Using behavioural economics in promotions

While classic economics might assume that people think rationally, behavioral economics contradicts this. Behavioral economic believes that human decisions are irrational, emotional, intuitive and mostly driven by habits.

“We think much lesser then we think we think,” said Han Zantingh, managing director – Asia at BrainJuicer.

"Human nature is built in a way where we don’t want to have to think about things. So when in a store, the last thing you want to do is actually think and calculate out a promotion."

Zantingh explains that our brain is split into two systems – System 1 and System 2. System 1 is an old system based on instinct. It is fast and intuitive and is what we tend to use most of the time unless we force ourself to use System 2. System 2 is much more logical and uses an analytical part of our brain. While human nature is to actively avoid System 2, said Zantingh, this avoidance might actually come in handy when it comes to organising your next promotion.

For your next promotion, remember that human decision making skills are based on three main factors: The environment, social and personal (how one feels)

Environment – otherwise known as framing

In 2007, New York city implemented a new technology in their cabs where a machine would calculate the tips passengers give to the cab drivers. Before this came into place, it was found that people were tipping an average of 10% per ride. But with this new implementation, the amount tipped jumped to almost 22%.

Here’s why.

At the end of the trip, the cabby would ask the passenger how much they would want to trip. The options were 20%, 25% or 30%. If they chose any of the three, the payment machine would calculate and add onto the fare. But of course, passengers would still be allowed to tip any other amount they thought appropriate. Nonetheless, because the framing was already there, people assumed the minimum amount to tip was 20%. Rather than challenge it, passengers decided to go with it. Also because the machine would simply calculate the amount for them, it became an easier choice..

TIP: Frame your discounts. Say words such as "Buy at least 2" or "Minimum of 4". This creates a social order already in place.

Social – By nature we are social animals.

It is human nature to copy. That’s why the term “I’ll have what she’s having” is so popular.

In a district in California, residents would be told if they were high energy user or low energy users in their neighbourhood. They would also be told if they are using a lot of energy compared to others. After the system was implemented, those with high usage started consuming lesser energy in the bid to stay on par with their neighbours. Unfortunately at the same time, the opposite also happened. Those who were initially consuming lesser energy also started consuming more. Officials hence decided to edit the letter being sent out to say “thank you for consuming lesser and doing your bit for the environment” to encourage those consuming lesser energy to continue to do so.

TIP: People like be part of a community. During sale season, show proof of similar people purchasing a product to drive up sales numbers. Meanwhile being endorsed by a familiar group or known magazine will also help gain the trust of a consumer.

Feel – People do not use System 2 when feeling

A promotion which says “Buy three and get $1” off has more impact than get “Buy three get 33% off”. Meanwhile the words “Buy 1 get 1 free” is less impactful than “50% off" even though it’s the same offer.

Why? Because  it just feels better.

TIP: Communicating that the product might run out with words like. ‘Offer ends today!’ also causes consumers to feel there's a need for urgency when purchasing the product.

Shopper Marketing 2014 is a two day event held on 25 and 26 June in Singapore at the Grand Park City Hall.