A Marketers Guide to Behavioral Economics

Behavioral Economics

In the spring of 1998, Professor John T. Gourville of the Harvard Business School published a paper titled “Pennies-a-Day: The Effect of Temporal Reframing on Transaction Evaluation”. The paper suggested that reframing a one-time expense
into several smaller expenses can favorably impact demand. From a theoretical standpoint of Behavioral Economics, this makes perfect sense and varies with the income bracket that is being targeted by the product or ad.

For someone earning US$ 100,000 annually, a US$ 1,000 transaction would require some thought, whereas a US$ 3 transaction would likely be an impulse buy. The paper argues, and for instance, that if a product such as a car were priced at US$ 1,000, then prospect would get turned off by the large ticket price and begin to tap into the rational part of her or his mind. But if the same car is priced at US$ 3 per day, the association that the pricing is related to an impulse buy kicks in the emotional side of brain’s decision centers, thereby formulating an opinion that the product being advertised is a no-brainer. This was a lesson in Behavioral Economics of framing, and it is one a CMO can use to both sell their product faster and disassociate buyers from the burden of the purchase.

Another concept Behavioral Economics is for convenience. Research shows that diners are much more likely to have positive associations with an eating out experience if they can pay for it later or with a credit card. This is the “pain of paying” and relates to the consumption of an item and the opportunity to relish in its splendor without having to put the experience on hold and fetch a wallet. This is why mobile wallets are such a hit in Eastern markets because they are such an ingrained part of the human experience today that it doesn’t require a second thought. Checking accounts are debited at the end of the month by electrical and utility companies so the pain and wonderment of consumption are very low. If people had meters in front of them everywhere and could see what was being consumed, as well as the dollar amounted associated with it, they would become very conscious about their utility consumption (take that global warming).

So if your business wants to tap into the psychology of its buyers and capture customer mindshare, check if your buyer journey ecosystem lessens the pain of paying (alignment with mobile wallets) and reframing the burden of a purchase decision to ease not just purchases but brand sentiment.

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Usman Khalid

About the Author Usman Khalid

Usman Khalid is the founder & CEO of Centric DXB. He excels in taking the point of view of both our clients and our internal teams - expressing those perspectives, concerns and requirements to the other side. Aspiring clients & partners can reach him on usman.khalid@centric.ae

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