Making Better Decisions by Understanding Buying Behavior — Part 2

YOU CAN CHOOSE TO BE A SMART BUYER

Trust me, there’s no capability difference between us and the people we consider to be the smartest human beings on Earth.

They just learned a few things before we did.

We can get to the same level of proficiency, at least from a buying perspective.

We finished our 1st part (you can check it here) in our series of Making Better Decisions by looking at the Buying Process and the Snowball Effect.

With the help of the snowball effect, we were able to see how important making decisions is over our lifetime. Both significant decisions and smaller ones. They all add up.

But still, does that mean we’re all robots that should take the same “good” decisions?

Of course not.

We each have different tastes, different behaviors and different types of wants.

There isn’t a black or white, right or wrong, good or bad type of buyer specifically.

For the sake of simplicity, we can say there are 2 types of buyers:

• smart buyers
• not so smart buyers

No matter what we decide to purchase, it would seem obvious that we’d want to be part of the smart buyers’ group, wouldn’t it? Especially if you’re not one of the few who had the opportunity to be born into an extremely wealthy family and money wouldn’t be a problem for you, even if you made repeated bad purchasing decisions.

But wait, why would anyone want to make bad purchasing decisions? Didn’t we already cover in Part 1 how any bad decision reinforces another bad decision?

Exactly. If we allow one decision to be an exception, all the other decisions will want to be an exception.

Don’t let your decisions be exceptions.

It’s not only about our buying decisions, it’s about creating a good overall decision-making process in our mind, so we can improve our decisions, not only in purchasing items or services but also in all areas of our life.

Let me ask you a question.

How do we get better at doing anything?

The answer is not so difficult, is it?

We get better by learning and practicing.

I am mentioning learning, because as much as we think practice is where experience comes from, without going over a guide or manual first, then we can waste too much time doing the wrong things, just because we didn’t take the time to prepare in advance.

Wouldn’t life be easier if it had an instruction manual?

You and I have learned most of what we know through self-learning. Be it conscious or unconscious.

If you put your hand in hot water, I’m pretty sure your hand told you to not do that again.

Did you have a professor for teaching you how to use a computer? I don’t remember seeing any certified professional for teaching you to click and scroll, but since we were interested in it, we learned on our own.

A little problem occurs when someone else is trying to teach you something, based on what they think is useful.

Learning the fundamentals of math, such as adding and multiplying were helpful, weren’t they? Calculus? Uhm, maybe not so much for real life.

Does decision-making seem more of an interesting topic than calculus?

Did anyone try to teach us that? Well, at least not in my case.

If you are like me, then you are also constantly learning new things and improving your mental capabilities by reading and consuming content that can do just that.

I suppose that’s why you’re here and reading this post.

Since we are in a digital age, where information is abundant, we are able to select what we want to learn.

However, the truth is that some things are more important than others.

If we make a comparison between how many times we use calculus in real life and how many times we make decisions, or better yet, let’s only concentrate on buying decisions, then we would have a significant difference between the two of them.

The reason why I’m making a comparison between calculus and buying decisions is that you probably went through tens if not hundreds of hours of calculus during your life.

If you read this post, or even the whole 3 part series, it will take less than an hour. And that’s actually if we consider you might take some breaks since the actual time of reading should probably take no more than around 30 minutes.

Now, how often do we make buying decisions?

We pretty much make buying decisions every day.

What if we could be 10% more efficient at making decisions in our life after these 30 minutes?

Understanding and improving our abilities in less than 30 minutes?

That does sound like a pretty good deal, doesn’t it?

Do you remember the example with the hot water and our hand almost automatically telling us what to do?

Making better decisions won’t take 1 second, but what if I gave you the option of having everything, for the rest of your life on 10% discount? How appealing would that sound? Would you take less than an hour of your time for learning how to do it?

Well, let me tell you something.

If we make just a small improvement in our decision-making process for buying, that can be the amount of money we could be able to save up in our lifetime, due to our better understanding of the topic.

We must be aware, that any skill can be improved.

As good as we might think we are at intuitively making good decisions, that can be just an illusion made up by our mind.

It’s not hard to think of all the times we made a good decision and then tell ourselves we are good decision makers.

As Warren Buffet said:

“Optimism is the enemy of the rational buyer”

That does sound accurate if you think about it.

So what is the next step in understanding buying behavior?

The next logical step after the buying process from Part 1, would be to understand the types of consumers since we all find ourselves in one of these groups, and it’s not always the same group.

TYPES OF CONSUMERS

We are all different and we can see that in our buying behaviors.

Fortunately, there are people who worked all of their life studying this topic, thus we are able to learn the simplified version of a more complex system.

One of the people who studied this field is Geoffrey Moore, who wrote the book Crossing the Chasm.

In the book, he identified 5 types of consumers.

If you look over each one of them, you will be able to pinpoint where you or any of your friends would fit in.

Let’s have a look at the 5 types of consumers.

#1 INNOVATORS

We’ve all seen the long waiting line when a new iPhone is being released.

This is exactly the people we’re talking about here.

Innovators can also be called Techies, if we’re talking about technology.

They are the first to put their hands on a new item.

• New iPhone is released? They buy it.
• New Tesla model is built? They buy it.
• New seasonal collection of clothes is out? They buy it.
• A new device is in crowdfunded development? They back it up and pay in advance for it.

It’s easy to see the pattern here.

Being part of this group has its advantages and disadvantages.

Since you are the first one to buy a new item, you are the first one to take advantage of its benefits, but also the first one to test if it’s worth the money or not.

It’s a double-edged sword.

Most companies are in love with such kind of customers, because it gives the big companies a steady stream of revenue, but it also gives new companies a chance on the market.

However, innovators are part of the minority.

If we look at it in percentages, out of 100% of the customers, innovators will be less than 5% of the total.

Why is that?

Simple. The majority of us do not want to risk.

In most cases, this type of buyer has a higher tolerance for risk and hopefully more money in their pocket, although, as we know, it’s not usually the case. Don’t we all know someone who has the same financial status as us but buys way more expensive items?

For many of us, being an innovator is not a gamble we are willing to take.

In this case, it means we are part of one of the other 4 remaining groups of consumers.

#2 EARLY ADOPTERS

As an early adopter, if you’re not waiting in line for the new iPhone, then where are you at that time?

You’re actually watching the release of the new iPhone and wait to see if there’s any major issue with it.

You’re not going to buy it on the 1st day, but if you see that there’s no bad news about the device, on the 2nd day, you will get your hands on it and try it yourself.

Early adopters are also known as visionaries.

They are people who believe in new technologies.

A new trend will be adopted as soon as there’s at least a small sign of a working product.

As far as human traits, we can observe a lower tolerance to risk and a more rational approach, compared to the innovators. It is not a significant difference, but if we’d have to bet on who would pre-order a newly released product, it would definitely be the innovators.

Many of the people who find themselves in this group are opinion leaders, mainly because they are aware that there is a possibility for a new item to be revolutionary, but they would first need to at least analyze it.

Early adopters are arguably the most important for a new company due to the fact that, unlike innovators, they might be at around 15% of total consumers.

By winning the trust of the early adopters you have the chance of getting to the next type of consumers, which are almost double in size.

#3 EARLY MAJORITY

To keep the example of the iPhone alive, let’s see how the early majority reacts to it.

They will not stand in line on release day.

They will not buy on the week of the release.

Then when will they buy?

Considering today’s market, they will probably buy the newly released device on either Christmas or when the first price drop will take place. That doesn’t take too long if we’re talking about mobile devices. At this point, there are already a high number of reviews from the innovators and early adopters.

It is significantly easier to take a decision that takes into account an extensive list of cons and pros. If the pros outweigh the cons, then companies will win this group of consumers as well.

The early majority can make around 30%+ of the total consumers.

As we can see, the percentage is significantly higher.

If you are part of the early majority, you are the type of person that takes into account the opinion of other people more than the previous 2 groups.

People who watch a TV Show because some of their friends recommended it could easily fit into this category.

Probably most of us find ourselves between the early adopters and early majority, depending on the product or service we are talking about.

However, the early majority, together with the other 2 groups add up to around 50% of total consumers.

Now let’s take a look at the other remaining half of consumers.

#4 LATE MAJORITY

We are still talking about the majority, but now it’s about the late majority.

If we keep up with the iPhone example you will not have a hard time finding out who the late majority is.

Do you still know someone who has an iPhone 5 or even an iPhone 4?

Then you can easily observe who fits in this group.

The late majority makes up around the same percentage as the early majority, which is 30%+.

It is a significant number as we can see, but for a company, the only way to attract these type of buyers is to have patience. It will take time.

If we want to look at this group from a financial perspective, it is likely that they have a lower income. This can be one of the reasons why the adoption is so late into the products life cycle.

Remember how the early majority was watching a TV Show because some of their friends recommended it to them?

Well, the late majority watches a TV Show because most of their friends have already started or even finished watching it, so they want to conform.

They want to be part of the conversation and they want to use what is considered the standard.

The late majority is late for the party, but they will eventually be part of it.

With them, the party is around 85% full, so this leaves us with our last group of consumers.

#5 SKEPTICS / LAGGARDS

The name of the group should tell you most that you need to know about them.

Surprise, surprise, they are skeptics.

They still probably don’t own an iPhone or any other smartphone.

Doesn’t the old type of phone do its job anyway?

Also known as Laggards, these are the people that resist change the most.

Change is difficult for them to accept.

Their beliefs rely on the past and what is new does not seem appealing.

• What if it’s just a fad?
• What if it’s actually harmful?
• What if I give too much money and then I won’t even like it?
• Why watch a TV show just because everyone else is watching it?

These are just a few of the questions a skeptic might ask himself.

You know when this person might have a smartphone?

When someone will give an older one to them or when the only option on the market will be a smartphone.

Skeptics are usually older people who just aren’t comfortable making changes. They are against the idea of a rapidly changing society.

Companies don’t even try advertising to these type of consumers.

There is no reason to do it. They can’t be persuaded by a company but only by a combination of time and necessity.

Although skeptics might be coming to the party in the last minutes or even after it’s over, they are still entering the room.

With the skeptics entering the room, now the list of consumers is 100% full.

BACK AGAIN TO THE REAL WORLD

Where did you find yourself in those groups?

It depends, doesn’t it?

Let’s imagine who an Innovator could be.

Women might stay more often in line on the release day of a new clothing line.

Men might stay more often in line for a new technological gadget.

Kids might also want the latest toy on the market.

What do all of them have in common?

The desire to be the first ones to have it.

It doesn’t matter if they have to pay more or risk disappointment.

We could attribute our desires to some of the following factors among many others:

• Age
• Interests
• Income
• Social status
• Personality type

As we can see in the graph above, the 5 groups are somehow split between people of different ages and social status.

It is a generalization because this is the only way to graphically explain it in a simple and easy to remember way, but as we can see there is a gap between the Early Adopters and the Early Majority, called Chasm.

This is the place where companies have to push through in order to have success.

The Chasm is where you have to win the trust of consumers, either by having a reasonable price, reasonable quality or just be reasonably practical.

As a rational consumer, the optimal zone to be in is a balanced mix between Early Adopter and Early Majority.

If you have a higher disposable income, it is safe to be an Early Adopter, but if the risk to cost ratio is not attractive, being part of the Early Majority is advisable.

KNOWING OURSELVES

You might be thinking if that is all we need to know about our buying behavior?

Almost.

We know that we find ourselves in of those groups.

We also know where it would be advisable to be in.

When we’ll have to make the decision of buying something on the market, we’ll remember that we need to analyze our situation and make the optimal solution, taking into account what consumer group would fit us best at that time.

Knowing this, it wouldn’t be that hard to do it, would it?

But you are not the only one that is trying to decide for yourself.

You know who else is trying to “help” you decide?

Companies.

You probably know that all companies have the same goal at the end of the day.

Profit.

In order to achieve this, they have to sell. They have to advertise.

Do you know how much money Coca-Cola spends on advertising?

Take a guess.

$100 million? $200 million? $500 million? I actually forgot to add the zeros.

$500 million would look like this = $500.000.000

Well, this wouldn’t be even close.

Coca-Cola invested more than $3 billion yearly in the last couple of years.

Let’s take a closer look at this.

$3 billion has 9 zeros = $3.000.000.000

That does seem to be a lot of money, especially for promoting something so simple as soft drinks, wouldn’t you say so?

Are they doing it just for the sake of doing it? Or are they doing it to influence and gain as much profit as possible?

They do it with a clear purpose.

You might think you can be a rational buyer after reading about the buying process and the types of consumers. We all think that when we gather enough information to back-up our actions.

The truth is that we don’t buy what we need.

We don’t buy the item itself.

Do you think that we can make a simple list of pro’s and con’s and then decide logically which is the best solution for us?

I would like to think that as well, but we don’t.

We don’t buy things.

We buy emotions.

This is the number one reason why I broke the topic into 3 posts.

The final part is the most important one.

It requires the most attention and it deserves its own full article.

The 3rd part is an in-depth analysis of WHY we actually buy what we buy and how we could actually improve our buying decision, from its core foundation.

I will end this post with a great and relevant quote from Scott Bedbury, that highlights the importance of emotions in business and in all of our decisions in life.

If you want to share your opinion or let us know what type of consumer you are, I am always open for discussion in the comment section down below.

If you want to see the original post with its own formatting, you can do it by clicking here.