How to Alter Consumer Behaviour?

Should vs Want Selves

We all have moments where we step into a store to buy stuff we should buy and end up buying things we want. Standing at the billing queue as you wait your turn, your eyes span over the chocolates and candies at the counter, more often than not, you pick up something. Studies have shown that people can exert two selves, the “should” self and the “want” self. The want self needs instant gratification, while the should self is more concerned with long term interest. People behave more impulsively choosing items they want over item they cognitively believe they should select when outcomes are more immediate. This has implications for both online and offline grocers. The faster you get your delivery, the more likely it is that it will have a higher percentage of want items. Although this holds true for delivery times of 2-5 days, incase of lower delivery times, the percentage of should items goes up, because purchases are driven more by actual meal plan requirements than stocking up. Similarly if the want items are placed near the billing counter in an offline store, reducing the time between the purchase and consumption, it is more likely to elicit a purchase.

What happens, when the offering falls under the want category and but cannot provide immediate gratification. For example leisure travel bookings, most people book hotels and flights in advance. Since there is a time lapse between enjoying your vacation and paying for it today, the delayed gratification would increase reluctance to purchase. The same reason why most diets fail, eating the chocolate today provides immediate gratification, while exercising and dieting today will show its benefits only in the future. There are many ways companies try to influence purchase decisions, and encourage consumers to buy more. Let us explore a few of them.

Reducing Pain Points

Studies have shown that buying causes the pain center in the brain to light up. Every purchase has two components the pain of paying and the pleasure of consumption. One way to reduce the pain especially in case of high value products, is by delaying the price to be paid but providing the product or service immediately through EMI payment options. In case of hotel bookings “no prepayment” and “risk free cancellations” are the way to do the same.

It also helps to reduce multiple pain points, in case of online purchases, often you see the price of the product, this would cause your pain center to light up, next when you reach the payment page you see additional costs like convenience fee, taxes and delivery charges causing you additional pain. One of the main reasons for abandoned carts is seeing the additional costs. To reduce multiple points of pain during the customer journey, companies can offer customers visibility to the final price to be paid.

In the example shown below, Tripadvisor allows you to compare the final price to be paid including taxes and other fees. Booking offers the data as a sub-text, leaving it to the customer to add the numbers, not a very convenient alternative. Whereas many travel portals like Yatra, offer information in a staggered manner, first comes the airline price, then offers you may be eligible for and finally the convenience fee is added. This makes it difficult to compare prices across other portals and also the final price is different from the initial price causing a second pain point. The process can be simplified by showing customers the final price, basis best offer applied + convenience fee.

Loss Aversion:

Daniel Kahneman and Amos Trversky’s prospect theory suggest that losses loom larger than gains, and that people are loss averse. When asked what is the smallest gain that you need to balance an equal chance to lose $100, most people answered $200. The loss aversion ratio for most people would lie between 1.5 to 2. What does it mean for categories with dynamic pricing and uncertainty, when possible loss looms larger than possible gains? An early bird discount of 500 is great, but if the price later drops by 500, it would cause more pain than the 500 saving. To avoid loss aversion, some websites like Yatra offer fare drop assurance, in case the fare drops, the difference is refunded to you albeit under certain T&Cs. Others offer price match, and refund difference in case other you find a lower price elsewhere.

Scarcity

Robert Cialdini’s second principle of persuasion is scarcity, people want more of things they can have less of. Scarcity is efficiently deployed by most online platforms to encourage a purchase. Scarcity causes an urgency to buy, in order to avoid anticipated regret in case the desired product is not available in the future. See examples below from Airbnb and Booking.com that create a sense of urgency.

Social Identity and Social Proof Theory

As explained by the Social Identity theory, we identify with certain groups (in-groups) and want to positively associate with them. We are likely to imitate the behaviour of our in-group which could be family, friends, or based on interests, political affiliations, sports teams, influencers etc. This would also mean if we have categorized ourselves as foodies or adventure junkies, we are likely to behave as they would to avoid dissonance with our identity. So a review or word of mouth of a product or place from our in-group is more likely to generate a purchase intention. Companies make the best of this by storing your contact information or social media ids to access your network and to highlight what your in-group is spending on or experiencing. 

Multiple studies have shown a positive impact on sales from reviews, with almost a 270% increase in conversions with 95% of consumers saying that they check online reviews before purchase. The reliance on online reviews can be further explained by the social proof theory by Robert Cialdini, who states that when there is uncertainty, people would decide what is correct based on what others think is correct. This behaviour amplifies as the number of people increases also how similar they are to us, i.e our in-group.

Loyalty

In a world where there is hardly any switching cost, how do companies drive loyalty? A common solution adopted by most companies is offering a loyalty program. The justification being satisfied loyal customers mean repeat purchases for the brand, positive word of mouth and lower cost of servicing. Although research shows that consumers are loyal to a bouquet of brands, and the best customers for a brand, those who indulge in frequent high value purchases are usually the best customers for the competition as well. Empirical records from research conducted across multiple markets over a 20 year period show that only 10% of customers are 100% loyal to a particular brand over a one year period and 100% of these loyal customers are light buyers of the product of service. Polygamous loyalty, better describes consumer behaviour than brand switching, where a consumer switches from one brand to another and is lost forever. Most people are part of multiple frequent flyer programs, or memberships programs like Zomato gold and Swiggy super at the same time. Then why do companies offer these programs? In case of products or services where there is a parity, the loyalty programs can be a differentiator or in most cases, they are a “me too” offering to match your competitors loyalty programs. How can companies make these programs more effective? The value of the program depends on the consumers perception of the rewards. Which is usually estimated from the reward’s equivalent cash value, range of choices, aspirational value, ease of use of the scheme, and the likelihood of achieving the rewards. Rewards which are immediate are more powerful than delayed gratification. For example, programs that offer immediate discounts like on booking.com are better than getting a free night after certain number of bookings in case of hotels.com. Additionally in case of free loyalty programs or memberships, there is hardly any switching costs, consumers can easily choose the best offer available at a given point, but in case of paid memberships, one would try to maximize the value from the program to recover the amount spend, as in the case of zomato gold or body shop.

To summarize, some of the levers used to persuade consumers to buy are immediate gratification, delaying and reduction of the pain of payment, rewarding loyalty, creating or displaying scarcity and social proof. The competition is fierce and the brands are trying to outdo each other in terms of offerings. On one hand, the access to huge amount of consumer data is allowing brands to personalize customer offerings and provide custom deals, on the other hand it also making consumers spend more on their want selves rather than their should selves. With millenials saving less and less, there is an opportunity for an offering that can alter consumer behaviour to encourage savings rather than consumption.

#marketing #consumerbehavior #airbnb #yatra #booking.com #tripadvisor #makemytrip #amazon