You don't really need that Ford Mustang, but you want it. You don't need those diamond earrings, but you want them.
We've all been guilty of impulse buying. As crazy as it sounds, there's simply something predictably illogical about some of the choices we make. Business owners who are aware of this are at an advantage to position their product as the "wanted" one and even increase the perceived value of other products.
We're not robots -- not yet anyway.
We're not always the "rational animals" that Aristotle once said we were. Although rationality and reason are two of our defining characteristics as a species, we do not always act rationally. With that in mind, it is not always safe to assume we would consistently make rational buying choices.
Science-based selling is both the past, present and future of trading. Using data to influence consumer behavior is nothing new, but the data you can obtain and apply is overwhelming.
Behavioral economy vs. rational choice model.
Rational model, as the name itself suggests, states that people are rational beings and that as such, they act rationally. When applied in a business sense, this could mean that they will buy whatever makes the most sense for them at the given moment. But we all know that isn’t always the case. The model isn't wrong -- it just fails to admit that people are faulty and sometimes make illogical choices.
Your unconscious, which Nobel Memorial Prize winner Daniel Kahneman dubbed "System 1," is automatic and fast. It's responsible for those irrational gut choices such as impulse purchases. "System 2" -- the conscious one -- is reliable, slower and effortful. It helps us make an informed buying decision that makes the most sense for us.
Behavioral economics digs deep into these subconscious processes that guide these decisions. For business owners, understanding these buying processes allows us to gain insights into consumers' behavior and develop more effective marketing strategies.
This is all interesting in theory, but what are the practical implications of behavioral approaches? Here are some actionable steps you can take to use behavioral economy for growing your business:
1) Reduce the number of choices.
More isn't always better. Paradoxically, there is such a thing as too much choice. According to research published in the Harvard Business Review, we are less likely to buy when we're given too many options -- and even if we do buy, we are less likely to be happy with the choice we made. That's because the sheer multitude of options paralyzes the consumer. From my experience, limiting the number of products or packages that you offer could help to avoid unnecessary confusion or dissatisfaction.
2) Use numerical anchors.
A numerical anchor is a price that serves as a placeholder for other products and their perceived value in relation to the highest price. The most obvious example is infomercials: You'll often hear that something used to cost $200 but now is only $99 -- and if you buy it now, you'll save over $100. In reality, it probably never cost that much.
Similarly, if you see a pair of jeans that cost $1,100 and then see a second pair of jeans that cost $100, you might be inclined to think that the latter pair is actually cheap when in reality, you never planned on spending $100 on jeans at all. You can use numerical bias to influence customer behavior and nudge them in the right direction.
3) Be distinctive.
The familiarity principle or the mere exposure effect is a tendency for someone to like a person or a thing -- in this case, a brand -- just because they are already familiar with it. As professor Art Markman wrote in Psychology Today, people are more likely to buy from a brand they can recognize instantly than from a brand they've never seen before.
Before trying to sell, think about how you can make an impression on your consumers. This includes establishing your business as an authority figure, using distinctive visual branding features, etc. The more they are exposed to your brand, the higher your chances of earning their trust. But as with everything, don't overdo it.
4) Sell the wants, not the needs.
If you've ever watched home renovation shows, you remember how homeowners give a designer a long list of things they want. As the show unfolds, they usually find out that their house has some structural issues and end up spending 80% of their budget on something they definitely need, but do not want (hence the disappointment).
Whether you're selling needs or wants, you might want to present them as wants. I believe people feel better when they buy something they want rather than something they need, so keep that in mind when positioning your product or service.
When it comes to choices, in the gut we trust. Gut choices are more important than we often give them credit for. The sooner you realize this as a business owner, the better.
Find out as much as you can about your target audience and how they typically behave. Use that data to improve and scale your existing marketing efforts.
Even though people are rational beings by definition, they can often be irrational in practice. Keep this in mind next time you launch a new product or a campaign!
