Behavioral Economics Is Changing the Way We Market

By Rob Duboff and Annie Hanson Gilmore

Take a minute to watch this video. It’ll make reading this article even more impactful. 

Woman looking up

Did you see the gorilla? It’s okay if you missed it – about half of the people who watch miss it! We’ll examine why and what else we’re missing by not changing the way we market.

Marketers are faced with tougher challenges and more complex questions at a faster rate than ever before. New technologies, new media and new tools have changed the way brands interact with consumers and how we marketers do our jobs – yet new ways of thinking haven’t always had the same impact on our techniques.

Nowhere is it more obvious than when looking at the impact behavioral economics has (or hasn’t) had in comparison to new tools, such as brain measurement or ChatGPT:

A Breakthrough in Understanding Consumer Behaviors

Behavioral economics is well-established as a breakthrough in understanding consumer behavior. Pioneered by Daniel Kahneman and Amos Tversky back in the 1980s, the field shows that our decisions usually turn on mental shortcuts and biases, which may lead to irrational decisions. It has produced two Nobel Prizes and best-selling books, including Michael Lewis’ book on Kahneman and Tversky (named the Undoing Project), undoubtedly coming to a theater near you or streaming soon.

“Behavioral Economics shows that humans aren’t the rational creatures we imagined… it’s revolutionized everything from big data to medicine, from how we govern to how we spend, from high finance to football.”


Adapting Research to How Consumers Engage

Would marketers, and particularly market researchers, have embraced these principles by now if it had been named “behavioral marketing”? Does grounding it in “economics” feel too academic to believe this perspective helps brands connect with consumers?

Both the US and UK governments have implemented policies based on behavioral economics. Yet, researchers mostly still ask consumers directly about their purchase intent, and their reasoning – which, in turn, are used by decision-makers for important strategy decisions. Hmmm… let’s see why.

Behavioral economics has shown that consumers are mostly in a “fast thinking mode” (Kahneman labels this “System 1”) – where we make decisions based on quick, emotional reactions that are instinctive and automatic; and only sometimes in a “slow thinking mode” (Kahneman labels this “System 2”) – where we take the time to process details and make rational decisions.

Most marketers and researchers feel that they’re measuring, understanding and predicting actual consumer behavior, yet most have not adapted “behavioral economics” to marketing. Why do we think this is? Marketers are subject to the same biases as others and our “default” is to stick with what’s comfortable and known (a “normalcy” or “status quo” bias).

At HawkPartners, we’re by no means perfect. We’ve been working with our clients to better engrain the principles of behavioral economics into all marketing and research efforts. We’ve started by focusing on core marketing principles and how behavioral economics impacts each:

  1. Promotion – Behavioral economics shows us that advertising appeals to our “fast thinking mode” while our “slow thinking mode” tries to reject the influence of offers and ads. As researchers, shouldn’t we simply gauge initial reactions instead of post-exposure metrics?
  2. Positioning – A major bias to sound thinking is “availability” (akin to “saliency” in marketing jargon) and, according to Kahneman, this can dictate how consumers react to anything said or offered about the brands. As a result, we need to understand that core reaction to seeing or hearing the brand name and recognize that as how the brand is truly positioned in consumers’ minds – not whatever response they make after reflection in a survey or group that sounds reasonable. Behavioral economics also highlights the need for brand consistency and the importance of being valued by people the target market respects. In our research, we need to measure “fast thinking mode” reactions and ensure alignment with emotional factors.
  3. Place – Behavioral economics reminds us that time of day, hunger level, setting and even type of music can all influence sales. As a result, it may be optimal to observe behavior, rather than ask directly about behavior intentions.
  4. Product – Behavioral economics recognizes that the visual appeal and “hotness” of a product may count more than function – something Steve Jobs excelled at while Blackberry struggled with. In our research, it is critical that we assess the gestalt of the product – how it cuts through the clutter to differentiate.
  5. Pricing – Instinctively, marketers have priced at $X.99 or offered tiered pricing options. Behavioral economics reinforces what marketers have known, that pricing is more influenced by comparisons than by calculations. So, it may not be as simple as asking direct questions about prices. Sophisticated choice models are needed – and even those can only approximate demand for low importance purchases.

So why has behavioral economics been mostly ignored by marketers? In his book Thinking, Fast and Slow, Kahneman uses the “invisible gorilla” example to help answer this. Let’s think back to the video you just watched. Observers watch a basketball game and are asked to count the number of passes the team in white makes. Midway through, a person in a black gorilla costume runs onto the court. Since everyone is so focused on the team in white, half of the viewers miss the gorilla.

Let’s Not Miss the Gorilla

When marketers and researchers focus intently on a couple of data points in a brand tracker, year-over-year increases in purchase intent, or an anecdote from a focus group, are those in charge of building brands focusing on too narrow a slice of the pie? Are we missing the “gorilla” running across the court as we pursue the thinking we are comfortable doing? There’s a lot of evidence to suggest we are.
At HawkPartners, we begin with the marketing objectives and look for valid methodologies to help achieve them. Thus, many of our client conversations begin with thinking about how behavioral economics will impact consumer behaviors and how to build a research platform based on these principles .

Whether you’re marketing to doctors to prescribe your drug, consumers to purchase your product, or investors to switch to your brand, understanding Kahneman’s “fast thinking” and “slow thinking” principles can be critical to positioning your brand effectively.