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The Psychology of Choice

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The Psychology of Choice

How we make decisions and how marketers capitalize on it
Choice is an illusion

Paradox of Choice: Customers generally want to have as many options as possible but at the same time want to be able to decide what to buy as easily as possible. Marketers understand the psychology of the shopper and their telepathy doesn't stop there. In a mixture of neurology, psychology and good-old fashioned Big Brother-esque research, marketers know how to make you a happy spender.

The Brain

  • MRI

  • --- Using MRI machines, scientists can predict an individual's decision up to 6 seconds before the individual is conscious of it

  • Brain Matters: where your decisions are being made in your brain

  • --- Rational (Life and death decisions) = prefrontal cortex
    --- Emotional (what type of cereal to buy) = Amygdala and Nucleus Accumbens

The Paradox - Studies that prove Less (options) is More (satisfaction)

  • Vanguard - 1 million employee investments in voluntary retirement funds

  • --- For every 10 mutual funds offered, rate of participation went down 2%

  • Comparison of 2 car buying groups

  • --- Both groups ended up eventually seeing 144 total options across eight categories
    --- One group first made their choices beginning with the category with the most options (56) and ending with the most (4).
    ---- these people had a harder time choosing.
    ---- started off carefully considering each option, but quickly became tired and went with the default option.
    ---- In the end, they wound up less satisfied with their final cars.
    --- The second group had the same choices in the opposite order, starting with the ones with the fewest options and ending with the most.

  • A booth of samples of Wilkin & Sons jams. Every few hours, they switched from offering a selection of 24 jams to a group of six jams.

  • --- On average, customers tasted two jams, regardless of the size of the assortment, and each one received a coupon good for $1 off jam.
    --- 60% of customers were drawn to the large assortment, while only 40% stopped by the small one.
    --- But 30% of the people who had sampled from the small assortment decided to buy jam, while 3% of those confronted with the two dozen jams purchased a jar.

Your choices will be used against you

  • Getting to know you: Stores and their suppliers are constantly analyzing sales data, but where are they getting the data?

  • --- shoppers provide their information when they sign up for loyalty cards or even e-mail lists.
    --- Security cameras
    ---- place products and promotions at strategic locations visible to the largest number of shoppers.
    --- electronic signs in retail environments can include cameras that detect who is looking where on the sign
    --- Retailers use a form of the randomized trials that have been used since at least the 1940s in medicine.
    ---- Direct mail was one of the first areas where marketers could easily test the effectiveness of a promotion, by sending one version to some households and another - or no promotion at all - to similar households.

  • What do they do with the knowledge?

  • --- Cameras in electronic signs determine gender and age
    ---- the electronic signs then change to attract the new demographic
    --- credit card offers consumers get in the mail are different than those others are receiving.

  • But how much is too much information for stores to know about us?

  • --- Target: pregnancy-prediction model was based on purchases made on REDTarget credit card

The Consumer Non-Choice: shopping behavioral patterns scientists shared with retailers:

  • Right turn here: most shoppers turn right first, so retailers put their newer, more exciting items in the front and right of their stores

  • people don't have their shopping goals predetermined; their shopping goals solidify as their shopping progresses

  • --- therefore, consumers' sensitivity to external cues is higher earlier in their shopping, so their goals are more malleable
    --- therefore, retailers invest in extra advertising at the front of the store

  • Coupons given at the entrance of the store inspired the consumer to spend more at the end of their visit, but when the coupons were given inside the store they had little effect.

  • --- Harvard Study:
    --- At a store where the average consumer spending was $4
    --- Some customers received a coupon that offered $1 off any purchase of $6
    ---- these consumers increased their average spending above their usual $4
    --- others received a $1 off of any purchase of $2 and above.
    ---- these consumers actually decreased their spending from their typical $4 - even though they would have received their dollar off had they spent $4

maximal flexibility and minimal decision complexity

  • People want as many options as possible, but want to be able to decide what to buy as easily as possible..

  • Walmart may not have the best business strategy after all:

  • --- large stores may get many customers inside (because the goal of maximal flexibility functions in the first stage of the shopping experience)
    --- but then these customers may not buy so many products as they otherwise would (in a smaller store) simply because they cannot decide (the decision complexity is too large).
    --- Thus, there exists an optimal size of the store, optimal in the sense that customers are spending in there the largest amounts of money buying the largest number of products.

Can't get no satisfaction?

  • Become a "satisficer" and be happy with what you've got

  • --- become satisfied with the idea of good enough
    --- "maximizers" are proved to be less happy and more depressed than satisficers.
    --- They were more prone to regret, both experienced and anticipated, and they engaged in more social comparison, especially upward comparison, than satisficers.


The Psychology of Choice