To speak to consumers, marketers first need to understand them. It’s enticing to think that understanding your consumers’ decisions is as simple as asking them questions, but we know that humans are inherently irrational in our decision-making. This leaves us with consumers who often make quick purchasing decisions based on the System 1, or more automatic, aspect of their brain that they then explain using System 2, or more considered, aspects of their brain. Put simply: if asked directly about their buying habits, consumers may back their way into a rationalization for the choices they make when in fact those explanations may mask the true reason or omit certain factors that influenced their decision
Split – Brain Theory
This split-brain theory is foundational to Behavioral Economics, which was created from evidence that humans don’t always make economic decisions rationally. Behavioral Economics allows marketers to uncover the true “why” behind the more automatic decisions consumers make – uncovering reasoning they may not be able to verbalize themselves. It considers non-incentive factors like our limited attention spans, our tendency to anchor on the first piece of information we learn about a product, or simply fatigue. All these factors (and many more) play a role in understanding part of the decision-making processes, but might not come up directly if marketers simply ask the consumer. Behavioral Economics helps marketers understand the full landscape of factors affecting their consumers’ choices, painting a more robust picture of the true problem that marketers must solve.
But that’s not enough – marketers are tasked with understanding their customers and inciting them to change their behavior or perform a specific action (in most cases, making a purchase). Behavioral Economics gives us a tool to do exactly that: nudging.
Nudging Theory
In Behavioral Economics, nudging is any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives. This can be done through simple changes in the way options are presented or by leveraging social norms to influence decision-making. Put simply, once you understand the underlying drivers of someone’s decisions, you can shape their environment toward the behavior you want them to exhibit. For example, displaying popular items or highlighting limited time offers can create a sense of urgency and encourage consumers to make a purchase.
Nudging Examples:
- CPG: On their website a beauty retailer has a “subscribe and save” price that they showcase above the full price, allowing customers to save money if they choose to purchase the item monthly and encourage repeat purchases.
- Tech: A mobile app prominently displays a weekly subscription price in the app store, instead of a monthly rate. This pricing strategy takes advantage of consumers’ predisposition to compare prices based on a more common monthly period, thereby making the weekly option appear more affordable and encouraging more immediate purchases.
- E-commerce: A clothing website displays a pop-up alerting you to how many shoppers have the same item a customer is looking for in their cart, encouraging you to purchase by showing the relative popularity of the product.
- Food & Beverage: A restaurant adds stoplight indicators on their menu for low, middle, and high calorie items; nudging dining guests toward their healthier menu items.
These examples showcase how nudging can be effectively applied across different sectors to influence consumer behavior without heavy-handed restrictions or alterations to economic incentives.
Leveraging Behavioral Economics for Effective Marketing
Overall, incorporating insights from Behavioral Economics into marketing strategies can help businesses better understand and connect with their target audience on a deeper level. By tapping into the subconscious drivers of consumer behavior, marketers can create more impactful campaigns that resonate with their audience and drive positive outcomes for their brand.