Imagine you’re trying to sell a TV. You place two TVs next to each other, one slightly more expensive than the other: say 180 and 220. Most people, not knowing the difference, choose the cheaper version because it seems to offer better value. Now you place a much more expensive TV next to them. Say the new one costs 1,000.
Hardly anyone buys it, but the number of people buying the 220 version goes up dramatically. By framing the value proposition – by creating a new value “anchor” of 1,000 rather than 220 – the merchant alters the comparisons people make and therefore their perceptions of value.
Charities do the same thing when they make suggestions as to how much you should give; so do marketers and retailers of countless different items who focus consumer attention on the most aspirational product, not because they hope to sell shed-loads of it but because it alters people’s price sensitivity lower down the scale.
Decisions are being made, not on the basis of careful consideration of objective facts, but because human beings’ perceptions are sometimes easily influenced. Of course, in some senses, this is what marketing is all about. It’s everywhere.
Take the “mere exposure” effect. The mere exposure of a brand name, image or face – even if it’s for so short a time that it’s subliminal – makes you more likely to prefer it and choose it when you come across it again (compared to something you have not been exposed to before). This is probably because greater familiarity represents lower risk.
Likewise, if you add a smiling face to a piece of communication response rates go up – probably because, over thousands of years, smiling faces have sent signals that you can relax rather than having to fight for your life. In social situations, decisions are driven as much by liking/not liking as by “rational” calculations of economic value. Making exchanges is as much a social as a purely economic process, so it’s not surprising that emotional appeals are often more effective than purely rational ones.
The list goes on. When faced with new, unfamiliar situations, babies immediately look towards their mothers’ eyes. They relax if the mother seems relaxed. They get anxious and upset if their mother is anxious and upset: when in doubt we look to see what other people are doing. This herding instinct lies behind many marketing fads and fashions (and more recently the rise of peer to peer recommendations). Pete Lunn, a researcher at the Economic and Social Research Institute in Dublin and author of Basic Instincts: Human Nature and the New Economics, says: “I could write a book solely on psychological phenomena for which there are parallels in marketing.”
In one sense, there’s nothing new here. Via a remorseless process of trial and error, marketers have discovered
many things in the market long before they were proved in laboratories. However, since Amos Tversky and Daniel Kahneman’s 2002 Nobel Prize for their work in behavioural economics, there’s been a ferment of research into these frontiers where human psychology and economics meet – marketing’s home territory.
This ongoing research revolution is bound to affect marketing, but how?It’s too soon to tell, but here are some questions that might become significant debating points. Given that people are influenced by deliberate psychological manipulation, just how gullible are they? In one recent study by Marianne Bertrand at Chicago Graduate School of Business, the way marketers framed and cued a loan offer allowed them to charge between 1 and 4% more for their loan, suggesting that “the framing of any initiative, programme or product can be just as important as the actual terms of the offer”.
Yet, in the same experiment, some other attempts at manipulation had zero effect. “Psychological nuance matters but may be inherently difficult to predict given the impact of context,” suggests Bertrand. Also, how strong are such effects in competitive circumstances? For example, what impact does the “mere exposure” effect have when consumers are choosing between two products they have been exposed to?What about the consumer’s decision making modes? In their book Nudge, researchers Richard Thaler and Cass Sunstein highlight the difference between decisions made in “automatic” mode (when we are relying on our instincts) and “reflective” mode (when we stop to think about). Do some persuasion techniques work only when one side is aware they are being used? Does transparency and education sap some influencing techniques of their power? Is there a significant difference between controlled experiments and situations where consumers are more in control and more able to block, filter or avoid particular types of marketing?Also, as researchers uncover and list all the predictable ways that people’s decisions can be, and are, influenced, how will regulators react? Simply stand on the sidelines mouthing the mantra that as long as consumers have freedom of choice there is no need to intervene?Whatever the answers are, at some point over the next few years, ongoing research by a fast-growing band of behavioural economists, evolutionary psychologists, neuroeconomists will stoke increasing public debate and put marketing and marketers under the spotlight.
Consider the following age-old dynamics. A good value offer plus some clever persuasion will probably deliver you more sales revenues than a good value offer on its own. If your goal is to improve sales revenues even further, how should you respond? Bertrand’s research suggests that even cleverer persuasive techniques might deliver even better results at much lower cost than offering better value.
But this might have two longer term effects. First, it might seduce the company’s marketers away from investing in better value, thereby opening themselves to competitive attack. Second, it risks undermining trust as consumers, and perhaps the media, become more aware of the company’s tactics. If brands are built on foundations of trust, this might not be so clever after all.
As Lunn writes in his book: “As consumers we know the power of marketing, we know that we are susceptible to it, and we know that it is a battle not to be taken in. Of course, we don’t like it. We live with the constant suspicion that we are being fooled.” A suspicion that constantly colours the relationship between consumers and marketers.
Ultimately, as Thaler and Sunstein stress in Nudge, marketers are not only creators of choice, they are also “choice architects”, organising the context in which people make decisions. Over the coming years, the consumer value of the different types of choice architecture provided by marketers is going to come under intense scrutiny. v