Leveraging Behavioral Economics to Drive Conversions and Sales

#1 Understanding the Principles of Behavioural Economics

Behavioural economics is a field that combines insights from psychology and economics to explain how people make decisions. Unlike traditional economic theory, which assumes humans always make rational decisions, behavioural economics recognises that emotions, cognitive biases, and social influences play a significant role in shaping our choices. Did you know that 95% of our decisions are driven by subconscious urges?

#2 Anchoring and Pricing Strategies

One of the key principles in behavioural economics is anchoring, where consumers rely heavily on the first piece of information encountered when making decisions. Businesses can strategically set higher initial prices and then offer discounts, making the discounted price seem more appealing. By anchoring the perception of value, customers are more likely to make a purchase. Another way of anchoring is by using price comparison to highlight the benefit of a customer choosing your brand over another. 

ALDI, as an example, does this really successfully in their ‘Like’ ads. They use price comparison to present brands with a higher price first. They do this to anchor the audience’s view on price before presenting the ALDI option, which is much lower. 

#3 The Power of Social Proof

Social proof is a psychological phenomenon where people conform to the actions of others under the assumption that those actions are reflective of the correct behaviour. Businesses can leverage social proof through customer testimonials, reviews, and user-generated content. Positive feedback from satisfied customers creates trust and encourages potential buyers to follow suit. 81% of consumers trust a company with lots of positive reviews. According to Trustpilot, a product with just 5 reviews has a 270% higher chance of being purchased than a similar one with no reviews. 

Another way of using social proofing involves demonstrating user preference by highlighting the number of people who have purchased a product or a service, for example on Monzo’s homepage you see this:

Prominently displaying how many people have Monzo accounts validates to the customer why they should join Monzo, because everyone else has one.

#4 Scarcity and Urgency Tactics

The fear of missing out (FOMO) is a powerful motivator in consumer decision-making. Limited-time offers and low-stock notifications tap into this fear, creating a sense of urgency. By highlighting the scarcity of a product or service, businesses can prompt hesitant buyers to make a decision promptly, thus driving conversions.

Brands like McDonalds and Starbucks do this really well by releasing items on their menus that are only available for a limited time. Everyone knows the hype around classic Starbucks Pumpkin Spice Latte and one of the main reasons for this is that they’re only available for a few months every year. The Pumpkin Spice Latte (PSL) has become a cultural phenomenon, so much so that Merriam-Webster officially added pumpkin spice to the dictionary last year.

#5 Simplify Decision-Making Processes

Too many choices can overwhelm consumers, leading to indecision and abandonment of the purchase. By simplifying the decision-making process, businesses can guide customers towards a purchase. Processing new or complex information uses up cognitive resources, leaving less bandwidth for decision-making. Clear product information, intuitive website design, and straightforward navigation are essential in this regard. The phrase less is more comes to mind, the more options a customer has the harder it can be to decide which option to go for. Take Netflix for example, they offer 3 different options for their customers so that customers can choose the best subscription for them. However, they keep it very simple for the user to make this decision with a clear outline of what they get in each of the different packages. This also uses framing, by highlighting the most expensive option in a different colour to catch the eye and the decoy effect, which provides cheaper, but less desirable options. 

#6 Personalisation and Customer Engagement

Personalisation tailors the shopping experience to individual preferences, increasing the likelihood of conversions. Businesses can use data analytics to understand customer behaviour and preferences. By sending personalised recommendations and offers, customers feel valued and are more inclined to engage with the brand, leading to higher conversion rates.

You can read more about Boosting E-Commerce Conversion Rates with Personalisation here. 

Summary

Incorporating the principles of behavioural economics into marketing strategies empowers businesses to connect with consumers on a deeper level. By understanding the psychological triggers that influence decision-making, you can optimise your approach and create compelling, customer-centric experiences. So why not take the first step, try incorporating one of the theories listed above and see if you notice a difference?

Want to find out more about who could be delving into your audience’s motivations and behaviours? Get in touch with us here.