4 Common Myths About Human Decision Making!

Human decision making is a complex process which behavioural science is now helping us to better understand. However, much of marketing theory is based around simplified models which are increasingly being shown up as not fit for purpose. As a result a number of myths have grown up about decision making that we can now dispel.

Prices are determined by supply & demand!

  • Despite what economist might tell us, prices are often not the result of an equilibrium between supply and demand. When a new product is launched the initial price can be fairly arbitrary. It may simply reflect what the seller believes customers will be prepared to pay. However, experiments in behavioural sciences show that the first price that we see when considering a purchase becomes imprinted in our mind and acts as an anchor. This influences not only current prices but also our future expectation of the price. This is contrary to traditional economic theory.
  • This phenomenon is called arbitrary coherence and explains why our first decision to purchase an item is so important to our future behaviour. It also suggests that what consumers are prepared to pay can easily be manipulated. Indeed, Dan Ariely found that the prices we are initially prepared to pay can be influenced by responses to random questions.
  • In one experiment Ariely got students to write down the last two digits of their social security number before asking them to bid for a number of items in an auction. When the bids were analysed Ariely found that students with the highest-ending social security numbers bid the highest, and those with the lowest-ending numbers bid the least. Ariely’s experiments also demonstrated that once people are willing to pay a certain price for one product in a category, their expectation of prices for other products in the same category are logically linked to that first price (the anchor).

 

People are mainly influenced by a brand or product before they take an action.

 

  • This idea is fundamental to the popular A.I.D.A (Attention, Interest, Desire, Action) advertising model.
  • Experiments by behavioural economists (BE) suggest that most of the decisions we make are influenced unconsciously by our emotions, social norms and what our peers are doing. The context, including the environment we find ourselves in, also influences our behaviour. BE indicates that we then unconsciously review and post-rationalise after the event. This means that we usually act before we consciously consider our decisions and our memory of what drives our decisions is unreliable and often wrong.
  • Because most of our decisions are driven by the unconscious mind we cannot assume that the customer journey is a linear process as many popular  models would have us believe. Mark Earls suggest that it is more likely to be similar to a game of snakes and ladders. Positive influences, such as what we hear from our peers, nudge us towards a purchase. However, negative influences, such as our emotional state, may move us away from a decision.

People have clear preferences and know what they want!

  • As Dan Ariely points out in his book Predictably Irrational, “everything is relative”. People often don’t know what they want until they see it in context. Priming, anchoring, and framing are key to how we respond to choices we make. People like to compare things that are easily comparable, and the context of how we present items heavily skews our response to them. This is why it is particularly important how we position new ideas or products. For once we have presented something new as being positioned in a certain category or price band it is very difficult for people to accept much movement away from this initial anchor.
  • This partly explains why asking people about future purchase intentions can be highly misleading. The answers you receive will be strongly influenced by the context of the survey and the individual question. Further, if people are not fully aware of their motivations for past purchases you can’t expect them to predict how they will respond in a future hypothetical situation.

Consumers like to act independently of each other and express their individual preferences.

  • Humans are a “super social species” (Mark Earls, Herd). Our behaviour is unconsciously influenced by what other people do and more so than we realise or like to admit. When faced with uncertainty we look to how other people behave and will often follow their lead. Indeed, Mark Earls argues that human-to-human interactions about a brand are much more influential than business-to-consumer interactions can ever be. Further, he suggests that consumer generated word of mouth (WoM) is much more powerful than that created through marketing WoM campaigns. This is because people are very good at spotting cheating and deception.
  • The insight here is that brands are built on interactions between people and not brand values or footprints. Whether it is consumer-to-consumer interactions or staff to consumer conversations, its people that matter most. Marketing departments may be more productive if they encourage C2C interactions rather than trying to control brand communications. There is some evidence to suggest that the C2C interactions potentially generate greater returns than short-term B2C marketing activities.
  • This challenges current thinking about targeting and the Customer Relationship Marketing (CRM) approach to interacting with consumers. If B2C communications are indeed more short-term and less powerful than C2C interactions then does this undermine some of expected benefits from CRM? Certainly recent research does not suggest that most customers want a relationship with your brand!  If this is the case then they key to unlocking the power of  WoM may be more about giving power back to your customers to allow them to interact rather than trying to police brand communications.

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Further reading:

 

  • About the author:  Neal provides digital optimisation consultancy services and has worked for  brands such as Deezer.comFoxybingo.com, Very.co.uk and partypoker.com.  He identifies areas for improvement using a combination of approaches including web analytics, heuristic analysis, customer journey mapping, usability testing, and Voice of Customer feedback.
  • Neal has had articles published on website optimisation on Usabilla.com  and as an ex-research and insight manager on the GreenBook Blog research website.  If you wish to contact Neal please send an email to neal.cole@outlook.com. You can follow Neal on Twitter @northresearch and view his LinkedIn profile.

Why Do Companies Buy Cheap Market Research?

image of chart showing methods of how surveys are conducted

 

I read with interest Edward Appleton’s blog (Can MR Clients Recognise Quality When They See It?). Edward was commenting on Reg Baker’s post Final Thoughts on MRMW where he suggested that

“if online and social media have taught us nothing else it’s that clients sooner or later will buy cheap data over good data every time.”

I agree with Edward that cheapness is missing the point. The issue is value or perceived value in most cases. This is why management consultants are able to command such high fees when they often re-package research and simply present it in a way that is more strategic and digestible for senior management. I have always found research budgets easy to come by when I have been able to demonstrate a clear link with sales or costs. Linking insights to marketing strategy is essential for any client-side researcher and being visibly part of this process is critical for raising the perceived value of insights.

However, I can also identify with the sentiments expressed by Reg Baker. From my experience in financial services I have observed a number of situations that can encourage cost to override the quality of data.

  • AGENCY ROSTERS:

Rosters that are established with too much emphasis on cost savings and not enough weight given to building relationships rarely achieve their aims. The result is a bureaucratic straight-jacket and wastes a lot of time and money. You end up with fewer suppliers and agencies are forced to reduce unit costs. However, this simply encourages agencies to offer a skeleton service.  Anything not explicitly included in the proposal is then charged as an extra. Given the need to show savings it is then difficult to justify any increase in budgets to cover extras that might improve data quality. This strategy for saving money is essentially counter-productive.

  • COST CHALLENGES AFTER THE WINNING PROPOSAL HAS BEEN CHOSEN:

I don’t mind cost challenges, it’s a fact of commercial life. However, random cost challenges where management ask for cost savings after the agency has been selected can have dire consequences for complex studies. This sometimes happens because marketing managers perceive research as an easy area to cut as they don’t see a direct link to short term business goals. Some managers also see research as a commodity and don’t appreciate that sudden cost reductions will be made by sacrificing sample size or other factors that may ultimately affect data quality.

  • OBSESSED WITH COSTS:

Some companies are generally obsessed with cost reductions. Such companies are so focused on costs that added value functions like research are treated the same as any other cost centre. This means that procurement expect research departments to use methods such as online auctions for competitive tenders. This again is treating research and data as a commodity and assumes everything including insights can be measured.

  • MANDATORY SURVEY FOR GLOBAL HQ:

When Global Head Offices impose a standardized survey across all their markets there is a big risk that such research will not be fit for purpose in many countries. I’ve seen this in the UK where the unique characteristics of the UK market are not taken into account by the Global HO. This means that local management do not buy-in to the insights and the study is seen as a necessary evil. One consequence is that quality of data is not seen as a priority.

  • GARBAGE IN GARBAGE OUT!

There are lots of other situations that I could mention where cost is seen as more important than the quality of data, but most derive from a lack of appreciation of the potential value of insights. The key take out is that we recognize there is a problem and we put strategies in place to deal with it. From a client-side perspective it is a constant process of stakeholder management, and building relationships with suppliers. However, the best way of demonstrating the value of insights is to deliver data that is actionable and clearly assists management in meeting their set targets and goals.

Thank you reading my post. If you found this useful please share with the social media icons on the page.

You can view my full Digital Marketing and Optimization Toolbox here.

To browse links to all my posts on one page please click here.

Recommended reading:

Thinking, Fast and Slow

 

  • About the author:  Neal provides digital optimisation consultancy services and has worked for  brands such as Deezer.comFoxybingo.com, Very.co.uk and partypoker.com.  He identifies areas for improvement using a combination of approaches including web analytics, heuristic analysis, customer journey mapping, usability testing, and Voice of Customer feedback.  By  aligning each stage of the customer journey  with the organisation’s business goals this helps to improve conversion rates and revenues significantly as almost all websites benefit from a review of customer touch points and user journeys.
  • Neal has had articles published on website optimisation on Usabilla.com  and as an ex-research and insight manager on the GreenBook Blog research website.  If you wish to contact Neal please send an email to neal.cole@outlook.com. You can follow Neal on Twitter @northresearch and view his LinkedIn profile.