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Applying Behavioural Economics to Digital Marketing

30 May 2013 BY

Classic economic theory works off of the assumption that consumers make rational, informed decisions about which products to buy. Under this assumption, market forces will lead to the best producers with the highest levels of quality and service to be successful, leading to a meritocratic marketplace.

Anyone who’s ever even taken a casual glimpse at consumer behaviour knows that this is simply not how people behave. We are not rational agents making informed decisions. Instead we are creatures of habit and instinct, making decisions based more on gut feeling and psychological biases than any rational consideration.

A relatively new field of economic theory called behavioural economics endeavours to understand human behaviour in the economical sphere, and give marketers tools and data to encourage sales.

Digital marketers already have a firm grasp of many aspects of behavioural economics, whether we know it or not. When we optimise shopping carts with big checkout buttons and make it as easy and simple as possible for online consumers to purchase, we are practising behaviour economics. When we tweak PPC ads to contain trigger words such as ‘free’ and ‘limited’, we are practising behavioural economics.

Interestingly enough there hasn’t been all that much written about how digital marketers specifically can tap in to the knowledge emerging from behavioural economics. Despite many BE concepts being applied to all areas of digital marketing, the phrase ‘behavioural economics’ is rarely used to refer to these learnings.

Aside from a few articles scattered about on various websites, there’s this really great presentation from Vyshnavi Doss on Slideshare, embedded below, which I recommend you view in its entirety:


Behavioural economics and digital marketing from Vyshnavi Doss

I want to share a few core lessons from behavioural economics with you; things you probably already knew are important, but maybe you didn’t know why they’re so important:

The Mere-Exposure Effect

Also known as the familiarity principle, the mere-exposure effect is a mental bias by which consumers make purchasing decisions based on what they’re familiar with. Being exposed to the same thing repeatedly, be it a word or a person or a website, makes us feel accustomed to it and grows a sense of familiarity in us.

In commerce this is evident in how we tend to prefer to buy from shops we’ve bought from before. This counts for supermarkets as much as for ecommerce stores, where our familiarity with the store layout and shopping process ensures we have a preferential bias to shop there again.

This is why encouraging return custom works so well for ecommerce stores. Through email marketing and social media we should encourage customers to purchase again from our ecommerce stores, exploiting the mere-exposure effect to our benefit.

Habituation and Defaults

People often fall back on default behaviour and habits, because these are well-trodden mental pathways and require less cognitive effort. When we’re used to doing something in a specific way, either because we’ve done it a lot or because it’s a default behaviour inherent in us, it takes a lot of mental effort to learn a different approach.

Translating this to the web, when we go to a website we’re not familiar with, we have to re-learn how to use and purchase online from that specific website. As this takes a lot of cognitive effort, the site needs to go the extra mile to convince us they’re worth that effort.

Precisely because of this behaviour it’s paramount for websites to feature straightforward layouts, simple navigation, and a checkout process that’s as easy as possible. This ensures there are as little cognitive obstacles in the path of potential new customers. It’s also why trust signals such as secure checkout icons and positive reviews are so vitally important for ecommerce websites, to ensure that the sense of risk experienced by a new customer is minimal.

Social Proof and Contagion

Another default mindset people revert to is copying what others do. Few of us are comfortable being lone risk-takers on the cutting edge of the consumer life-cycle. Mostly we want to wait and see if something is worthwhile, and then follow in the risk-takers’ footsteps.

This is why social proof such as testimonials and customer reviews is crucial. It shows that your business is trustworthy, and that you’ve delivered on your promises for many prior customers. These are strong signals to potential new buyers, and can persuade them to take a chance on you rather than on an unproven competitor.

Further Reading

The above is just a tiny sample of the insights behavioural economics can provide. There’s a whole world of intriguing research to uncover, and here are a few recommendations to get you started:

  • Nudge: Improving Decisions About Health, Wealth, and Happiness
    This book by Richard Thaler and Cass Sunstein is a great entry-level work explaining the concepts of behavioural economics.
  • Influence: The Psychology of Persuasion
    Previous editions of this book were known as ‘Influence: Science and Practice’, and author Robert Cialdini has updated this new edition with fresh material.
  • The Art of Strategy
    Essentially a book on game theory, this tome by Avinash Dixit and Barry Nalebuff is a great read about strategic decision making and taps in to a lot of behavioural economics research.
  • Webs of Influence
    This book by Nathalie Nahai was reviewed here on State of Search a few weeks ago and is a worthwhile read about encouraging your website visitors to make the right decisions online.
  • BJ Fogg’s Behaviour Model
    This website by Stanford professor BJ Fogg is a great resource to lean more about behavioural economics and consumer psychology.

There’s plenty more reading material out there – this list from Charlie Southwell contains loads more books to dig in to – but the above recommendations should give you a great start.

Behavioural economics is a powerful field of study, and you’ll be able to apply most of what you learn almost immediately to the benefit of your business and yourself.

AUTHORED BY:
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Barry Adams is one of the editors of State of Digital and is the Digital Director at The Tomorrow Lab in Belfast, where he leads an expert team providing web development and digital marketing services for a wide range of clients across Ireland and the UK.