Once you understand human psychology and emotions, you can understand how consumers buy your products and services. “Behavioral economics” is nothing more than learning how to do it. Why don’t you study “behavioral economics” and utilize it for your company’s management, marketing, and sales increase?
Use for Marketing! “Behavioral Economics” For SMEs
Philip Kotler, a leading marketing expert, says that “behavioral economics is just another name for marketing” * 1. In this column, I will introduce an example of using the theory of behavioral economics for “marketing”.
1. 1. What is Behavioral Economics?
“Behavioral economics” is economics that focuses on the fact that humans do not always act rationally, and conducts an analysis of the psychological and emotional aspects of humans in line with reality. Therefore, behavioral economics is sometimes described as a hybrid of psychology and economics. The reason why the use of behavioral economics for marketing is attracting attention is that by focusing on human irrational behavior and knowing “habits when humans make decisions”, we can guide consumer behavior and be ourselves. It has the potential to lead to our desired results. The examples presented below utilize the theory of behavioral economics for “marketing and sales growth.” Please refer to it.
2. 2. Utilize Behavioral Economics For Marketing and Sales Increase!
1) Increase the unit price per customer! (Extreme avoidance)
Humans tend to avoid extreme things. That is “extreme avoidance”. Here, we will introduce an example of a sushi restaurant. Suppose you have a sushi restaurant that has only two types of sushi, “Kamizushi 1,000 yen” and “Namizushi 800 yen”. Some people ask for “upper”, but in most cases, the safe “normal” is chosen. So, let’s add “special 1,300 yen” to the menu. Then, many people choose the middle “upper”, thinking “Is it too luxurious if it is special and too lonely if it is average?” By making “3 choices” in this way, you can encourage people to buy the “upper” in the middle and increase the unit price per customer. The setting for “Shotake Ume” is the same.
2) Increase customers’ purchasing motivation! (Anchoring effect, loss avoidance)
“Anchoring effect” means that the information and numerical values presented at the beginning influence the subsequent decision-making.
An anchor, and the information and numerical values that are the points where the anchor is stuck will be the basis for subsequent judgment. If you first present the list price as an anchor and then offer the discount, even if the price after the discount is the same as the market price at that time, you can produce a more “profitable feeling” than it actually is.
For example, by displaying “60% OFF from the regular price” and “30% discount from the price tag”, the original price becomes an anchor and the actual purchase price feels cheap.
“Loss avoidant” utilizes the psychology that humans are extremely reluctant to lose. Examples of applications applied in actual marketing are those that limit the period and quantity, such as “half-price until 0 days” and “limited quantity sales”. The same is true for time-limited point-giving services, and consumers can expect to be willing to purchase products because they feel that they will lose if they miss this opportunity.
3) Differentiate yourself from other companies! (Halo effect, Veblen effect, law of avoidance of decision)
“Halo effect” is a phenomenon in which other features/impressions are affected by conspicuous features/impressions. Translated into Japanese, the halo is “halo”. Have you ever felt that you have a good personality when you have a good academic background and appearance? This also affects product sales. For example, a product that has been evaluated by an authoritative person or has won a prize in a contest will have a better impression than its actual value. The reason why we use popular talents for commercials is that we expect a halo effect. In this way, the halo effect makes you feel better than other companies products and is effective for consumers to choose. “Cumulative sales exceeded XX million units” and “No. 1 market share in the industry” are also types of halo effects.
In addition, the “Veblen effect” has the effect of stimulating consumers’ desire for self-revealing and increasing their purchasing motivation by raising prices and establishing a brand image. The “law of avoiding decisions” is that if there are too many choices, it will be difficult to make a choice, so reducing the choices (number of products) tends to promote selection behavior. By applying these two, we will differentiate ourselves from other companies by making it a “luxury XX specialty store” rather than a store that offers a wide range of inexpensive items, and acquire core fans who have a strong desire to reveal themselves. You can also expect that.
4) Acquire new customers and fans! (Ownership effect, social selection)
“Ownership effect” is a psychological effect that makes you feel a higher value than you actually have or has a strong resistance to losing it. Sales methods that take advantage of this holding effect include “free trial period” and “return money-back guarantee”. By lowering the hurdle to use (owning), you can feel free to pick it up and then let it go, which will lead to continuous use. It is also important to get them to become “fans” from continuous use.
In addition, “social selection” is psychology that considers others and the environment. Humans have the property of valuing not only themselves but also others. Therefore, it is effective to appeal that the company contributes to society by advocating the company’s management philosophy and social mission, and actually conducting charitable activities. Recently, it is conceivable to work on SDGs. By earnestly working to solve social issues, we can expect consumers and customers to sympathize with the company’s attitude and support (become fans). Of course, be aware that if you work only on the upper side, you may end up losing the credibility of consumers and customers.
3. 3. Utilizing Behavioral Economics in-House and Management
1) Improvement of participation rate, etc., thorough adherence to deadlines (synchronization effect, framing effect)
“Synchronization effect” is to get a sense of security by taking the same actions as the majority, or conversely. If you are different from your surroundings. It is a phenomenon of becoming anxious. Also, the “framing effect” is almost the same thing, but just by changing the wording or expression, the way the other person receives it also changes and influences the decision-making.
For example, if the rate of health checkups is poor. You may think that it is the majority if you tell them that “people who have not yet received a checkup are ●● people. Please see them immediately.” I have. Therefore, it can be expected that the guidance “Most people have already completed the medical examination. Please have the medical examination promptly.”, The entrainment effect will work. You will change your mind that you should also have a medical examination.
Also, when setting a deadline for submitting documents, paraphrase “Please submit within 4 weeks” rather than saying “Please submit within 1 month”. The unit will be smaller and the deadline will be closer. Feel the deadline and imagine it concretely. The same applies to the phrase “within 5 business days” rather than “within 1 week”. This is an example of how to use the “framing effect”.
2) Promotion of work style reform (default setting)
Behavioral economics can also be used to improve workstyle reform. Such as reducing overtime work and promoting the acquisition of paid holidays. The National Police Agency / Chubu District Police Bureau Gifu Prefectural Information and Communication Department have set a rule. That the day after the night shift is usually a holiday, and if you want to work the next day. You must apply to your boss * 2. This is a method in which the desired choice or action is set as the “initial setting (default)”, and the cost of “changing” is incurred in order to make other choices or actions. As a result, the number of people taking leave after the night has increased by about 30%.
Setting overtime to “advance application system” is also the default setting. For companies that have a lot of overtime and are in trouble, why not consider introducing an “advance application system”?
4. Points To Note When Using Behavioral Economics
Utilizing the theory of behavioral economics for marketing can be expected to lead to increased sales and differentiation from other companies. Why not use behavioral economics for your own marketing?