3 Feb 2017
022 - 3 Behavioural Economics Principles You Need To Know
This is session number 022 of the Influence Psychology and Persuasion Podcast. And this show is all about Behavioural Economics Principles. Well not all about but certainly 3 tips to help you understand what this amazing study has to offer.
So, Behavioural economics are sets of psychological studies all around economic decision making. So, if you buy or sell things, this podcast is for you. And if you are involved in marketing, sales and run your own business, this is most definitely for you.
As you're listening to this you will already have a clear understanding that we, humans, are anything but clear or easy to understand. We're odd, we make irrational choices, decisions and statements.
I remember a few years back and my wife came home one Saturday in January. She walked through the door, beaming with pride, came into the living room where I was reading a book, hands at breaking point with carrier bags with a red sale logos splattered all over and held them to my face. She then blurted out "You wouldn't believe how much money I've saved".
Interesting, I though. She wouldn't have bought anything if it wasn't January sales and the fact she had 25+% off. She felt like she'd saved money. Lol.
My wife isn't the only reason for these studies. We all make irrational choices at times. Here are 3 studies to arm you going forward.
Tip Number 1 - FREE!
Now most of us get this. FREE is like a drug which pulls us in for closer inspection. FREE has a magnetic pull that us mortals can't resist. But is this logical?
Forget for a moment that now days we may have been abused by the power of FREE. Most of use will think, but what do you what in return if not money? The science shows we have an unreasonable connection to FREE!
An interesting study was carried out. Researchers offered participants a choice of 2 chocolates. The choice was either a 1 cent Hershey's Kisses or a 15 cent Lindor chocolate truffle. Most of the participants opted to pay for a 15 cent Lindor Truffle because they could see the amazing value, when compared to the Hershey's Kiss.
Here is the interesting part though, when the researchers dropped the price by 1 cent, the vast majority then opted for Hershey Kiss. All because it made it FREE! The word FREE makes us unreasonable. Watch out, or use it to your advantage.
Tip Number 2 - Perceived Value
You all know what we like right? We're not persuaded by price, at all. We simply understand what's good and what's not!
If Only!
The research says we are more likely to admire a bottle of wine if it is priced considerably more. Interesting, this means we may perceive quality based on price.
Here is the bones of the study. The members of a Wine Club were invited in to taste and rate 5 bottles of wine, based purely on what they liked. Here's the sneaky part, there were only 3 different wines. 2 of the wines were in 2 bottles. Haha. However each bottle was only noted with a price label. Nothing else, just price.
Only, there were actually only 3 different wines in those bottles– two wines had two bottles each. Each bottle was marked only with the price tag and nothing else. The prices ranged from $5 to $45 for the same wines and the other ranged in between. So, the $5 wine was also marked at the top price of $45.
There was a clear correlation with the ratings of the wine and the price label. You guessed it. The $45 bottle of wine was rated the highest even though it was the same wine as the $5 bottle.
Here's 2 more examples of how price effects your decision making.
Prozac the anti depressant, was tested against a placebo. In this study they sold the placebo at a price of $2.50 per pill and the real Prozac pill at $2.00. Strange but true, the higher priced placebo out performed Prozac.
Even more disturbing, students were given a caffeine and sugar drink and were told this would help them improve their alertness and cognitive abilities.
But, half of the students were asked to pay full price for this while the other half received a huge discount... The results. The students who received a discount solved 30% fewer puzzles.
This study has been done time and time again in many studies and they all deliver the same results.
Tip Number 3 - Priming
Simply talking about a particular attribute will cause people to make a decision based on how they are primed.
A very simple study was done in a computer store where people who were looking at Laptops were asked 2 things.
The first group were asked how much memory they were looking for, and the second group were asked what processor they wanted. You guessed it, those who were asked about processor purchased a laptop with a high spec processor, and the buyer who were asked about memory chose a new machine based on it high level of memory.
A similar study was done in supermarkets. People who were walking down an aisle with yoghurts and fruit were stopped and asked A: whats your favourite fruit and the other group, whats your favourite yoghurt. You can guess what happened by now for sure. Those who were browsing the aisles ended up buying those products they were asked about.
