Learning How We Make Decisions

April 4th, 2012   •   no comments   


Courtesy of Knowledge of the Day

I’ve just listened to a podcast by Derek Halpern of Social Triggers blog which presented a fascinating glimpse into the world of neuroscience and its impact on marketing. Interviewing Jonah Lehrer, author of “How We Decide”, the podcast explained that decisions are primarily made when there is an interplay between the stimuli that we receive and their influences on different portions of the brain.

Perhaps the most fundamental point is that emotions play a big impact on decision making. In studies where brain injury patients lose the use of their emotional brain centres (the limbic brain system), these individuals are often unable to make the simplest decision such as deciding where to have lunch and so on.

This would imply that any form of marketing message must have an emotional stimulus that influences decision making. Going solely on logical and rational benefits alone will not work.

There are also two key protagonists at play in decision-making in any human being, namely:

– the insular cortex (or insula) which is the deeply embedded “pain centre” of the brain.

– the pleasure centres which are linked to the nucleus accumbens and the pre-frontal cortex.

The fear of loss (or loss aversion) which involves the former is normally a stronger neural pathway than the potential benefit of gain. Thus, advertisements that use loss preventive language (“Don’t Lose this Opportunity”, “Hurry, While Stocks Last!”, “Season Ending Soon!”) often works better than those that proclaim any potential gain (“Enjoy 50% discount!”, “Live a richer life today”).

In the same vein, people are often exquisitely sensitive to criticism. A negative experience will be remembered them far more strongly than positive comments and compliments.

A related issue is what Jason calls the “endowment effect”.  A person provided with an opportunity to “take possession” of an item feels that it is a lot more valuable to him or her. For example, if potential customers walk into a store, tries on a piece of clothing in the dressing room and like what they see, they are more likely to have a sense of ownership over that item. This makes the individual more likely to buy it.

Such tricks in granting ownership can be used by companies that imprint a potential customer’s name in their marketing materials, or to personalise advertising materials using the targeted customer’s vital statistics where available.

The other strategy that companies can employ is to avoid triggering the pain centres of the brain by sidelining them such that sensory signals hit the pleasure centres instead. An example of this is the use of credit cards.  By making spending more painless, they make it easier for people to purchase items relative to using cold hard cash.

Similarly, avoiding the fear of loss is seen in how continuous “value for money” messages like “Everyday Low Price”, or “Best Price Guaranteed” lulls people to purchase an item, even if the price is not discounted. By reassuring consumers’ insulas that they’re not going to be ripped off, marketers can trick them into believing that they’re getting more bang for the buck.

However, one needs to beware of such tactics.  The repeated use of discounts may end up “training” consumers to only want to purchase during the sale and not normal rack rates.

In the same vein, the last thing you want to do is to infuriate your consumers by slashing a discounted price (because they have missed the sales period), and to show that only normal rack rates are available.

The lesson here is not to piss off potential customers!

Irrational decision making is also seen in how people prefer immediate gratification rewards vis-a-vis longer-term but less certain benefits. Our proclivity towards loss aversion which result in driving us towards low hanging fruits rather than potentially larger but longer-term benefits, sacrificing quantum for immediacy.

However, there is value in holding out for something better.  Being able to delay gratification has been shown to be highly beneficial for us as individuals. Experiments have shown that it is one of the greatest predictors of long-term success.  As such, while marketers would want to trigger the impulse reflexes of the pain and pleasure centres of their customers, consumers may want to think and reflect more carefully before pressing that “buy” button on their screens. 

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