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Heuristics: Four biases that profoundly influence how you market to customers

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10th Jul 2014
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It’s a common problem for those of us employed in customer engagement. We run focus groups, listen to customers, and create inspiring campaigns which respond to their needs, both emotional and rational, but customers don’t react like they should. All too often they do things that make no sense and go against insight.

The underlying reason for this is our inherent laziness. If you think we’re a lazy bunch when it comes to physical activities, we’re even worse when it comes to thinking. We actively avoid mental effort (or to use the correct term ‘cognitive strain’). For example, a simple problem – a bat and a ball together cost £1.50. The bat is £1 more than the ball, how much is the ball? Well, it’s not 50p which statistically most settle on (the correct answer is 25p). Most brains take a shortcut to 50p as it ‘felt’ right and they wanted to avoid the strain of thinking.

Our brains make these shortcuts (also known as ‘heuristics’) all the time; most of the time they help us get to the right answer, but some of the time they lead us to the wrong answer. And they will repeat this mistake over and over leading to built-in human biases – as Dan Ariely, professor of behavioural economics at Duke University has said, we are all ‘predictably irrational’. The study of heuristics is vast and deeply interesting. Here are four biases which profoundly affect the way you market to your customers.

The toxicity of money

Money can significantly affect a customer’s perception of your brand. It’s all about ‘social norms’ and ‘market norms’. Studies by leading psychologists have shown that all it takes for someone to switch from social to market norms is the presence of money. Our relationships with our friends and with brands in the past were simple. Our friends were our friends and brands were trying to sell us stuff. However, with the rise of social media and ‘caring’ brands, the lines have blurred.

Big brands are trying to get in on the trusting world of social norms and use it to reduce our price-sensitivity among other things. This isn’t always the most clever move on the part of brands because, let’s face it, most brands disappoint people fairly often. If you’re a market norm brand and you disappoint someone, they’ll think: ‘Well that’s disappointing, but what did I expect? They’re making money out of me.’ But if your brand has tapped into social norms and you disappoint a consumer, it’s a different story. They’ll react as if a friend has betrayed them rather than a company. This can lead to an instant social media disaster for the brand in the question.

Our advice? Pick one and stick to it. If you’re engaging through social norms: reduce the presence of costs and pound signs in your communications, treat your customers like you would your friends, be authentic and apologise, and finally invest in good social media monitoring. On the other hand, if you’re sticking with market norms: you will have the short-term advantage as price is an incredibly powerful differentiator, assess your social budgets and activity – there’s no point trying to be friends with your customers if you’re basing the relationship on cost savings.

I’ve made up my mind

You have the power to influence people. Will you use it?

Think of the last three digits of your phone number. Now, how much would you pay for each of these: a bottle of wine? A computer keyboard? A box of chocolates?

Believe it or not, thinking about those three numbers at the end of your phone number will have affected the price you offered. High numbers equate to high offers. In 2008, Dan Ariely ran this experiment, using Social Security numbers rather than phone number. He found a powerful correlation between the two figures. He then went on to try and change these anchored figures without much success. He called this trait ‘Coherent Arbitrariness’.

Why does this matter? Well, take the relatively new ‘freemium’ model into account. A customer would determine the initial valuation of a service, say Spotify, through its free nature. When a pay-wall is then introduced, individuals struggle to justify this change, as the service is permanently anchored in the initial ‘free’ value. Spotify may be a success story, but it lost valuable time against its competitors when it suffered its initial paywall backlash.

So next time you have the chance to affect a customer’s value of your products, take the following advice: once a customer sets something in their head it becomes anchored, secondly, first-time discounts/offers generally produce only short-term peaks. Thirdly, random elements can influence people’s perception of value so build this into your choice architecture (i.e. priming). Finally, first impressions count – don’t say something you’ll later regret!

Memorable moments

What can marketers learn from colonoscopy patients? More than you might think.

Daniel Kahneman is a behavioural economist, Nobel Prize winner and an all-round clever chap. He studied the memory of pain experienced during colonoscopies to develop a better understanding of how we remember pain.

During several routine colonoscopies Kahneman asked patients to rate their ‘pain ‘level’ every minute, on a scale of 1 to 10. They were also contacted after the procedure and asked about their memory of the event. Through studying the results Kahneman and colleagues identified a phenomenon called ‘The Peak-End Rule’ – an individual’s memory of events is determined by the most extreme moment in that experience and how it ended.

Why is this important? Ask yourself this, what is your customers’ typical last interaction with your brand? More often than not it’s a brief touch –point with little care or attention – a receipt, a transactional email, an annual statement. This sole touch-point makes up to 50 per cent of their recollection of your brand. It’s a fact missed by almost all marketers.

So don’t forget the peak-end rule – rethink your customer loyalty – your customers’ last transaction is more important than their whole relationship with you. Ensure post-purchase communication sells product as much as your pre-purchase ones. And prioritise customer service over short-term cost-savings.

‘I can just imagine them liking that’

Meet Steve who has been picked at random from the UK. Steve is shy and withdrawn, invariably helpful but with very little interest in people or in the world of reality.

Is Steve more likely to be a librarian or a farmer?

There are 70 farmers in the UK for every librarian. So it’s fair to assume that there are shyer, bookish farmers than there are librarians. Steve is overwhelmingly more likely to be a farmer. But you didn’t think about the numbers you simply ‘imagined’ Steve and he seemed more representative of a librarian than a farmer. You’re not alone. Most people opt for librarian and it’s a question that’s been asked over and over again.

This is called ‘The Representativeness Heuristic’. When people rely on representativeness to make judgements, they are likely to judge wrongly. The fact that something is more representative does not make it more likely.

So remember: average result in average marketing – get under the skin of your numbers. Beware of human error – we are terrible ‘internal’ statisticians. Finally, few brands have a single customer type – invest in customer segmentation and organise your marketing (and business) around it.

Nick Barthram is principal planner at Indicia.

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