How to influence consumer behaviour with behavioural economics

What is behavioural economics?

Simply put, behavioural economics looks at the psychology behind the economic decision-making processes of individuals and institutions. Harvard Business School Professor Gerald Zaltman (cited in Harris 2015) indicates that 95% of our purchase decisions take place unconsciously, and behavioural economics allow businesses to use ‘nudges’ to influence certain consumer behaviour.

A nudge is a tactic to influence people into making specific choices. For example, putting chocolates at eye level near the cash register at a supermarket is a way to get shoppers to grab an extra treat before they complete their purchase.

Here are 5 different ways to use the principles of behavioural economics to benefit your business:

• Social proofing: Tap into the desire that most people have to be a part of something. Consumers are more likely to try a new product if they believe it is popular with other consumers. Research shows that 81% of consumers trust a business with good reviews (Kats 2019).
• Price anchoring: Research shows that the amount most consumers are willing to pay for a product is strongly influenced by the context we are in, and the first price they see sets a psychological parameter for what they perceive is a reasonable cost. So if pricing starts at R199, R99 will seem cheap, while R999 seems expensive, but if we start with R10, then R100 will seem expensive. (Changing Minds 2022)
• Default selections: This is one of the most effective sales and marketing strategies, particularly for online businesses, and it is done by setting a user default that requires the consumer to take an extra step to opt out from. For example, a business can use defaults to persuade customers to receive email updates and offers.
• Scarcity: Consumers are more likely to be interested in purchasing a product if they believe there is only a limited amount available, for a limited amount of time.
• Loss aversion: You can influence customers to purchase certain products if they believe they will miss out on something by not purchasing. For example, if you have a 1-day sale where you offer exclusive discounts, customers will feel pressured to purchase products out of fear that they may never get a deal this good again.

Behavioural economics and nudges need to be part of your business toolkit as they will empower you to make more informed marketing choices, while gaining a better understanding of the human mind.

References

Changing Minds. 2022. ‘The Price Anchoring Effect’. [Online] Available: http://changingminds.org/disciplines/marketing/pricing/price_anchoring.htm (Accessed: 27 July 2022).

Harris, M. 2015. ‘Neuroscience Proves: We Buy On Emotion and Justify with Logic—But with a Twist’. [Online] Available: https://medium.com/@salesforce/neuroscience-proves-we-buy-on-emotion-and-justify-with-logic-but-with-a-twist-4ff965cdeed8 (Accessed: 27 July 2022).

Kats, R. 2019. ‘Consumer Trust Relies Heavily on Reviews and Brand Honesty’. Insider Intelligence. [Online] Available: https://www.insiderintelligence.com/content/consumer-trust-relies-heavily-on-reviews-and-brand-honesty (Accessed: 27 July 2022).

Witynski, M. nd. ‘Behavioral Economics, Explained’. UChicago News. [Online] Available: https://news.uchicago.edu/explainer/what-is-behavioral-economics (Accessed: 27 July 2022).