3 behavioural economics hacks to make your business more money
Behavioural economics is the study of how we make our decisions as humans. We make choices every day and as we've discovered in another post, we have a couple of decision-making processes. Both of these decision-making processes, particularly our faster system one, are affected by heuristics which are shortcuts we use to make decisions.
Here are a few examples of heuristics and how you can leverage them to influence consumer behaviour to the benefit of your business.
Heuristic one
Social proof
You’ve heard it before - there’s safety in numbers. For that reason, people follow the heard. Probably because thousands of years ago, not following the herd or crowd of people you lived with meant abandonment and death. The good news is, that’s less likely these days - but wiring in our brains has just found a new use.
The lesson here is people like to know or see that other people like them are doing the things they are (or considering). So show them what they’re doing is just like everyone else is doing and that it’s safe for them to do so.
How you can make this work for you:
If you’re in eCommerce showing customers other people in suburbs near them have just purchased things in their cart. (Kogan is great at this)
Showing the number of people browsing an article on a news site.
Make sure you’re getting customers to leave reviews on your product or service (another reason why it’s really important to stay on top of your business’ Google profile!)
Social media followers are a really easy way for people to gauge how important you are. Quality is important for things like engagement and sales., but having more is better in this instance.
Heuristic two
Mere exposure effect
We prefer things we’ve been exposed to and repeated exposure to something means we like things more. That means in many instances just by turning or showing up - you’ll be ahead of your competition.
Longer-term this leads to what psychologists call perceptual fluency which means when we better comprehend what we’ve been exposed to faster and more fluently, we associated a higher value with it. The other element is because as humans we feel comfortable with things we’re exposed to multiple times. Remember how scary your first day of school was? Once you went a few times it was much easier.
You can witness this heuristic in practice in Euro Vision - once a country wins, they win more frequently (because we know who they are). In fashion, we see trends come back over and over again. Covers of songs are the same. We’ve heard them once
Fun fact. One of the pioneering researchers in this field was Robert Zajonic. One of his experiments with chicks (like baby chickens) demonstrated they preferred sounds they were exposed to in utero when they later hatched. He proved this later with humans too (albeit with a different experiment) in a paper called Attitudinal effect of mere exposure.
How you can make this work for you:
As I’ve covered in other posts doing advertising for ‘brand awareness’ is useful and this is one of the reasons why.
That means integrated campaigns with multiple touchpoints and channels are a no brainer when you can afford to do so.
Lastly, consistency via your brand codes is key. Turning up all the time is pointless if your customers don’t know it’s you because you’ve changed how you look or sound. Remember we get bored because we live in our brand/product/company - but our customers don’t because, for the most part, they don’t think of us at all. Stop trying to do new things and put what your customer needs first. Most didn’t see what you did and even fewer will remember it!
Heuristic two
The Halo effect
We’re told from a young age that we shouldn’t judge a book by its cover. But we do it inherently, whether we like it or not. The halo effect is this in practice - we use one trait to form an understanding or opinion of something. That means we make weird leaps in our mind when we see stimulus we find pleasurable. E.g. if a new person starts in your team is good looking the halo effect means we think they’ll do a better job. And on the flip side the ‘horn’ effect where something that isn’t pleasurable will make us form a negative opinion.
That’s why in comics the good guys are literally good looking, and the bad guys look bad. It’s ingrained in us at a young age that all the good things go together as do all the bad things.
The best brands in the world understand this. Because they’re big enough they split their projects into projects that ‘go’ which make money. And projects for ‘show’ that get attention and position their brand. Think about the Tesla Roadster, or even Tesla/Elon Musk more generally. They’re pumping out crazy products (flamethrowers anyone?) just to show people just how innovative and out there they are. Not to sell a bunch of those specific products, but to make sure you know what they stand for and to sell a bunch of their Model 3s.
Another great example comes from Apple and the first iPod. The year after the first iPod launch Apple saw a 68% year on year increase in iMac sales with no changes to the product. That’s the halo effect in action. People saw the iPod which changed their perception of Apple and led to an increase ins sales.
How you can make this work for you:
Find and nail your positioning. The examples above show you just how important it is to stand for something and deploy a two-speed positioning strategy which allows you make big, long term plays with ‘show’ projects backed up by short term, money-making ‘go’ projects.
Polish your halo. This sounds patronising but put yourself through the same experience a customer goes through as often as possible. If the first interaction they have with your company through something as simple as your website is rubbish, they’ll probably think you’re rubbish too. Don’t trip up before you’re even out of the gate and let what should be a halo become a horn.
Summary
There you have three heuristics backed up with empirical studies which prove they work and a stack of hacks to help your business make more money. Want help to make them a reality for your business? Give us a call and let us take your six.
Big shout out to Dan from Hardhat who inspired this piece!