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Behavioral Economics Is Changing the Way We Market

By Rob Duboff and Jesse Epstein

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

Pictured: a silhouette of a human head with a quote. The quote is from Michael Lewis and says "Behavioral economics shows that humans aren't the rational creatures we imagined... its revolutionized everything from big data to medicine, from how we govern to how we spend, from high finance to football."

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 we interact with consumers and how we do our jobs – yet emerging ways of thinking haven’t had the same impact.

Nowhere is it more obvious than when looking at the impact behavioral economics has (or hasn’t) had in comparison to new tools, like social media measurement.

A Breakthrough in Understanding Consumer Behaviors

Behavioral economics has been well-established as a breakthrough in understanding consumer behavior. Pioneered by Daniel Kahneman and Amos Tversky, the field shows that our brain relies on mental shortcuts and biases, which may lead to irrational decisions. It has produced two Nobel Prizes, inspired blockbuster movies, like Moneyball, and best-selling books, including Michael Lewis’ latest undoubtedly coming to a theater near you.

Adapting Research to How Consumers Engage

Would we have embraced these principles by now if it had been named “behavioral marketing”? Does grounding it in “economics” feel too academic to believe it helps brands connect with consumers? Kahneman and Tversky provide solid evidence that our decision-making is often not rational, and influenced by biases that we’re unaware of. Both the US and UK governments have implemented policies based on behavioral economics. Yet, we 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 sometime 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 they’re in tune with consumer behavior principals yet most have not adapted “behavioral economics” to marketing. Why do we think this is? We’re subject to the same principals where our “default” is to stick with what’s comfortable and known.

At HawkPartners, we’re by no means perfect. We’ve been working with our clients to better engrain the principles of behavioral economics into branding 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 ads. As researchers, shouldn’t we gauge initial reactions and biases instead of post-exposure metrics?
  2. Positioning – Behavioral economics highlights the need for brand consistency and the importance of being trendy and valued by people our audience respects. In our research, we need to measure “fast thinking mode” reactions and ensure alignment with emotional characteristics.
  3. Place – Behavioral economics reminds us that time of day, hunger level, setting and type of music – all influence sales. As a result, it may be optimal to observe passively rather than ask directly.
  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.

You may or may not do everything we’ve recommended above. But, there’s little doubt that behavioral economics is a buzzword more talked about than acted upon.

Why is that? 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 on a couple of data points in a brand tracker, year-over-year increases in purchase intent or an anecdote from that one focus group that one time, are those of us in charge of building brands focusing on too narrow a slice of the pie? Are we missing the “gorilla” running across the court? There’s a lot of evidence to suggest we are.

At HawkPartners, we begin with the end in mind, considering how research findings apply to the marketing objectives. Many of our client conversations begin with thinking about how behavioral economics will impact consumer behaviors and building a research platform based on these principals.

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