The One Equation That Governs Purchase Behaviour
‘Why Do People Buy?’ Series — Episode 2
This article is an extract from my talk “Why do people buy?” that I will be giving across the world this year, about the science behind advertising and marketing, what drives purchase behaviour, and how this will be affected by new technologies.
Over the past few years, I’ve been involved with several ventures — consulting, building and selling my own games, and my own e-commerce platform Kout.io. We’re now working with brands like Amazon, Nike and Virgin.
Every time I meet a client, I ask: why do your customers buy your products in the first place?
Most of them aren’t able to answer.
All of them know ‘what‘ their customers buy — they just have a look at their inventory.
Most of them also know ‘how’ their customer buy, by following the userflow flow on the website or in store, from advertising to checkout.
But the real value isn’t in the ‘what’ or the ‘how’. The real value is in the ‘why’. The why is related to the underlying motivation of the user taking that action. It is deeply personal and not something that can be easily measured.
The power of asking why is explained in a lot more details in Simon Sinek’s bestseller ‘Start with Why’ which I highly recommend. When you know why, you know the full story. You can reverse engineer the why to your advantage.
That’s precisely what we want to do as marketers. Whether online or offline, we are going to understand what drives purchase behavior, so we can then optimise the path to purchase to sell more products.
That’s what we are doing at Kout and as a marketer, what you should be doing, too.
Let’s get into it.
In 2007, a brilliant professor named Brian Knutson (Stanford) tried to predict purchasing behavior by analyzing neural activity. He showed subjects pictures of products, and they had to push a button if interested to buy the product. Their brain activity was recorded through brain imaging (fMRI) through the experiment. Below are a reproduction of a more recent version of that experiment, that produced the same results.
Every time someone pressed the button, the scan showed an activation of the mesolimbic pathway in the brain, commonly called reward system.
This is an area that responds by increasing release of dopamine when exposed to a rewarding stimulus. The brain says ‘I want to have this’. The level of wanting is based on the value that the product can deliver to you at that moment — or to be more precise, the value that you expect the product to deliver.
Products are seen as rewards because they deliver value that help us getting closer to our goals. We buy water to quench our thirst. We buy laundry to clean our clothes. We buy a watch to know the time and we choose Rolex because we want to appear successful.
We buy things to fulfil our goals.
In the second part of is experiment, Knuston added the price in the images he presented to his subjects. An entirely new region of the brain was activated — the insula. The insula is normally activated when we experience pain, whether physical (like cutting your finger) or emotional (like being bullied).
Unlike products seen as rewards, having to pay means giving away something that we own, which is a negative emotion. As human being, we strive to protect and cherish our possessions: it pains us to part with something we own.
So there are two things involved here: reward expectation and pain. These reactions are clearly at odds. Describing this experience in his excellent book Decoded, author Phil Barden establishes the net value as the difference between one and the other.
Net value = reward — pain
This is the equation that governs purchase behaviour.
The more relevant a product or service for an active goal, the higher the net value. We’ve all been in the situation when we say to ourselves ‘it’s pricey, but it’s worth it’. In other words, when the consumer expectation of reward is greater than the pain to part with his cash. The net value is positive, and the sale takes place.
As marketers, we then have two levers to play with: increasing expected reward and decreasing pain — or both at the same time.
How we can do this in a systematic and measurable manner will be the subject on the next post. Follow to stay tuned!
Come see me speak at industry events for the full story! Schedule to be announced soon. To stay in touch with me, follow me on Twitter @samhuber.