by Kim Tonkovich; November 12, 2020
Behavioral Economics, in general, is a field of study related to how certain stimuli affect consumer economic decisions. When you bought your big screen TV, are you sure YOU really picked it out? How much control do you think you have over your own purchasing decisions? And how do you influence consumers to make theirs?
Before we dive into the meat and potatoes, let’s start with an example of how behavioral economics and consumer influence works.
Pretend you and your spouse are shopping for a new car. The two of you wander the lot separately and speak to two different salespeople.
Your salesperson shows you a luxury sedan with all the bells and whistles. They hand you a tablet, show you the $50,000.00 price, and tell you that if there is any feature you don’t want, you can just uncheck it and the price will go down by $1,000.00 for each feature you uncheck. There are 20 features that you could uncheck that would bring the vehicle price potentially down to $30,000.00. So you study the options. They all seem pretty great. But you realize you don’t really NEED all of them and could “save” some money. So you uncheck 8 of the options, bringing the price DOWN to $42,000.00. You did a good job and you feel good right?
Now your spouse’s salesperson shows them the base model sedan with no extra features. The salesperson hands them a tablet, shows them the $30,000.00 price, and tells them that if there are any 20 available features they would like, they can check the box to add it and each will cost them an additional $1,000.00. If they choose all of the features, the price could go up to $50,000.00. So they study the options. They all seem pretty great. But the base model is fine. They don’t really NEED all of those features. But hey, the two of you work hard and deserve to spoil yourselves a little bit. So they carefully select 8 of the options to “spend” a little money on, bringing the price UP to $38,000.00. They did a good job and feel good right?
See what we did there? You felt fine about “taking away” from yourself and settling on a $42,000.00 vehicle. You are so humble, pat yourself on the back. Your spouse felt a little guilty for spoiling you and “adding” extra features, but decided to spend a little extra and settled on a $38,000.00 vehicle. And that’s how behavioral economics works. People tend to spend more when they come down from the high, than when they come up from the low. We feel better about our decisions when we feel like we took something away from ourselves than we do when we give ourselves something.
That was fun. Let’s do one more shall we?
Pretend you’re browsing the shops in a mall. You walk by a kiosk, and a salesperson approaches you to offer a “free” piece of chocolate. They are so nice! Wow, that felt great and boy was it good. You got a really yummy treat.
Now pretend that as you continue browsing the mall, you pass by a salesperson selling chocolates for $0.15. Hmmm, fifteen cents. Must not be very good chocolate. You think you’ll pass.
That’s called the “Zero Price Effect”, which Dan Ariely discusses in his book Predictably Irrational. We feel like “free” has value, but we think inexpensive means the product is cheap or low quality.
What’s called the “Decoy Effect”, technically the “Asymmetrically Dominated Choice” theory, is when people are given three options, as opposed to two, they tend to spend more money. In an example outlined by Ariely, he asked his students to choose a subscription to The Economist newspaper. Their subscription options were:
1.) web-only for $59.00, 2.) print only for $125.00, or 3.) both web and print for $125.00
Not one student chose print only. 84% chose the web and print for $125.00. When Ariely conducted the poll again with other students, he offered only two options:
1.) web only for $59.00 or 2.) print only for $125.00
This time, 68% chose the cheaper web only. Having the third, and even obviously less attractive option, in the first poll led almost all of them to choose the high price option because it makes you think that you’re getting a deal and something extra for free. Having only two options in the second led people to choose the less expensive one. But be careful, too many options can lead to choice overload and decision-making paralysis, causing a consumer to not choose anything at all.
Good stuff. We could go on and on. When you make your own buying decisions, are you as smart as you think you are? Let’s talk about some other things that influence our buying choices.
Consumers, even when they don’t realize it, are also influenced by Situational Cues. It has been estimated in a study conducted by the Yale School of Management that over 40% of shoppers will change their minds about their purchase decision if stimulated by something in their environment. And it has been found that once a consumer makes the decision to buy a first item, a “momentum” kicks in, making them more inclined to buy more.
The key is influencing the choice to purchase the first item. But how do you do that?
Research suggests that how far away a consumer is from time they intend to purchase impacts what kind of message would influence them the most. If a service or product they need isn’t required until farther into the future, and is also physically distant from them, marketing messages that communicate clear specific benefits (central claims) resonate more. As the consumer moves closer to actually making a purchase, messages that communicate convenience (peripheral claims) resonate more. So you should consider altering your marketing messages for your products and services dependent upon how and where and when the message is intended to be.
It is said that having high quality design alone can potentially increase your annual revenue growth by as much as 7%. Your visual content designs support your message and brand identity. It is what engages consumers and influences them to interact. In 2018, McKinsey & Company collected millions of data points and developed the McKinsey Design Index (MDI), which measures design performance. In analyzing 300 publicly listed companies, they found that companies emphasizing high quality visual graphic design saw an increase in annual revenue growth of 10%, compared to their counterparts seeing only 3-6% growth.
In addition to the actual content and design aesthetic of the message, the colors have a significant impact. Research has shown that 75% of purchases are influenced by the color of the packaging or product, or even company logo. So color is an important factor to consider in brand identity and marketing. Certain colors tend to invoke specific feelings and emotional responses. So when choosing color(s), be sure not to gravitate toward what your favorite colors are, or what you think looks nice. You need to consider what emotional responses, and from who, you’re hoping to solicit in your marketing messages.
So remember… the design, placement of, and messages in your marketing materials can have a remarkable impact on whether or not a consumer chooses your product or service when making a purchase decision. We may THINK we know what we want and that we make our own economic choices. But if you’re serious about making sales, consider hiring a professional to help with your creative design.
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- An Introduction to Behavioral Economics; BehavioralEconomics.com; September 28, 2020
- The Irrational Consumer: Four Secrets to Engaging Shoppers; Ravi Dhar; HuffPost; April 17, 2012
- 10 Factors That Influence Your Purchase Decisions; Shahram Heshmat; Psychology Today; December 09, 2017
- Research Shows Color Is Critical in Consumer Purchasing Decisions; Rhett Power; Inc.; April 17, 2017
- How Prioritizing Design Can Triple Your Business Growth; Amy Balliett; Inc.; October 14, 2019