Those who understand how customers make their decisions can make them better offers. Four insights into behavioral economics – plus ideas on how to apply them and generate more sales.
Not every decision is made rationally. People even tend to behave irrationally. There are also a number of behavioral economics experiments – the findings of which entrepreneurs can use for themselves. Because: Customers are only human and to buy means to decide. “And when companies know how people make decisions, they can develop products and services that specifically meet customer expectations,” promises management consultant Dominik Imseng in his book “Chief Behavioral Officer”. In it, he transfers the science of behavioral economics to everyday business life – with these four tricks, among other things.
1. Take away customers’ fear of loss
Scarcity arouses desires and is therefore often used to increase sales. With seasonal discount offers such as summer and winter sales, with small numbers or on online booking portals as a warning number: “Only nine places available.” “Although everyone knows that the artificial shortage of goods is an obvious marketing ploy, we keep falling get in on it, ”writes Mayeng. The trick works because people are under Loss aversion To suffer. That means: losses hurt us more than gains bring us joy. You don’t want to give up what you have once and work that you have already put into a project should not have been in vain.
Entrepreneurs can also use their customers’ aversion to loss creatively, for example when they set up loyalty programs. An experiment in a café shows how this can be done: Scientists there tested two different stamp cards. One promised the 11th free after buying ten coffees. With the other there was only the 13th coffee for free, but two had already been postmarked. Customers only had to buy ten coffees – and did so more often than with the ten-stamp card. Behavioral economists refer to the mechanism behind this as Home stretch effect: The more stamps there are on the card, the greater the need to collect them all.
2. Create acceptance for higher prices with the product presentation
The setting in which you present your product affects how customers perceive it. Through this so-called Framing “An ordinary offer becomes an extraordinary one,” explains Mayeng. With all the trimmings, entrepreneurs can learn from upscale gastronomy: the ambience in the restaurant has to be right so that guests are satisfied. Details such as the table decoration, the light or background music complete a menu. A study by Stanford University even shows that longer descriptions of the dishes increase the acceptance of higher prices – on average by 18 cents per letter. “Quite simply because the ‘frame’ in which the dish is presented becomes more elegant and therefore more expensive with each additional letter,” writes Mayeng.
Following the same principle, it is also worth putting a few more thought into how you write something down. For example, if a company wants to communicate its recommendation rate of 78 percent, Mayeng recommends writing: “8 out of 10 customers recommend us to others.” Or even better: ‘4 out of 5 customers would recommend us.’
3. Set a price anchor with clever product design
Whoever sees an offer, compares it not only consciously, but also subconsciously with other things. Psychologists speak of one Anchoring bias: Like an anchor, the comparison offer sets the price. Entrepreneurs should be careful not to anchor too deeply. The Nestlé Group acted according to this principle when launching its Nespresso coffee capsules and also in later marketing. The commercials spread an atmosphere like in a fine café, from the cups to the sofas to George Clooney, who always walks through the picture with a shirt and jacket. The marketing promise complements the product design: if you buy a capsule, you get a cup of coffee – but cheaper than in the catering trade. The fact that customers made this connection instead of comparing the kilo price with that of normal coffee powder was important for the success of the capsules. It is therefore worthwhile to consider the comparison that customers should make when designing the product.
More on this: Anchor effect: this simple trick will bring you more sales
4. About a special Increase customer loyalty in the customer experience
How deceptive human perception can be is illustrated by an experiment for which Nobel Prize winner Daniel Kahneman had the participants put their hands in water at 14 degrees Celsius. First they had to hold out for a minute, then even a minute and a half, but during the last 30 seconds the water became two degrees warmer – and the test subjects found this experience more pleasant, even though objectively they had their hand in the cold water longer. The psychologist Kahneman derives from it Peak-End Rule ab: People don’t rate experiences based on how good they are on average. What matters are the highlights and the end.
For entrepreneurs, this results in an important insight: You should make every effort to ensure that all of your customers’ contact with the product proceeds in the same way: with pleasant surprises in between and, above all, with a pleasant ending. “Because when companies do Peak-End Rule take into account, an average customer experience becomes an above-average one with minimal effort, ”promises author Mayeng. That could be a particularly simple payment process, an item that is deliberately not settled in the end, or a small parting present, says May. In his book he tells of a restaurant whose visitors are given a small package with jam and brioches when they say goodbye. This way, the guests have good memories of the evening meal and not just the amount on the bill.
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