average down’.
These are all examples of the sunk cost fallacy – the idea that the amount we have invested thus far – in-itself – justifies the further future investment. Human beings will often stick with behaviour because of investment to date – something which can be leveraged by marketers to drive brand loyalty, among other things.
The sunk cost fallacy can offer very real and practical opportunities for marketers.
Leverage to the power of social norms and social comparisons to cause consumers to behave in a manner consistent with your sales objectives.
A 1995 Harvard University study presented a sample of consumers with two options – earning $50,000 when everyone else around them is earning $25,000 – or earning $100,000 when everyone else is earning $200,000. Astonishingly, half the sample chose the first option – sacrificing $50,000 the be ahead of their colleagues. These finding might be unbelievable had they not been replicated.
Few factors drive human behaviour more than social status and a need to be seen as being bigger and better than one’s peers. Have you ever attended a school reunion and heard the stories being told by attendees – each one trying to out-do the person who told the last story, just about everyone there trying to demonstrate how much more successful they have been that their peers.
There is compelling research that demonstrates a direct link between levels of self-esteem and an individual’s performance in life compared to their parents (and especially same-sex parent) and peers. Most humans want to feel that they are at least as successful, and ideally more so than their parents and peers.
The quest for social status while irrational is predictable and can be leveraged in marketing.
Instead of decreasing prices to increase sales – leveraging the placebo effect to increase prices, margins, and unit sales
A study led by Kaptchuk considered how people reacted to migraine pain medication, testing three groups:
- Group 1 – treated with a branded drug.
- Group 2 – treated with a labelled placebo.
- Group 3 – did not receive any treatment.
The findings suggested that the placebo was 50% as effective as the real drug in reducing pain. A treatment with no efficacy at all was effective in half the cases tested. This clearly demonstrates the power of the placebo effect or placebo bias.
While the placebo effect is most commonly associated with medical interventions, it is equally relevant in marketing – or more specifically, the management of consumer behaviour. The term ‘placebo effect’ is just fancy terminology forb what might be called the ‘expectation effect’’. It involves an outcome occurring because the person involved believes it will happen.
While it was considered ‘false advertising’ by the Australia regulators – there is data to suggest that branding Nurofen medication – ‘Nurofen for backpain’, or ‘Nurofen for stomach aches’ actually made the medication more effective in reducing back pain and stomach aches – despite the fact that the ingredients were exactly the same. Because users believed the medication was more effective – it was more effective. The same principle can apply to just about any category of behaviour or product.
The placebo effect, in addition to having applications in medicine, can also be a useful tool for smart marketers.
Research has variously suggested that human beings have between 25 and 30 cognitive biases that influence them in a manner that causes them to behave irrationally. Much of this irrational behaviour is impervious to information and education because cognitive biases typically impact on Type 1 thinking and education typically impacts on Type 2 thinking.
Cognitive biases that commonly impact on consumer behaviour include:
- Anchoring bias– the tendency to rely too heavily on the very first piece of information we learn.
- Attentional bias– the tendency to pay attention to some things while simultaneously ignoring others.
- Availability bias– placing greater value on information that comes to our mind quickly.
- Confirmation bias– favouring information that conforms to our existing beliefs and discounting evidence that does not conform.
- Halo effect-where the impression of a person influences how we feel and think about their character.
All of these and the many other biases impact on can inhibit sales and can be leveraged to drive sales. All it takes is an understanding of the bias, how it impacts behaviour and how it can be manipulated. Human beings rarely make rational purchase decisions. This brings into question the value of marketing based on intuition.
- TAP INTO THE DRIVERS OF CONSUMER BEHAVIOUR
A consumer behaviour rarely just happens. Behind just about every human behaviour, there is a driver or cause. Unfortunately, these drivers are not always in plain sight.
Marketers need to understand the general (underlying) and specific (related to the purchase itself) motivators of purchase behaviour. In terms of underlying motivators of human behaviour, it is instructive to consider Maslow’s hierarchy (physiological needs, safety needs, need to belong, need for self-esteem and need to self-actualize).
In 2021, sitting in a wealthy country, it is perhaps more helpful to consider six factors highlighted by Tony Robbins:
- Certainty – the need to know the car will start, and you will have a job tomorrow.
- Variety – the need to not watch the same movie every night unless you are three.
- Connection – the need to connect with other human beings.
- Significance – the need to feel you are at least a little important.
- Growth – the need to think you are bigger and better today than yesterday.
- Contribution – the need to feel that you are contributing to your world.
Ensure your target audience believes your product will enhances certainty
I recently completed a staff survey or pulse check addressing the culture of a client organization. After surveying more than 100 staff, I was inexorably drawn to two conclusions:
- The culture was negative and verging on the poisonous. It was certainly not consistent with the optimal functioning of the business.
- The underlying cause of the less than optimum culture was a lack of certainty, or more correctly, a high level of perceived uncertainty.
Economic conditions and a range of other factors had conspired to make it very difficult for management to create a positive culture. The need for certainty also impacts on purchase behaviour – with consumers wanting to buy products they feel certain will perform as claimed for the period claimed.
As much as human beings claim to seek excitement and new experiences, research has consistently found that human beings are highly motivated by certainty – that they actively seek certainty. The absence of certainty leads to aberrant behaviour.
Deliver an enhanced perception of certainty to your target audience.
While they need certainty, consumers also want variety. A quest for variety can also drive purchase behaviour.
While children can be quite happy watching the same movie repeatedly, the same cannot be said about most adults. Most adults, and indeed, most children seek out and respond positively to a variety of experiences. This driver of consumer behaviour is well recognized in marketing and is well reflected in advertising campaigns. It warrants no further discussion here.
Increase the options available to consumers.
Connect with your consumers and they will connect you with profits.
Nothing impacts more on life expectancy than feeling connected. Your product will be more attractive if it facilitates connection. There is an oft-cited myth that genetics is the primary determinate of life expectancy. Research suggests that in developing countries, food availability, literacy rates, and fertility rates are more important than genetics in determining life expectancy. This and other research has demonstrated that environment is the greatest determinate of life expectancy – which in first world countries includes the desire to connect with other human beings. Human beings are social animals. Their life expectancy, especially in first world countries, is directly impacted by their happiness, which is largely determined by their level and the quality of connection with other human beings.
Consumers are attracted to purchase decisions that can increase their feeling of connectedness. Consumers are also attracted to brands with which they feel a connection. Connection with a brand involves having shared aspirations and values. Research suggests that where there is a connection with a brand based on shared aspirations and values – the investment required in generating repeat business is lower. Research indicates that 89% of brand-loyal customers share a brands-values.
Connect with your customers and help them connect with each other.
Never forget a name you should remember. Remembering names, orders and other personal information make buyers feel significant.
No one wants to feel insignificant. Most human beings and therefore, most consumers crave the feeling that they are important and have some significance. That is why we are all attracted to people who remember who we are, use our name, look us in the eye and show a sincere interest in us. While many people don’t need to feel they are at the top of the ladder, they need to feel they are on the ladder.
The importance of customers feeling significant is why service conscious people who work in successful businesses develop the skill of making people feel important. This is one reason I never shop at Myer – because they make their customers feel like ‘credit card couriers’. Few factors drive repeat business more effectively than a feeling of significance and related to that the customer feeling that the business appreciates their custom.
The need to feel significant is also relevant in the commercial environment. A high profile CEO once told me that unlike his competitors – he displayed no client names or work on the public areas’ walls in their business. He said – ‘I want every client to think they are our only client’.
Remembering a customer’s name, likes and dislikes is all part of good customer research and 73% of loyal customers say their loyalty is related to customer service.
Make every customer and indeed, potential customer, feel like they are the only client in your world.
If you can help people feel more today than yesterday on one or more of a range of criteria, you will be an attractive proposition.
Most human beings want to be more today than they were yesterday – smarter, richer, slimmer, faster, happier – or any combination of these and other factors. Consumers want to feel they are growing in the same way that they want to feel they are making progress in life – moving forward.
When a product is perceived as moving a consumer forward, making them more today than they were yesterday – they will be more inclined to purchase it. This certainly applies to education, fitness, relationships and quality of car etc – but it also applies to just about everything else they purchase – especially when a change of brand is being called for. A brand that is seen as offering a step up – will often be favoured by consumers.
The quote – ‘Get busy living or get busy dying’ from the movie Shawshank Redemption – suggests a similar notion. If a human is not moving forward – they feel like they are moving backwards.
It is not just gymnasiums that need to help people feel that a purchase will make them more today (or in the case of weight loss) than yesterday. Leverage this.
The need to want to feel like a contributor extends beyond charity. If your product helps the feeling of contribution, it will be more attracted.
Consistent with the need for significance is the human need to feel one is making a difference – that the world is a slightly better place because of an action or series of actions they have taken. Hence:
- The success of campaigns where $1.00 from every purchase goes to charity
- Shoppers contributing to a charitable cause at a supermarket check out
- Busy people joining the board or committee of a charity
- Consumers making food or gift donations in the lead up to Christmas
Certainly, consumers are attracted to businesses they believe are good corporate citizens – donating large sums of money to charity or the arts. They feel even better when they know purchase decisions make directly benefiting a cause they relate to.
In addition to these general human needs, there are many other drivers of consumer behaviour including emotions (like fear or joy), personality traits (like frugal or spendthrift), attitudes (like depressed or manic) and so on. Some of these drivers are general in nature, and others are specific to products or categories of products.
Help your market to make a contribution to the world around them. It gives then added value and two reasons to purchase your product.
In addition to naturally occurring drivers of human behaviour, several drivers can be manipulated by consumers. Robert Cialdini helps us understand the strategies we can all use to persuade our consumers to behave as we want them to. These include:
- Reciprocity – giving something to get something in return
- Commitment – leveraging the human need to be consistent
- Social proof – the need to be seen a particular way by peers
- Authority – the tendency to believe and obey authority figures
- Liking – the need to like and be liked
- Scarcity – understanding that something is in short supply
When used authentically and honestly, these are all important tools for influencing consumer behaviour. They all tap into general human needs like connection and significance. Critical in all of this is:
- Identifying both general and specific drivers and determining how they impact on purchase behaviour
- Developing strategies to leverage opportunities and minimize problems associated with relevant drivers
Embracing the underlying drives of behaviour within your target audience can improve results and reduce costs.
- GIVE YOUR TARGET MARKET A NUDGE
Rather than using advertising to demand or even suggest a behaviour; it is often more cost-effective to identify a simple psychological trigger or nudge.
You can use many recognised nudges to influence consumer behaviour – such as lines on a road that tell us on which side of the road to drive. More recently, with psychologists and behavioural economists’ help, marketers have developed some more innovative nudges to influence behaviour.
Instead of advertising – use a psychological trigger to cause the behaviour you require.
Psychologist Adam Alter looked at donations made by citizens of the United States after hurricanes. He found that in 2013 – Hurricane David (bearing a name shared by 3.5 million Americans) resulted in significantly higher donations than hurricane Joyce (bearing a name shared by 6000 Americans) and hurricane Dorian (bearing a name shared by 9000 Americans).
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 different names.
Together these studies suggest that the first letter of a hurricane’s name can act as a psychological trigger or nudge to a particular group of people, causing them to behave differently or in different numbers from other people. These studies highlight just how simple and just how powerful a psychological trigger can be.
Observe consumer behaviour long enough and close enough to identify inexpensive nudges that, when applied – facilitate a preferred behaviour.
Use human instincts to identify the psychological trigger that will facilitate a purchase.
Nobel prize winner Richard Thaler cites a study in Europe that involved painting an image of a fly at a urinal base. 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 similar study conducted, delivering similar results, at the University of Louisville in Kentucky involved placing the emblem of a rival University of Kentucky at the urinal’s bottom in some of their changing rooms.
These findings have little to do with flies or logos. They do, however, appear to demonstrate two things:
- A natural inclination of men to aim when urinating.
- The power of triggering natural human inclinations.
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 Copenhagen’s streets – 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 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.
These studies highlight of a simple psychological trigger or nudge to influence consumer behaviour. 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.
Psychological triggers can be most effective when they arise from or leverage a natural human inclination or instinct. Leveraging natural tendencies and instincts can be very useful in managing consumer behaviour.
Use the decoy effect to communicate that your product offers exceptional value.
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’, encouraging 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 than 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:
- Print and digital – $125.00
- Digital only – $59.00
- Print only – $125.00.
- Print and digital – $125.00
- Digital – $59.00
The findings were as follows:
- Print and digital – 32% of sales
- Digital-only – 68% of sales
- 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 potent in influencing choice, mainly when dealing with price and value perception.
To cause a complex behaviour, instead telling people to do it, tell them how many others do it.
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.
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 human need to follow the leader (while not necessarily admitting to doing so). Rather than assessing each diet on its merits – consumers tend to follow the lead of others and rationalise their diet choice based on second-hand information that they pretend to understand and use to establish a personal rationale.
It is important to embrace the mob’s power – and what might be called the bandwagon effect. It can be a powerful driver of behaviour.
To maximise positive behavioural responses, replace opt-in with opt-out.
Unlike in Australia, in the United Kingdom, superannuation is optional. No one has to invest in superannuation – and in the main – they don’t. This suggests to some that given a choice, a consumer will not invest in superannuation. Researchers in the United Kingdom, however, found that this was not necessarily the case. They found that for many consumers, the barrier to signing up to superannuation was the sign-up process. With this in mind, researchers tested two choice options offered to employees in the workplace:
- Opt-in – where employees had to go through the process of finding a policy and signing up to it and organise a method of payment.
- Opt-out – where the employees were automatically signed up to a superannuation policy. Unless they opted-out the money deducted directly from their pay each payday
The results were enlightening. The number of employees with superannuation cover was found to be 10% higher among the opt-out group than the opt-in group.
Similar findings have arisen in studies addressing organ donation rates.
Some 48 counties with organ donation systems have been studied. Recent research suggests that in countries with an opt-out system (you are a donor until you choose not to be), registration rates are around 90%. In contrast, 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.
These findings suggest two things relevant to this discussion:
- Choice architecture is a powerful tool in nudging a behaviour to occur.
- Nudge works best when it involves making the preferred choice easier.
How a choice is designed and presented can significantly impact the choice made, and all things being equal; consumers tend to choose the most comfortable option.
Look for simple and inexpensive ways of nudging consumers to behave the way you want to. Identify the psychological triggers and simple nudges you can use to cause a consumer to behave in a manner consistent with your objectives where possible, resist the immediate temptation to resort to advertising. Embrace choice architecture and frame choices in a way that makes the preferred choice the easiest to pursue.
Research has consistently found that there can be simple nudges that influence consumer behaviour in ways advertising cannot – and very often for a fraction of the cost. Some of the nudges can be readily identified based on intuition, while others will become evident following the careful observation of how consumers behave in relevant environments. A good starting point is to understand the customer journey thoroughly.
- REPLACE MARKET RESEARCH WITH MARKETING INSIGHTS
A range of options is open to marketers who are serious about understanding consumer behaviour well enough to implement optimal strategies less reliant on advertising. These options include – market research and marketing insights.
Both have their place, but as data becomes increasingly available, marketers looking at the future behaviours need to look to consumer insights developed through experimentation or observation.
There is no point in asking consumers how they will behave in the future – because they don’t know. Consumers only know how they are behaving now.
In 1992, Coke a Cola launched NEW Coke. As you might recall, despite a truckload of research to support its launch – NEW Coke failed. While consumers surveyed said they would buy it – they didn’t. I have had similar experiences – completing well-structured research and then getting a result that was not replicated in the real world. Perhaps the best examples of market research not delivering reliable results were:
- The 2016 US election where research predicted a comfortable Clinton victory were wrong and the electors delivered a comfortable Trump victory
- The 2019 election in Australia where market research predicted a comfortable ALP victory and the electorate delivered a sound coalition victory
- The 2020 Electionin the US where polls indicated a very comfortable Biden win and the electors delivered a much slimmer Biden win
These are just some of many examples of where market research has failed to deliver reliable results. There are reasonable justifications in each case – but these justifications ring a little hollow when, after the 2016 Presidential election, researchers maintained that they had eliminated the causes of the inaccuracies – and still failed to provide an accurate prediction in 2020. And it was not one pollster and one method that got it wrong – it was all pollsters and several methods. This is not to say that market research has no value. Research can be beneficial in identifying the current state of play or exploring issues and ideas. It just falls down when it comes to predicting behaviour.
Market research can have significant value – but the facts are:
- Market research is not great at predicting behaviour.
- Marketing insights are much more useful in predicting behaviour.
Use market research to better understand the present.
Instead of asking the customer what they want and getting the wrong answer, observe their behaviour and the drivers of that behaviour. It is much more reliable.
Steve Jobs famously said: ’People don’t know what they want until you show it to them. That’s why I never rely on market research. Our task is to read things that are not yet on the page’. I would argue that people often don’t know what they want or what they will pay, even after showing them. Human beings find it incredibly difficult to look into the future and predict with any certainty. As suggested after the US election polling – respondents are also inclined to tell the researchers what they think they want to hear.
A more reliable method of understanding and predicting human or consumer behaviour are:
The observation of consumer behaviour can involve read world observation, situational observation, focus group and workshop observation. A productive example of ‘observation’ at work is mapping the customer journey – a critical task for any business. Very often, businesses can complete such research inhouse. Volumes have been written documenting experimental research finding that provides valuable consumer insights. Great examples of experimental research include the works of Dan Ariely, Daniel Kahneman and Richard Thaler.
Take the time to read the volumes of experimental data and or spend more time observing the way your primary target market behaves.
For many businesspeople, intuition is the primary source of consumer insights or understanding how consumers will respond to marketing initiatives. However, if research has taught us anything, it is that intuition is best applied after the data has been amassed. While intuition is valuable, it is only reliably valuable when it is applied to data – not instead of data.
Further to this, while market research has taught us much and will continue to do so, consumers are very poor at predicting future behaviour. It is becoming increasingly apparent what while market research is instrumental in painting a picture of the world today – experimental or observational consumer insights can be more useful in predicting consumers’ future behaviour.