Behavioral Economics in Marketing: 7 Insights to Lift Results

Most people think they have a good handle on why they make certain decisions. Dan Ariely, Professor, Behavioral Economics, Duke University, says otherwise.

"People often think that they’re making decisions, but in reality their decisions are very much determined by their environment," he says.

Ariely performs simple experiments to uncover why people do what they do. He describes the results of many of those experiments in his book, "Predictably Irrational: The Hidden Forces That Shape Our Decisions." Ariely’s research suggests that decisions are less logical and more irrational than we expect -- which is bad news for marketers trying to design campaigns to influence a person’s decision-making process.

But behavior does follow trends, so we asked Ariely to share some of his most interesting behavioral insights, and what they mean for marketers. You might be surprised how simple changes in your approach can improve results.

Insight #1. Expectations modify experience

Expectations often impact perception. This is why people who to take a placebo instead of an actual painkiller might report less discomfort after taking the pill -- they were expecting the pill to work.

This insight applies to how products are marketed in general, Ariely says.

"When you create high expectations, people are going to experience something better. When you create low expectations, people are going to experience something worse."

It is worthwhile for marketers to talk up the benefits of their products and services -- but they shouldn't go overboard. Setting expectations too high can definitely backfire, Ariely says.

Insight #2. People are uncertain of a product’s monetary worth

Marketers have long known that the price a consumer is willing to pay is relative. It’s the reason why someone would pay $10.00 for a cheeseburger at a sporting event, but only pay $1.00 for the same burger at a fast-food restaurant while driving to the game.

What’s less obvious is how easily the price a consumer will pay can be altered.

"The way a product is presented to us is going to determine how you end up thinking about it and that thinking is going to influence us for a while," Ariely says.

For example, we recently published a MarketingSherpa case study in which a retailer of children’s birthday party sets created a page offering "birthdays under $100." The price point was well above the team’s average order value. Orders made through this page had a 35% higher average order value than the site as a whole.

This, Ariely would argue, is because the marketer got visitors to consider paying $100 by visiting the page, and that high price point stuck with them.

Insight #3. People place increased value on their own items

People consider their possessions to be worth more than the same items owned by other people.

"Kids are a good example of this," Ariely says. "We all think our kids are wonderful because they’re ours."

Marketers can encourage consumers to pay more for products in which the consumers feel partial ownership. One way to do this is through customization, Ariely says. Customization is often thought of a way to make a product match a customer’s preferences.

"Where I think customization can be much more useful is to get you to put more of 'you' in the product and make it more valuable."

Insight #4. People hate losing things

Through his experiments, Ariely noticed that people dislike losing things more than they like gaining things, he says.

Marketers can apply this concept to bundling. When trying to sell customers a bundle of products, don’t let customer assemble products on their own. First, present a complete bundle and ask customers to remove the items they don’t want.

When you frame it as "giving stuff up," Ariely says, customers will likely buy more items than if you asked them to gather the items they wished to purchase into their own bundles.

Insight #5. Don’t put too much value in focus groups

Ariely has little faith in people’s understanding of their decisions. This is why he considers focus groups to be a risky prospect.

"One of the things marketers do is get a group of 12 people who know very little about their business and ask them deep questions about it. And that, I think, is a recipe for disaster."

Intuition is flawed, Ariely says. Instead of asking people for their opinions, experiment instead. Run tests that will conclusively reveal people’s motivations and reasoning.

"Don't rely on what people tell you. Rely on what they actually do."

Insight #6. Reach consumers at the right time

Ariely’s team ran an experiment in which they stood outside a grocery store handing out coupons for a product sold in the store. They then went in the store and handed out the coupons.

The team found that coupons handed to consumers before they entered the store had a dramatically improved response rate. "This is because when people are outside the store, they don’t have a plan. Once they get in the store, they have a plan," he says.

The experiment underlines the point that marketers need to reach customers at the right moment in their decision making process. Once a decision is made, it will be very difficult to sway it in another direction.

Insight #7. Look at customer communication areas

The key places to test behavioral concepts are in areas where consumers interact and trade information with your company, Ariely says. These will be areas where you will have the most impact on consumer behavior.

Also, these lessons are applicable to more than just a company’s marketing. For example, Ariely ran a test for a major car insurance company concerned that customers were lying on their forms about accrued mileage.

The team tested asking consumers to sign the forms before filling them out. They found that people who signed first reported 2,700 more miles driven per year on average. This is because they considered the implications of signing the form before they completed it.

Useful links related to this article

Pricing Psychology Test: Shopping Guide Lifts Order Value 35%
https://www.marketingsherpa.com/barrier.html?ident=3150

Duke University
http://duke.edu/

Predictably Irrational: The Hidden Forces That Shape Our Decisions
http://www.predictablyirrational.com/