Aurora Magazine

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Why behavioural economics is important for marketing success

Published in Mar-Apr 2017
Behavioural economics uses experiments that observe human behaviour in order to uncover how we think.
Illustration by Creative Unit.
Illustration by Creative Unit.

Behavioural economics (BE) has been called the science of decision-making. It is a growing academic discipline which uses experiments that observe human behaviour in order to uncover how we think. It addresses such fundamental questions as, how do we process information and how are we influenced to behave.

BE is valuable to marketers on many levels. It provides ‘big picture’ answers to vital questions such as:

  • How emotional or rational is consumer decision-making?
  • How quick or considered is consumer decision-making?
  • How much information can consumers take in?
  • How important is context in affecting perceptions of a brand and influencing behaviour?

Your answers to these fundamental questions affect your beliefs about effectiveness and what activities you choose to invest in. BE also illuminates why small things can make a huge difference and provide explanations as to why a specific execution performs or fails. BE gives marketers a sharp reminder that grand strategies can fail unless we pay attention to details.

BE, therefore, goes to the heart of marketing practice as every piece of stimulus we put into the market (ads, promotions, displays and packaging) is a form of psychological experiment in which we seek a response. Do we get the response we were looking for, and if not, why? BE enables us to provide better answers and diagnosis to make communication more effective.

What is the thinking and science behind BE?

Our two-system brain

Daniel Kahneman (the father of BE) provided the frameworks on which other academics and thinkers have built on. His big idea is that we have a two-system brain, which he calls System 1 and System 2.

System 1 integrates perception and intuition. It is fast, automatic and instinctive. It is the thinking that you are doing without being aware of it and, because it is automatic, it consumes less energy. This is the part of your brain that has evolved to help you survive; it processes stimuli through all the senses and preserves energy. It is how you sense something is ‘not quite right’ before you analyse the ‘why’ in System 2.

System 2 is reflective thinking. You are aware that you are doing it. It is slow and burns up a lot of energy. After you have been thinking hard you get very hungry. System 2 is how we make slow and deliberate decisions. But, you cannot think hard all the time because it is tiring. Your default mode of thinking is System 1.

We first process information fast and instinctively, which is then more actively considered and analysed in System 2. System 1 represents an early warning system for System 2, which is deployed to check that your instincts are right. One way to think about it is that System 1 is autopilot and that System 2 is when the pilot is brought into action. Our default mode is autopilot in order to preserve energy and remain alert to any stimuli through all of our senses. What are some of the big implications of this model?

1 We are much less rational than we like to think

When we are in meetings, we are mostly in System 2. Consumers are in System 2 when asked why they bought something in research. Rational answers are given to rational questions. Rationality in decision-making is therefore overstated. Kahneman provides us with a model to explain how our decision-making is also emotional and instinctive. When we are thinking hard (System 2), we are often post rationalising our instinctive preferences – which we have arrived through fast thinking.

2 We can be subconsciously primed to act

Stimuli can get us to act differently without being aware of it. This is called priming. The mood, tone and visual language of a brand is a form of priming. The effects of priming on behaviour can be quite dramatic as shown in Kahneman’s ‘honesty box experiment.’ Office workers paid for refreshments (tea and coffee) through an honesty box. A list of suggested prices was posted on the box. One day a banner poster was displayed above the price list, with no warning or explanation. For a period of 10 weeks, an alternate image was presented, either flowers or eyes that appeared to be looking directly at the observer. Result: contributions were almost three times as much in ‘eye weeks’ versus ‘flower weeks’. The UK tax office are clearly aware of this experiment because they recently used a poster to encourage us to be more honest in our tax returns.

3 We use mental shortcuts to make decisions

Such is the huge volume of information that we must process all the time – we use mental shortcuts to make decisions. We are instinctively lazy. If there are several courses of action open, we will err towards the least demanding. Laziness makes perfect sense; we simply do not have the time or energy to think through the pros and cons of every decision. We must do this occasionally, but most of the time, we make decisions as easily as possible. BE has uncovered over 100 mental shortcuts (which academics call ‘heuristics’ or ‘biases’); we are as Dan Arielly puts it “predictably irrational”.

Practical implications for marketers

BE has many practical implications. Below are some of the most powerful that have been highlighted in my training seminar called ‘Behavioural Economics Can Change Your Life’.

1 Brands that make things easy are more trusted

Ease gets more business because as Kahneman explains, ease takes less effort and it “feels familiar, feels true and feels good.” Ease and simplicity of design drives out complexity. When developing a website design, do the mobile version first, because it will force you to be as simple as possible. Use contrast in design to highlight what you want the consumers to look at. It is no accident that – the Google app – one of the most popular in the world, is also the most simple.

2 The perception of popularity sells

We outsource risk to the crowd. If something is perceived to be widely used then it is probably a safe choice. This is also known as ‘the law of social proof.’ Consumers want (most of the time) to make ‘good enough’ rather than perfect decisions, using other people like them as guides. The demise of mass communication, like TV advertising, has been much predicted, but it remains powerful as a marketing tool because it is a form of public affirmation that a brand is popular and widely used. Marketers have other tools at their disposal to signal popularity such as designing products that use visual signals to show they are widely consumed. You know immediately what brand of laptop this is – in spite of the personalisation.

3 Emotional communication predisposes purchase

This is supported by the findings of a survey of all the IPA Effectiveness Awards, which said that “emotional campaigns outperform rational campaigns on almost every single attitudinal dimension. Put emotions at the core of your campaign. Don’t just bolt on emotions to a rational proposition.” John Lewis won the top effectiveness award in 2012 with their Christmas campaign.

4 Details can make a huge difference

There is no neutral way to present choice, and the detail of how choices are presented can dramatically affect behaviour. Here is an experiment to see how two ways of offering a subscription to The Economist transforms response:

Sample: 100 students at MIT Sloan School

Web only: $59 – 16
Print only: $125 – 0
Print and web: $125 – 84

Here is what happens when you take out the print only option

Web only: $59 – 68
Print and web: $125 – 32

You will have experienced something similar when ordering in a restaurant. You can be nudged to spend more by the prices of the most expensive items on the menu. This is a mental bias called anchoring.

5 Design can change behaviour more than messaging

Government beliefs about how to achieve behaviour change have been transformed. Take obesity. We know we should eat less but we carry on stuffing ourselves with unhealthy food. Part of the solution is to nudge us to eat less through design. Take this example from the Google canteen: one day all the big plates were switched to smaller triangular plates. You feel like you can put less food on them in case it flows over the edges. If you want people to eat less, give them a smaller plate!

6 You need to be really different to be noticed

Much of the time we are on autopilot. For example, if you take the same route to work every day, often you will arrive without being aware of how you got there. The route is so familiar that the time passes quickly without you paying attention to your surroundings unless something happens to shake you out of your reverie – like suddenly seeing a shark stuck in a roof.

If your brand or campaign is very familiar, then consumers too are on autopilot. To get them to notice a new proposition or idea, you may need to step out of the accepted norms of communication. You may need ‘a symbol of re-evaluation’ to get consumers to stop and think afresh about your brand.

7 To change perceptions, change the context

Our brains are configured to notice the whole context in which a brand operates. Not just what the brand messages are, but also where the brand is seen, used, who uses it or is perceived to use it. This is why it is often a good idea for a brand leader to pioneer new audiences and markets. The brand changes its use of media and perceived customer. It changes both the brand message and the brand context. For luxury brands this is Marketing 101 – the stores you sell through say more about you than what you sell. This is why brands like Chanel exercise such control over merchandising and distribution.

8 Messengers are as important as messages

Kahneman explains that we automatically decode faces as they have high priority for survival. It is a process that happens fast and instinctively. We are drawn to faces because we need to work out whether we are with friends or foes. Faces are full of subtle meaning and can therefore be used to position the brand. L’Oréal uses faces to communicate their image and to update it every year. Try googling ‘faces of L’Oréal’ using image search to see how the brand is modernising by embracing diversity through faces.

Why study BE?

In this article, I have just scratched the surface. Time spent studying BE can change how you, as a marketer, see things. For example, you become more aware of the power of emotion, of visual language acting on the subconscious; that simplicity drives out complexity and the importance of context in influencing behaviour. At Google, as soon as I saw the small triangular plate in the canteen, I knew how the company was trying to get me to cut down on my food intake. So immerse yourself in BE, put your BE spectacles on and soon you will notice practical BE everywhere. It will help you deconstruct why great brand marketing works and make better brand plans in the future.

Julian Saunders is strategist, trainer and writer. He was Strategy Director, Ogilvy and Head of Strategy, McCann-Erickson and has worked on behaviour change campaigns for the UK Government and on innovation in The Zoo at Google. He blogs at www.joinedupthink.com