Behavioural Economics… it’s all anyone and everyone can talk about. But what is it? Essentially it rejects the idea that we act on rationality. There is the common assumption that when given relevant facts, we will then behave accordingly. I’m sure we’d all like to assume this is the case anyway. However, we are much more likely to act upon impulse, emotions and, above all, habits. As a society, we won’t wait and want everything at our fingertips now.
The fact is technology has spoiled us. Computers, mobile phones, emails and credit cards, to name but a few. These are all convenient to use on-the-go, 24/7, but have they robbed us of our patience? So if it’s not rationality influencing your decisions, what is it? Behavioural economists argue that although we may be unaware of it, we tend to make choices based on our instincts, peer pressure and how the options are presented to us, known as choice architecture. A little scary isn’t it? That we might act upon our whims over sense.
So how does this relate to marketing? Well this fascination with behavioural economics has grown since the release of Richard Thaler’s ‘Nudge: Improving decisions about health, wealth and happiness’. And even David Cameron and Chancellor George Osborne have been talking about the potential for communications to focus more on behaviour.
In a more cynical viewpoint though, this could just be seen as an attempt to flatter the IPA (Institution of Practitioners in Advertising), who have recently made a dedication to increasing efficiency using behavioural economics. “If you don’t pay attention to the design of the choice architecture, then you can lose out – in Government and in business,” says Hamish Pringle, director-general of the IPA.
So the big question is - how does this help you? Well if you’re more likely to influence people by appealing to their impatience and impulses, surely framing options and packages to achieve better results doesn’t seem so difficult. And if you don’t think such a small change could have such a significant impact on your audience and their consumer behaviour, ask The Economist. When testing this theory the magazine found that there was more than a 250% increase in customers choosing the more expensive alternative for subscriptions. And what was the simple change they made to their packages to achieve this incredible result? Instead of offering a simple choice of option a - subscribing for a year to online articles, or option c - subscribing for a year to printed and online articles, they included an extra irrelevant subscription choice – option b - they offered just printed articles for the same price as option c. This automatically created the illusion that in option c, the online articles were essentially free and therefore a ‘must have’ in common thinking of today’s society. Just imagine the outcome you could potentially achieve using techniques like this?
Over the recent years, there has certainly been a move towards change in traditional marketing methods. Perhaps more emphasis is now needed on choice architecture but the power of PR and press still can play a crucial role in your business’ reputation and consumer behaviour. Take Apple for example - one of the leading and most forward-thinking companies around - they can successfully launch products purely on word-of-mouth PR and there is no need, initially anyway, to include any irrelevant payment options for example. There are plenty of people who will happily pay the small fortune asked out-right to purchase an iPhone, knowing full well the price will drop within a matter of months.
By challenging traditional marketing methods, behavioural economics can play a big part in consumer’s behaviour. Perhaps it’s what’s needed to give you the competitive edge needed in a period where your budget may have been reduced. Just by measuring how your audience respond to promotions or by using appropriate rewards can lead to desired behavioural change within your target market.