Framing
This focuses on the belief that we make decisions on relative and not absolute information. I'll outline a basic example to prove this point based on a real American magazine;
If you go onto their site and see these options:
Online only - $59
Online and magazine - $125
People naturally go for the cheaper option as that is the most rational decision as you have nothing to base the value of the magazine on. In fact, 68% of people went for the subscription of 'Online only'. Now if we add another option into the mix:
Online only - $59
Magazine only - $125
Online and magazine - $125
The original options have not changed, but now the choice becomes more relative and people think that the third option is the better deal as it seems you get online for free. As soon as this other option was added, 16% of people went for online only and 84% went for the combined package.
Apple are also very good at this, no one realistically needs a storage device which will hold up to 140,000 songs of which you actively listen to, but as the choice is there, people will go for it.
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| Apple's iPod Touch data selection |
Additionally, in the restaurant world, owners will put a significantly expensive dish on the menu so that the comparison of the other dishes look cheaper and thus increasing average order value - a clever little trick to make you pay more.
Automatic to executive decisions
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| Fly on the Urinal concept |
People often repeat behaviours and some behaviours are done on auto-pilot. making people aware of their behaviours can help change the way you act. Which is why a lot of governmental campaigns will draw attention to your behaviour, so as by making you aware of it, you can change it. 'The fly in the urinal' concept has been proven to work - if you put a fly in the urinal, a man will look at it and suddenly be drawn to their behaviour, thus making them aim better and essentially not 'piss on the floor'. In the words of my manager ' it is why we see strategies which recognise our own habitual nature: in this instance trying to raise a decision to lock your care from the ‘automatic’ mind to the ‘executive’ mind, or unconscious decision making and conscious ones'.
Scarcity value
People place more value on things they believe are hard to come by or not a lot of. Diamonds are not allowed to come into the UK by the bucket load, there is a restriction in place on how many we can import - which is why people believe they are harder to come by and thus put this 'scarcity value' on the diamonds (this makes a lot of revenue within the jewellery business). Similarly, a Chanel nail varnish had a limited edition colour called 'Jade', as soon as they were hard to come by and celebrities were seen sporting the colour, the varnish were being sold on eBay for £85! Essentially, it is only a nail varnish where other brands offer very similar colours.
Other scarcity tricks are things like 'closing down sales', 'private member club' etc, all tricks to get the consumer to place a higher value on the products - very prevalent within the luxury goods market.
Social Herding
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| The Asch Test |
We all think we are individual, special and unique but unfortunately this is not true.... it is in our nature to conform to social norms and do what everybody else is doing. The 'Asch test' developed in the 1950s was designed to do this (see photo), people were invited into a meeting where they were shown this picture and were asked which line A,B or C was the same size as the line on the left? It is C, right? Well they were told that they could only choose between A & B, even though it is quiet clearly C. Everyone in the meeting followed everybody else and no one was brave enough to go with what they thought intuitively, rather what everybody else thought. This is still very true today, looking at the army, people are being groomed to harm people and inflict violence which goes against our instinct, but they feel as everyone else is doing it, they have to too.
Loss Aversion
People place higher value on things they already have than what they haven't got. Confused? It is the £100 lost vs £100 gained. People have emotional value on things they own, so people put extra effort in preventing from losing things. An experimental study was conducted where people were given mugs, they had 1 cup of tea from the mug before they were asked 'how much will you sell your mug for?', whilst other people who had not been given the mug were asked 'how much would you pay for the mug?'. The people who owned the mug, on average, said almost double the cost than those who did not have the mug - and they only had 1 cup of tea from it!
Loss aversion techniques include: money back guarantees and introductory free trials - as people already own it, they don't want to lose it.
Chunking
People are more likely to complete tasks which have been broken down or made easier. Banks are notorious for creating rigorous advertising campaigns about promoting the 'easyness' of switching bank accounts with them - they will do it all for you and you do not have to do anything. This attitude wins them over a lot of new business as it simplifies a complicated process. However, people have to want to change in the first place which is another massive hurdle banks have to jump over as many people will only switch banks 1-2 times in their life.
This is very basic overview of behavioural economics, but shows you how relevant it is in today's society. As consumers, we are constantly being analysed and studied as to our behaviour and what makes us buy certain products. There is so much information out there now, its scary! Soon hypnosis will be widely used and they can just hypnotise us to buying instead of relying on our own decision-making processes.
For further reading on this topic:
Behavioural Economics: Red hot or red herring - IPA Publications
Freakonomics - Steven D. Levit and Stephen J. Dubner (I personally think this is an excellent book)
