How rational was the last decision you made?

How rational was the last decision you made?

Posted at 05:09h in Behavioural Economics by James Edwards

The fact is that we seldom use our rational brains when making every day decisions.

More often than not, we use what we think we know, or what we have experienced before, to help us make many of our decisions. This is known as heuristics and it allows us to come to conclusions quickly without having to think too deeply. For daily decisions, this is usually a seamless brain process that we are mostly unaware of. 

By understanding more about these heuristics, through behavioural science, we can use them to our advantage in marketing.

 

Here is an example for you to try…

In a lake, there is a patch of lily pads. Every day, the patch doubles in size. If it takes 48 days for the patch to cover the entire lake, how long would it take for the patch to cover half of the lake?

_____ days.

What was your answer?

People often instinctively divide 48 days in half, assuming that the answer is 24 days, without really thinking about what the question asked. As the patch doubles in size every day, the correct answer is 47 days.

This type of instant problem solving doesn't always provide us with the correct conclusion and is considered by economic professionals to be irrational.

How does this irrationality influence the consumer when making decisions? And how can we as marketing experts use them?

A 30% discount is often hard for consumers to calculate. Change the offer to a 3 for 2, and the average shopper will put an extra 2 items in their basket. The consumer feels like they have gained a free item, but have actually spent more than if they’d gone for the 30% discount.

Conversely, although consumers are unlikely to admit to wanting to pay more, a higher price is often associated with greater value or quality. Assuming that reducing the price will increase demand can be very costly, as in the case of Parker pens a few years back. When they reduced the price of their most popular pen to match lower priced competitors, they saw sales plummet further as consumers no longer deemed the pen valuable enough to give as a gift.

 

Another common heuristic is the status quo. This is a preference for the current state of affairs, with any change being perceived as a loss. Aviva understand this and one of their recent campaigns offering 1 year’s free life cover to new parents is a great example. Customers who take up this initial offer are far less likely to cancel the policy after the first year, as not having the insurance would feel like a loss, even though it may not have been something they would have taken up in the first place.

Another interesting example of human irrationality is NHS no-shows. Their poster campaign to reduce the number of no-shows actually had the reverse effect. Publicising the fact that large numbers of people miss appointments normalised the behaviour, and as a result, no-shows increased because people knew that everybody else was doing it. This is known as the norming heuristic. To use norming in an advantageous way, brands often state how many of their products are sold per minute. This gives consumers the confidence that everyone else is purchasing the product so it must be fine for them to do so too.

So, there you have it. When planning ABM campaigns we need to consider the usual data and user research, but we also need to think about the psychology of our customers. Don't assume rational thought, it's irrationality that really drives us.

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