How do you know you need behavioral economics?

11 minutes ago

3 min read

(specifically for business owners)

I got into behavioral economics after reading 'Alchemy' by Rory Sutherland. A lot of puzzle pieces started to come together, and I felt slightly justified in my belief that humans don't make sense, so marketing.

Before then, I thought people were annoying, irrational, and unpredictable. This book did not make people normal, but it offered a glimpse into why we are the way we are.

Irrational behavior:

Sales that backfire.

No one wants free.

Have you ever had a sale that people did not care about? You gave away something for free, and no one wanted it?

Irrational behavior. It doesn't make sense. Behavioral economics may not make that logical, but it can help you with a strategy to understand what drive the inaction.

How is something too cheap to be good, and when you raise the price, it sells better? Understanding our perception and beliefs around pricing can lend some insight.

I've seen items sitting on the side of the road marked 'Free' and they never get snagged, yet if the same item said $5, it might get stolen.

Low adoption:

No sign-ups

Defaulting back to the old way

You've given your employees a new option for an even better health program, yet no one is adopting it, or they have completely ignored the investment matching plan. Why, it's free money, a great healthcare plan... what gives?

AI is here to help make your role easier; the company paid for a plan, yet it was used for a week,, and the employees return to the old way of doing things.

There could be a few factors in play, whether we prefer the status quo.

It's not a matter of dislike, but a matter of default.

What we say vs. what we do:

Churn but happy customer surveys

Customers said they wanted it but don't

Customer surveys are nice, but much like internal company surveys, we often want to be perceived as 'nice', we approve or agree when, really, we know there are circumstances that would change our minds. Sometimes the structure of the question leads our response, and the way its presented, our mood at the time vs. what we really feel.

Low conversion and cart abandonment:

Left the cart?

Reverted back to the old way or won't adopt the new way?

Many e-commerce clients struggle with seeing the potential of their sales,, but the actual is far less. Abandoned carts without any clear indication of why. There could be a couple of friction points, trust signals, or decision fatigue that has set in; a review can uncover a lot.

Did you have staff adopt AI then revert back to the old way? Or are you finding your customers are resisting a new procedure or way of doing business?? Aside from status quo bias, there may be other factors to consider.

Communications not communicating:

In marketing, one of the biggest ways I see behavioral economics being used is in communication and language. Whether we are framing something, social credibility or pressure, priming, using a comparison tool, or nudging behavior.

The reality is that, if it doesn't make sense, behavioral economics may help.