Behavioral economics is the study of how human psychology and emotions influence decision-making and behavior. Marketers can use insights from behavioral economics to design strategies that appeal to customers' cognitive biases, heuristics, and preferences. In this article, we will explore some examples of behavioral economics used in marketing strategies.
One of the most common ways to apply behavioral economics in marketing is to create a sense of scarcity and urgency. This triggers the fear of missing out (FOMO) and the loss aversion bias, which make people value something more when it is perceived as rare or limited. For example, marketers can use phrases like "limited time offer", "only a few left", or "last chance" to induce customers to act quickly and buy before the opportunity is gone.
That’s practically true, the only issue is the inadequate application of the textbook theory.. real estate salespeople (for example) sometimes tend to over consume this FOMO technique in a hilarious way that undermines their credibility and cause opposite results.. so it is quite important to break a balance between sending this tempting signal and sabotage your credibility while doing so
Another way to influence customer behavior is to use social proof and authority. This leverages the conformity bias, which makes people follow the norms and opinions of others, especially when they are uncertain or insecure. For example, marketers can use testimonials, ratings, reviews, endorsements, or badges to show that their products or services are trusted and approved by other customers, experts, or organizations. This can increase the credibility and attractiveness of the offer and reduce the perceived risk.
Rational customer will go to the research engine and seek reviews from other customers to get the required feedback.. but this is function in time and context…
A third way to apply behavioral economics in marketing is to use framing and anchoring. This exploits the fact that people's judgments and choices depend on how information is presented and compared. For example, marketers can use positive or negative framing to highlight the benefits or costs of their products or services. They can also use anchoring to set a reference point for the value or quality of their offer, such as a higher original price, a competitor's price, or a suggested donation. This can influence how customers perceive and evaluate the offer and make them more willing to buy or pay more.
Framing is usually a very effective technique in the retail sector.. and it help the customer to make a decision to choose between similar commodities or very competitive ones.. the word “SALE” makes a lot of difference when put in the right corner with special effects
Another way to use framing and anchoring is with Lead Source and Intent Signals. For example, a campaign for software targets leads from various sources like organic search and social media, each indicating different customer intents. Organic Search Leads often search for specific solutions, showing high intent; marketing content here should focus on solving these specific issues. In contrast, Social Media Leads, interacting with general posts, display more exploratory intent, necessitating content that introduces and educates about the software's value. This approach of aligning content with the lead source and intent enhances engagement and conversion potential.
A fourth way to use behavioral economics in marketing is to use reciprocity and commitment. This taps into the social norms and expectations that make people feel obliged to return a favor or honor a promise. For example, marketers can use free samples, trials, gifts, or discounts to create a sense of reciprocity and gratitude in customers, which can increase their loyalty and likelihood of buying or recommending. They can also use small requests, surveys, quizzes, or subscriptions to elicit a commitment from customers, which can increase their consistency and engagement.
Commitment to a popular humanitarian cause is also important if the seller adopts it.. the buyer will feel committed to contributing to this cause through buying a certain product..
A fifth way to use behavioral economics in marketing is to use nudges and defaults. This relies on the fact that people often take the easiest or most convenient option, especially when they are busy, distracted, or overwhelmed. For example, marketers can use nudges such as reminders, prompts, suggestions, or incentives to guide customers towards a desired action or outcome. They can also use defaults such as pre-selected options, automatic renewals, or opt-out clauses to influence customer behavior without restricting their freedom of choice.
Another example here is the Decoy Effect: This is used in pricing strategies where a third option is introduced to make one of the other two options more attractive. For example, offering three subscription plans where the most expensive one makes the mid-priced one look more valuable.
Thaler gives a definition for nudges as “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… To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not mandates. Putting the fruit at eye level counts as a nudge. Banning junk food does not.” I find it the most informative definition
A sixth way to use behavioral economics in marketing is to use personalization and customization. This appeals to the self-referencing effect, which makes people pay more attention and respond more positively to information that is relevant and tailored to them. For example, marketers can use personalization to address customers by their names, offer recommendations based on their preferences or history, or send messages at the right time and place. They can also use customization to allow customers to choose or create their own products or services, which can increase their satisfaction and attachment.