Guest blog written by our friend Jake Pattaratanakun.
Jake is a university lecturer in Marketing at Chulalongkorn University in Bangkok and a scholar at University of Cambridge. He holds a Master of Management (Top of the Class) from Cornell University before pursuing his Master of Philosophy and PhD in Marketing at University of Cambridge.
America’s famous Time magazine once published an analysis of the success of President Barack Obama, asserting that Behavioural Economics was the President’s important secret that had won so many hearts.
In this, I’d like to mention some of its fundamentals, as well as a few rather entertaining researches on Behavioural Economics.
Behavioural Economics has been around since the 1950s, at the time when academics were pervasively questioning the “cause and effect” principles, which had been taught over hundreds of years, whether it could explain what actually happens in reality; since us human-beings, you and I included, use “emotions and feelings” not “cause and effect” on many occasions of the decision-making process.
One group of economists, thus, chose to study actual human behaviours in order to outline the principles of decision-making.
Subsequently, these economists began to increasingly understand factors which influence human behaviours, to the point where they could use such knowledge to “control” certain decision-makings, prompting some gurus to call this science “a tangible magic”!
In marketing, the major which involves Behavioural Economics is Behavioural Decision Theory, of which interesting researches I will mention simply as an hors d’oeuvre. Should they be of your interest, you may choose to read further about these researches.
“Vanilla, chocolate or strawberry yoghurt”
Professor Brian Wansink of Cornell University trialled a consumer tasting of two cups of yoghurt, both of which labelled “strawberry yoghurt”; then asked whether Brand A or Brand B had a more intense strawberry flavour.
Almost a hundred percent of consumers could reason which cup of yoghurt had a more intense strawberry flavour, and could also explain why their chosen cup was more intense e.g. “The smell of strawberry of Brand A exploded from the very first taste.” or “I could feel that the freshness is more pronounced than that of Brand B.”
The interesting fact was that the yoghurt used was actually the same kind from the very same brand, simply re-packaged! The taste, therefore, shouldn’t be any different. Moreover, the yoghurt was, in fact, a mixture of vanilla and chocolate flavours, without any traces of strawberry at all!
This happened because the researchers set an expectation through the yoghurt cups that were labelled to be strawberry flavour, then proceeded further to ask questions about strawberry flavour, which then made the tasting facilities of the consumers so distorted they could not make any sense.
This kind of knowledge underlines the importance of choosing effective marketing media – from public advertising all the way to communications at the point of sale, including appropriate wording of labels.
Let’s just say that a person who mastered marketing communication skills could simply turn a cup of vanilla/chocolate yoghurt into a cup of strawberry yoghurt!
“Lose the money, but not the tickets.”
Imagine yourself in front of a theatre; in your wallet there are tickets to the currently popular musical, The Phantom of the Opera, worth £100. There is also £100 cash in your wallet. Please answer these questions:
1. If you find out that the tickets have gone missing, would you use the £100 cash to purchase new tickets to see the play?
2. If you find out that the £100 cash has gone missing, would you still proceed to see the play?
If you answer “No” to buying new tickets in question number 1, but insist on proceeding to see the play in question number 2, it shows that classical economic theories could not explain your behaviour.
If you insist on seeing the play even after you have lost the money, you should also insist on buying new tickets after you have lost them as well; since the results of both decisions are the same – you get to see the play but there will be no money left.
Professor Richard Thaler of Chicago University, who asked the abovementioned world-famous questions, explained that such behaviours, which deviate from the classical economic principles, are a result of consumer mental calculation, which “separates the budget” into various categories (mental accounting). Once the budget for the play exceeds the “budget for entertainment”, consumers will not spend any further on the subject matter.
Once marketers realised this, they must be able to create products that can extract money from various categories of consumer budgets, in order to generate more sales e.g. vitamin products are not only positioned to extract sales from “gifts”, they are also positioned to extract sales from “maintaining health” and “looking after your loved ones” consumer categories.
“The questions create happiness (or sadness)”
Please answer these questions:
1. In the past month, how many times have you gone on a date with your lovers?
2. In the past month, how happy are you? (From 1 = least happy to 10 = extremely happy)
Professor Nobert Schwarz (et al.) from Michigan State University found that the more people you dated in question number 1, the higher the score of question number 2, which is not that surprising.
What is rather contradictory is – when the order of the question was reversed, by which the happiness question was asked prior to the number of dates question, happiness score “did not” correlate with the number of dates.
To sum up, the first question led those surveyed to concentrate only on one subject matter, which was dating; therefore, gave happiness score through the number of dates in the past month without giving too much thought to other subject matters which could also influence happiness-sadness.
Knowing this, behavioural economists could then easily control people’s emotions. Marketers themselves could also apply this knowledge to create customer happiness, by tying positive feelings to products and services.
I hope you agree with my hors d’oeuvre – that behavioural economics is a very powerful tool and can be used to control human sensory (e.g. turning a cup of vanilla/chocolate yoghurt into a cup of strawberry yoghurt), mental accounting, or even happiness and sadness!
It is, therefore, not surprising that President Obama is infatuated with this science; and perhaps not too overreaching to label it as the “Magic of the Human World”.
Those who would like to know more about mysterious spells, undiscovered dimensions or ghost whisperers may still have to wait until I am accepted to Hogwarts University as a greenhorn of Harry Potter! Then I will tell you more!
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