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Editor's Note: Take a look at our featured best practice, Psychology of Product Adoption (46-slide PowerPoint presentation). Some innovations are truly spectacular, but consumers are slow or just refuse to adopt. In fact, over 70% of all new products fail in the marketplace--and innovative, new products fail at an even higher rate. Why is this the case? And, how do companies overcome this? This document discusses [read more]
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Every day people are bombarded with thousands of promotional messages. As a result, traditional marketing strategies are not effective anymore. Consumers have been more selective. They’ve been also skeptical of what they see. Moreover, they are also better informed.
That is the reason marketers are increasingly using behavioral economics. This discipline combines economics, psychology, neuroscience, and social sciences. All those to better understand how people make decisions. Behavioral economics undermines the concept of a rational person who weighs all of the pros and cons before a purchase.
In actuality, most customers make purchasing decisions fast and intuitively. They are influenced by emotions, context, and cognitive biases. This knowledge enables us to develop smarter marketing tactics. Strategies that consider actual human behavior rather than an its idealized version.
Behavioral economics provides us with tools to analyze how and why consumers make certain decisions. Even if their decisions contradict logic or their own interests. Theories such as prospect theory show that people tend to:
This changes not only the approach to formulating advertising messages, but also the very logic of marketing campaigns. The same information about a product, presented as a loss of opportunity or use of an advantage, can have a radically different effect on a person. These effects are called framing. They are actively used in behavioral economics in marketing.
Another popular effect is overconfidence bias. This is when people overestimate their ability to make objective choices. That means they can be influenced more by the following things than by the actual advantages of a product:
In practice, these nuances give marketers a huge advantage. But it is worth considering that modern methods of collecting and analyzing behavioral data require high-performance devices. It is especially true when it comes to marketing analytics dashboards or large e-commerce websites.
This is where the need for an efficient system becomes apparent. Especially if you actively work with browsers, open many tabs, analyze user behavior in Google Analytics, or view advertising reports. All these actions can slow down your Mac. You’ll really notice it when Google Chrome Helper or Chrome Helper are running in the background. They can really drag down your performance. But that’s no longer a problem if you’ve heard of CleanMyMac. This cleaner is one of the most powerful programs for improving your Mac’s speed, optimizing the cache, and removing unwanted background activities. So, if you’ve ever wondered how to clean my Mac quickly and easily, this technique has consistently proven to be the most convenient way to restore your Mac’s speed.
After cleaning up the system and maximizing resources, marketers can return to what is most important: crafting tactics based on an in-depth grasp of consumer psychology.
Key Cognitive Biases Used in MarketingPeople tend to fear losing something more than gaining an equivalent benefit. This is a fundamental principle that underlies many marketing campaigns. That is why we see it everywhere: 3 hours left, don’t miss your discount, or last chance to buy at a discount.
The effect is extremely strong in subscription services. Here, a message that a subscription will not be renewed evokes more emotion than a message about the possibility of renewing it. Therefore, Behavioral economics in marketing teaches marketers to formulate messages that trigger emotional responses.
This principle is also widely used in loyalty programs. Customers are offered a hypothetical reward that they may lose if they do not perform a certain action. For example, if they do not make a purchase within two weeks.
Another effective method is to remind customers about items in their shopping cart. They are informed that these items are about to become unavailable. In the consumer’s mind, this triggers a loss avoidance mechanism.
In the financial sector, loss aversion is used in strategic copywriting by insurance companies. That is, the focus is on what might happen if the customer does not take out insurance.
Trust in the decisions of the majority remains one of the most common biases. People tend to trust others, especially when they lack personal experience. Views, likes, ratings, and reviews all create the illusion of a proven choice.
Online stores often use phrases such as This product has been viewed by 300 people in the last hour or 20 people are currently viewing this tour. These methods activate a sense of value and urgency.
Social proof is also actively used through influencers and bloggers. Their participation in advertising creates a sense of mass approval.
User reviews and video reviews reinforce this effect. This is especially true when published on external platforms that are considered independent. Even mentioning that the brand is trusted in 50 countries around the world is an example of globalized social proof.
The correct presentation of prices influences the perception of value. That is why the “premium anchor” strategy is often used. It involves first displaying an expensive version of a product on the website, followed by a slightly cheaper but similar version. In the eyes of the user, the second option seems like a smarter choice.
Another example is the use of numbers with a nine. $99 looks much more attractive than $100, even though the difference is negligible. Another important approach is to break the price down into smaller parts. For example, only $1.99 per day instead of $60 per month makes the purchase psychologically more affordable.
The context effect is also used. An even more expensive option is displayed next to the main product, making the main product seem more affordable.
The “free shipping on purchases over…” strategy also works. It often encourages additional purchases in order to achieve a certain benefit.
The brain processes visual information dozens of times faster than text. Therefore, the following are important:
Red buttons always stimulate action more.
Blue is associated with trust.
The use of visual cues also activates the desired reactions. That is, arrows that lead to a button or photos of people looking at a product subconsciously direct the user’s attention to the product the seller wants to sell.
Behavioral Economics in Content MarketingStories evoke emotions, and emotions drive action. Behavioral economics explains why storytelling is more memorable and trustworthy. This is especially true when stories include elements of loss, conflict, and transformation of the protagonist.
Humans are prone to empathy. As a result, if the customer can relate with a character in the story, they will be more devoted to the brand. Stories stimulate more parts of the brain than facts or arguments. The result is that information is not only memorable but also more convincing.
Narratives that demonstrate “social proof” or transformation through a product are particularly effective.
Storytelling in video or podcast format enhances the effect of presence. It immerses the audience in the situation and allows it to associate itself with the hero of the story. This forms a strong emotional connection to the brand.
We learn complex concepts better when they are presented through simple analogies. It helps to form the right model of product perception. A phrase our antivirus is a real guard at the entrance to your PC works much more effectively than a technical explanation.
Metaphors also serve as mental shortcuts. They simplify the decision-making process by minimizing cognitive load. They not only explain the essence of the product, but also create a certain emotional framework. This is when a financial service is presented as a personal navigator in the world of investments.
The skillful use of analogies increases the likelihood of content sharing. People are more likely to share information that is easy to convey to others.
In today’s service- and consumption-oriented economy, the importance of marketing goes far beyond advertising. Marketing has a significant impact on economic activity due to its profound grasp of customer behavior. It stimulates demand, which promotes output, employment, and tax income. When businesses employ economics in marketing, they design products that better meet consumer requirements. This, in turn, improves quality of life.
So, the answer to the question how does marketing improve the economy is that effective marketing is a real driver of innovation, as well as employment and stable economic development.
Marketing contributes to a more efficient allocation of resources, namely:
Behavioral economics in marketing reduces the risk of wrong business decisions. It also stimulates competition, which leads to higher quality goods and services. At the same time, it reduces prices.
In general and in particular, a competent marketing strategy becomes a tool for macroeconomic efficiency.
Behavioral economics is ushering in a new era for marketing. Namely, accuracy, personalization, and psychological understanding. Today, a marketer is not just a creative or an analyst. They are a specialists who understand human nature and know how to use its characteristics to benefit the brand.
By applying the principles of behavioral economics in marketing, brands build long-term strategies. These are the ones that build trust and sustainable demand. Together, these factors contribute not only to commercial success, but to the economic development of society as a whole.
Thus, thanks to its precise influence on consumer motives, marketing is transforming from a tool of manipulation into a mechanism that makes an intelligent dialogue with customers. From this perspective, behavioral economics becomes indispensable.
You can download in-depth presentations on Behavioral Economics and 100s of management topics from the FlevyPro Library. FlevyPro is trusted and utilized by 1000s of management consultants and corporate executives.
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