Behavioral Marketing: How Companies Manipulate Our Decisions
Introduction
Imagine you’re on your phone looking for a new restaurant for dinner. You have narrowed it down to two places, two Mexican restaurants right next to each other. To choose where you will eat, you visit both of their websites. One website has a single dull picture of a chicken burrito paired with a picture of the owner and, on top of that, you can’t even find where to access the menu. In contrast, the other website showcases vibrant pictures of all their best dishes, a sleek website design, customer testimonials, and even emphasizes its goal for sustainability. Chances are you are going to head to the second one because even though you won’t know which restaurant is better until you have tried both, the second did a much better job hooking you.
What we see here, while simple, is just an example of one of many sophisticated strategies that companies use to influence and manipulate our decisions as consumers. These strategies are rooted in behavioral economics — a field that explores how psychological factors influence economic decisions. Just like we saw restaurant #2’s use of visual aspects on their website to draw in customers, companies constantly rely on behavioral economics to shape their marketing, uncovering the tactics that shape consumer behavior and drive purchasing decisions.
Psychological Factors in Consumer Behavior
At the heart of behavioral economics are the decision-making, cognitive, and emotional biases that influence how consumers perceive, evaluate, and respond to marketing stimuli.
Decision-Making Biases:
Anchoring: Consumers rely heavily on the first piece of information (the “anchor”) they receive when making decisions
- Ex: An item accurately priced at $100 is less appealing than the same item marked with a 20% discount to reach a final price of $100.
Loss Aversion: People prefer avoiding losses over acquiring equal gains, leading them to make irrational decisions to avoid losses
- Ex: Free trials provide extra services and make you accustomed to having them, so when the trial ends, it is harder to cancel and give up those benefits (think about how hard it is to go from unlimited skips on Spotify back to only 6 once your free trial ends).
Social Proof: Individuals look to others’ actions and behaviors to determine their own decisions, especially in ambiguous situations or when uncertain
- Ex: You need new shoes and are wondering what to get, and then your favorite celebrity posts about their all-time favorite shoe brand. So you get a shoe from the brand they recommended.
Emotional Triggers:
Emotional Associations: Emotions such as happiness, fear, or nostalgia can significantly influence purchasing decisions by creating certain associations with products or brands
- Ex: Coca-Cola plays an ad of a family drinking Coke during dinner and you, having had the same experiences, feel a sense of nostalgia. So you buy Coke at the store next time to relive that feeling.
Urgency and Scarcity: Creating a sense of urgency or scarcity can trigger emotional responses like fear of missing out (FOMO), prompting consumers to act quickly
- Ex: Phrases like ‘limited quantity,’ ‘last chance,’ and ‘low on stock’…
Brand Loyalty: Emotional connections fostered by brands through storytelling or shared values can enhance customer loyalty and repeat purchases
- Ex: People buying the newest iPhone over other (usually cheaper) options because they have used Apple products in the past and enjoy the experience
Cognitive Biases:
Framing Effects: How information is presented (positively or negatively framed) can significantly alter consumer perceptions and choices
- Ex: Saying a 90% success rate sounds a lot more positive than a 10% failure rate
Confirmation Bias: Consumers tend to seek information that confirms their preexisting beliefs or expectations
- Ex: In politics, only taking in the positives of your party and the negatives of the other, while ignoring the negatives and drawbacks of your own.
Availability Heuristic: Consumers interpret the likelihood of events based on how easily similar instances come to mind
- Ex: Unless a car crash has happened to you or someone you know, people tend to underestimate the chances of car crashes because it’s hard to think of a scenario off the top of your head.
Applications in Marketing
In advertising, behavioral economics provides the basic toolkit for designing persuasive campaigns that appeal to us as consumers. Take the concept of scarcity, for example. Limited-time offers and “while supplies last” messages trigger that fear of loss or Fear of Missing Out (FOMO for short). This FOMO often compels consumers to act quickly to secure a product or service to ‘get it before it’s gone.’
Firms also capitalize on consumers’ perception of value through techniques like decoy pricing, where a middle-priced option makes the more expensive option SEEM more attractive. Imagine you are in a movie theater waiting in line to buy a bag of popcorn. In one scenario, there are two sizes: a small and a large with the small costing $3 and the large $7. That large just seems relatively expensive and probably isn’t your first choice. Now what if in another scenario the small and large were still there at the same price but you stuck a medium in there for $6.50? To me, that large starts to look much more appealing and ‘valuable’, as for only 50¢ more, I could upgrade from medium to large and get significantly more popcorn. This phenomenon occurs often, where a “decoy price” is set up to alter our perception of value and generate more profit for the company.
Moreover, with technology increasing at the rate it is today, methods of data analytics, customer prediction software, and adapting price models are constantly advancing along with it. Personalization, driven by data analytics, tailors marketing messages to individual preferences and behaviors. This customization enhances relevance and resonance with the consumer. Think of a clothing brand sending personalized emails with different product recommendations and deals to teenagers versus a middle-aged man. The teenagers, based on their previous purchases and searches, get recommended the new trendy clothes that fit current fashion. While the middle-aged man might get some coupons for some simple tees and jeans. By personalizing their emails to different groups or sections, companies can optimize how many people they convert into customers.
Gamification. Something we have all probably either seen or interacted with ourselves in today’s world. Gamification involves leveraging rewards and competition to foster engagement and loyalty. Almost every fast food has a form of this nowadays. Download the app and get a free meal “on us.” Collect 500 points and get a free treat “on us.” And people, in pursuit of these deals, eat there over competitors and start to become loyal customers. Duolingo’s streaks and gems keep users hooked on their gamified education. Starbucks with its rewards app brings you back every morning. Domino’s Pizza deal, where you get a free medium pizza after purchasing six orders, often leaves you with plenty of leftovers.
Pros and Cons for the Consumer
Starting with the cons first, there are questions about ethics and consumer protection that need to be taken into consideration. Most concerns stem from the debate about what tactics fall within the boundaries of persuasion and what falls within the boundaries of manipulation. Only influencing consumers tends to allow them to keep their autonomy and, as a result, make beneficial choices for themselves. Whereas manipulation may exploit weaknesses and vulnerabilities whether it be physical or psychological, usually resulting in a choice not in the consumer’s best interest.
A quick pro, that can sometimes be overlooked, is that some marketing strategies can still benefit the consumer, especially rewards programs. Think about it like this: a lot of people love coffee. Some need it to fully wake up, others like that taste, and some just drink it anytime for that burst of energy. But unless you make coffee at home, your only other option to get the drink is to buy it somewhere. So if you are going to buy coffee no matter what, a rewards program that gives you a free coffee every 10 orders is essentially just an added benefit. It is a win-win for both the consumer and the company, which is how most marketing tactics should be.
Conclusion
In short, behavioral economics in marketing goes beyond selling products; it involves understanding and responding to the complexities of human decision-making. By incorporating psychological principles, brands can craft more engaging, relevant, and ethical campaigns. However, they can also misuse those same tactics to create a relationship that not only benefits themselves but could potentially hurt consumers too. That’s why, through transparency, we can ensure that consumer interactions are engagements built on the premise of mutual benefit, always making both parties better off and predicated on fairness.
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