Successful marketers must have a profound understanding of the consumer’s thought process in order to create a successful marketing campaign. By understanding the consumer’s decision-making process, marketers are able to develop value propositions that really fit the consumer’s needs.
Behavioral economics is the study of the effect that psychological factors have on the economic decision-making process of individuals. The importance of understanding behavioral economics for marketers is immeasurable as it allows for a better understanding of the human mind.
Here are some examples of behavioral economic frameworks that every marketing professional should be aware of:
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The pain of cost
According to traditional economic principles, the cost of payment should be directly proportional to the amount of money spent. In reality, there are a number of factors that determine how money is spent, and the relation between cost and money spent is not necessarily linear.
Marketers know that delaying payment is a technique that can drastically increase the consumer’s willingness to purchase. The main reason this technique works is that delaying payments make the value of money less ‘costly’. Even a briefl delay in disbursing money can have a significant impact in overcoming the aversion to purchase.
Irrational value assessment
Research shows that you would actually be more likely to admire a $10 bottle of wine if someone lied to you and told you that it actually costs $50, even though the product is actually the same. It may sound strange, but we are wired to expect that cheaper goods are inferior, regardless of the real characteristics of the product or service. Successful marketers need to deeply understand the effect that price has on the brain of the consumers to develop successful pricing strategies.
Paralysis by analysis
It is a mistake to think that the more options a marketer can offer a consumer, the better. When a default option is not presented, presenting too many options can translate into a loss of willingness to purchase. This is known as the paradox of choice. The more options we are presented with, the more overwhelmed we become, and the less likely we are to make a decision resulting in a purchase.
These are only some of the many psychological factors that affect consumer behavior. If you are interested in a career in marketing, you’ll quickly find that psychology will help you discover invaluable insights into the way consumers think. Behavioral economics allows marketing professionals to optimize marketing strategies and get real results.
