Hard Data + Soft Science = Successful Digital Marketing Today

Behavioral economics has the potential to help marketers peek into the corners of customer behavior that data ignores or overlooks.

Hard Data + Soft Science = Successful Digital Marketing Today

By now, most successful marketing executives have bought into a common credo about the future of our discipline: Today, data-driven marketing is marketing. The two are no longer mutually exclusive, and to thrive in the future, most of us acknowledge the need to fuse traditional creative sensibilities with a deep appreciation of quantifiable, data-based intelligence.

Count me among that group—but with a caveat.

While data can help us achieve a much deeper understanding of customer activity, an overcommitment to it can also blind us from the darker corners of human behavior that data struggles to explain. For example, while analytics can tell us when and where a customer interacts with a brand, it’s not so great at evaluating phenomenons such as social reciprocity, the “Decoy Effect,” or purchasing-decision rationality.

OK, but we’re marketers, not economists or amateur psychologists. Is understanding the irrationality and psychology behind human behavior really our job? In most marketing organizations, it isn’t. Then again, 10 years ago, neither was data analytics. This is where the future of marketing starts to get a little murky. Will we, at some point, evolve into full-blown math and science-based organizations?

It’s not an unrealistic possibility. As Facebook data scientist Mukul Patki wrote in this post for Forbes: “Understanding the consumer psyche and the irrationality of the human decision-making process is key to developing winning value propositions or product features to test in the market.”

Enter Behavioral Economics

Truth is, smart marketers have been deploying soft science for years as a way to discover, digest, and convert cold, hard information into more impactful messaging. And in a world where access to information is no longer a problem, the ability to massage that information to understand the less obvious factors influencing customer actions will only grow in importance.

This is precisely why some marketers are spending more time exploring areas like behavioral economics.

What is it? At a high level, behavioral economics brings together a variety of disciplines (cognitive science, social psychology, marketing, and others) to shed more light on when, how, and, most importantly, why consumers make decisions. That’s the information marketers covet most, so it’s not surprising behavioral economics may hold the key to a veritable Holy Grail of customer insights.

Fundamentally, the principles behind behavioral economics all play off of a simple reality: Consumer decision-making is 30% rational and 70% emotional. Here are some behavioral marketing tactics you’re probably familiar with:

Why are these tactics effective?

Underscoring the potential of behavioral economics, a recent McKinsey & Company article noted that understanding exactly “how small changes to the details of an offer can influence the way people react to it is crucial to unlocking significant value—often at very low cost.”

Simply put, by appealing to consumers’ emotional connections to the buying process, marketers stand a better chance of influencing their decisions—even if they’re irrational ones that data can’t quite explain.

Value Drives Understanding

While marketers have historically taken an ad-hoc approach to behavioral economics, the consensus is that our application of it will evolve as our understanding matures. Put another way, the more we see value in the insight behavioral economics delivers, the more we’ll be willing to test it.

One of the key insights that has been uncovered so far may not come as a surprise. It turns out, as consumers we tend to be a highly unpredictable bunch. (Remember that stat I cited earlier?) Much more so, in fact, than most of us would like to admit. Fortunately, behavioral economics has the potential to serve as the antidote to all of that irrationality.

Here’s a classic example: Imagine you’re buying a flat-screen TV. There’s a cheap option and an expensive one, but otherwise they look like pretty much the same TV hanging on the wall at the store. Still, you opt for the expensive one.

Why? Behavioral economics tells us it’s because some people associate lower prices with inferior quality, even when that’s not the case. Knowing that, a retailer looking to unload those cheaper TVs could raise the price to be just below the more expensive option. This way, the lesser TV is still less expensive, but the delta in pricing is small enough not to convey a sense of cheapness. Next thing you know, the cheaper TVs fly off the shelf and the retailer makes more money. Win-win.

That’s a lightweight example, but suffice it to say that behavioral economics has the potential to help marketers peek into the corners of customer behavior that data ignores or overlooks. As a result, we’ll be able to better understand and predict an individual buyer’s actions and market to the person in a hyper-personalized way.

Tips For Putting Behavioral Economics Into Action

So maybe you’re on board with the theoretical benefits of behavioral economics. How do you get started?

This is where it gets tricky because, frankly, very few of us are professional economists or behavioral psychologists. And even among those who are, opinions differ about how the principles of behavioral economics can be used to improve customer relationships and optimize the buying process.

That said, we can take away some lessons and tips from the core findings of behavioral economics research:

Tapping into people’s desire for acceptance: We all adhere to social norms in an effort to fit in. Leveraging social proof can help you take advantage of this reality. By getting people to like and share your content, for example, you’re implicitly conveying to others that it’s worthwhile. As a result, those people will also be inclined to like and share your content because so many people already have.

Recognizing that people would rather avoid a loss than make a gain:According to TrackMaven’s Rebecca Lee White, “the psychological pain from losing is twice the amount of the pleasure of a gain.” This point can be applied by adjusting how you position offers. A headline that touts the ability to stop losing money, for instance, might resonate more than one that talks about saving an equal amount of money.

Avoiding analysis paralysis: Sometimes, less is more. That’s certainly true when it comes to the number of options you present to customers. In fact, giving customers too many choices often results in lower sales than if you were to limit your offerings to just a handful of options.

Of course, the key to doing any of this is studying up on your target audiences and figuring out what really makes them tick.

While there are a lot of tactics you can use—some of which I’ve cited here—figuring out which ones will resonate most with your customers is a different challenge. So put yourself in the shoes of an economist or a psychologist and ask this question: Which behavioral stimuli do your customers respond to and what irrational actions can you take advantage of?

The goal isn’t to trick or exploit your customers. It’s to understand them better. The more all of us do that, the happier everyone—including customers—will be.