By: Dr. David Bridwell, People Scientist & Jake McKenzie, Chief Executive Officer
It’s estimated that an individual makes up to a thousand decisions per day. These decisions include choices about engaging with and purchasing products, so it’s important for marketers to understand how we psychologically arrive at these decisions. Fortunately, there’s over a hundred years of scientific research providing insights into human decision-making with hundreds of behavioral biases and heuristics revealed through reams of academic articles.
We make the majority of our decisions in a way that is somewhat counterintuitive. These quick and intuitive decisions emerge as a result of a small collection of biases and heuristics that help the human brain process information with a limited amount of resources. They help ensure that we can navigate the world in an efficient way using minimal mental energy.
In our System 1 Marketing at Intermark Group, we’ve outlined a core collection of biases and heuristics that contribute to our initial perception and exposure to products. This includes the availability heuristic, fluency, and familiarity. When it comes to the final purchase decision, however, a few additional biases and heuristics come into play to nudge our audiences toward adding products to their real or digital shopping carts. These include the Anchoring Principle, the Framing Principle, the Scarcity Principle, and the Reciprocity Principle.
The Anchoring Principle
The anchoring principle is important for marketers to consider when it comes to setting prices and communicating benefits. This principle is based on a simple but fascinating human quirk: when someone thinks about a number, that number influences their subsequent estimates even if they’re unrelated.
This phenomenon was first demonstrated by Amos Tversky and Daniel Kahneman in a 1974 paper published in Science. They had participants spin a wheel that stopped at either the number 10 or 65. After the wheel stopped spinning, the participants were asked what percentage of the United Nations countries were African. Those who were initially exposed to the larger number estimated a higher percentage of African countries than those who were initially exposed to the lower number, even though the number on the wheel was completely unrelated to the number of African countries.
Tyversky and Kahneman reasoned that individuals who were exposed to the number 10 adjusted their initial estimate from that psychological starting point, while those exposed to the number 65 adjusted their initial estimate from this higher starting point. This finding demonstrates that our initial exposure actually frames our subsequent perception.
The anchoring principle is used by marketers to help nudge product price points and product features as discussed in the video below:
The Framing Principle
The Framing Principle highlights the role that context or perspective plays into shaping our perceptions and decision. Often, the framing principle is incorporated in marketing by emphasizing positive results over negative results, or emphasizing losses compared to gains. For example, we’re more likely to be compelled by a company that states that their product works 90% of the time compared to a company that reports that their product fails 10% of the time.
The emphasis on success frames us for thinking about success, while the emphasis on failure frames us to think about failure. And when it comes to your product, you want success on the customers’ mind.
The other area, where framing often comes into play, is in loss aversion. Often, people feel worse about losing something they already own than they feel happy about gaining something of equal value. This is famously demonstrated by the “coffee cup” studies from behavioral economics reporting that individuals value a coffee cup in their possession more than they’re willing to pay for that same coffee cup.
Marketers can leverage the commitment principle and loss aversion by psychologically influencing the customer to perceive that they already possess the item they are interested in, or they can frame the benefits in terms of avoiding loss as opposed to receiving gains. Check out the video below to learn more about how framing applies to marketing purchase decisions:
The Scarcity Principle
Items that are rare or scarce are often valuable, and having these items in your possession shows others that you’re unique and socially interesting. Given all the benefits of owning items that are rare or scarce, it’s not surprising that signals of scarcity have such a powerful influence on our behavior.
The impact of scarcity was initially demonstrated by the work of Stephen Worchel in a 1975 study. The author asked participants to rate the quality and amount they would be willing to pay for a cookie that they pulled from a jar containing either ten or two cookies. He found that individuals rated the rare cookies as higher quality and that they were actually willing to pay 11% more for them. Scarcity increases our psychological perception of the cookies’ value!
When the scarcity principle comes to mind, marketers often think about communicating limited time offers or that only a few items are left in stock. Often, scarcity can be communicated in more subtle and creative ways to get the message across more effectively. For example, we previously highlighted a commercial from KFC that creatively communicates the scarcity of their chicken wings. In addition to creative imagery, marketers should also consider how they can communicate scarcity using storytelling.
The Reciprocity Principle
The principle of reciprocity comes into play when customers are ready to interact with your brand or product but not quite ready to make a purchase. The reciprocity principle is based on our drive to give back to those who give to us. We generally seek to reciprocate acts of goodwill, often giving back more than we initially received.
Marketers leverage the principle of reciprocity when they give customers an initial offering of their good or service. Often, receiving a product for free or for a low cost allows the customer to rationalize subsequent purchases of that brand or service. Whether it’s “free samples”, “free trials” or “kids eat free,” the principle of reciprocity can have a big impact on your customers’ decision to make a purchase.
Overall, it’s important to consider these four biases and heuristics when nudging customers who are further along in the purchase funnel. For customers who are higher up in the purchase funnel, for example, those unfamiliar with your product or who aren’t considering your product, we recommend a different subset of biases and heuristics that are more focused on brand awareness. This subset of top-of-the-funnel biases and heuristics comprise what we call System 1 Marketing at Intermark Group.
Overall, marketers should implement System 1 Marketing in addition to the biases and heuristics that nudge purchase behaviors to help customers through the customer’s journey and to help your business grow. Give us a call at 800-624-9239 or email us at [email protected] to discuss how we can help you turn psychological insights into great creative.
