This article was first published on the Account Planning Group Germany Blog and in the New Business Magazine.
The „On-demand economy” we are experience these days brings new challenges to marketers. One way to deal with this state of affairs is to integrate concepts and knowledge from behavioral economics into marketing communication.
In the last few years we experience a technological revolution that has dramatically changed the way we work, live or relate to one another. This year at World Economic Forum in Davos one of the main topics was The Fourth Industrial Revolution. This digital revolution is characterized by a blend of technologies that is soften the lines between the physical and digital world. This new economic reality brings new opportunities and challenges for both people and brands. To date, those who have gained the most from it have been consumers able to afford and access the digital world; people are more empowered than ever in this new on-demand economy we are living in.
For a brand the opportunities to build a strong relationship with its customers are bigger than ever. The way a brand can use digital networks and new technologies like AI or VR to interact and create relevant brand experiences are unlimited. But with all this opportunities comes a great disadvantage: the abundance of information. Today, Herbert A. Simon’s words „A wealth of information creates a poverty of attention” are more true than ever. Moreover, people try to diminuate the amount of information they received by filtering or even blocking it.
For marketing communication one way to overcome these barriers is to try to integrate knowledge from Behavioral economics in marketing – also known as “BE-based marketing”. Behavioral economics brings a new light on the way we think about the relationship between consumers, brands and communication, trying to answer question such as what role emotions play in choice, how a choice is affected by framing or what exactly drives emotions and choice.
Two Systems Framework
The central concept of Behavioral economics is the two-system thinking. The framework developed by Daniel Kahneman states that our brains contain two minds: System 2, the higher of the two, is our conscious self. It is responsible for task that require flexible decision making. Beneath that is System 1, which is unconscious. It interprets everything that we sense and sends emotional messages to our consciousness to influence what we think about and our decisions.
There are four major concepts that are central to understanding the messages that System 1 sends to System 2. These are: status quo biases that states that we are much more comfortable with the familiar than the unfamiliar; loss aversion meaning that the prospect of loss is up to twice as powerful as the prospect of gain; immediacy, System 1 only responds to immediate gains or losses, and framing meaning that the way information is presented has a great impact on decision making.
In marketing communication framing is a key concept as brands can be associated with System 1, operating as the background in the consumers’ decision making, framing the perception and experience they have of the products – associated with System 2. In other words, brands provide the background that increases the perceived value of the product.
As perception is the key interface to all marketing activities, another implication of this new view is that in order to be successful, marketing messages need to be directed to System 1. In this view, the main task of a message is to increase Net value. This can be done by using different incentive in order to increase reward and reduce pain.
Context becomes more important than content
Today the media ecosystem is very different. From P&G’s FMOT to Google’s (ZMOT), today seems that the “micro-moments” are more important than ever for brands. In building relevance context has become more important than content. When you deliver the message and where becomes more important than how you do it. The digital world now gives marketers a greater access to more and more freely available information on what people are doing, increasingly in real time. This gives a fantastic opportunity to use behavioral targeting to refine and personalize marketing strategies as well as messages. The message consumed closer to the moment of decision – direct marketing or sales promotions – are more important than ever, so identifying the right micro-moments and use them wisely is vital for efficient marketing communication. For this reason, media requires a much more behavioral approach.
Influence behavior or changing attitudes?
The role of marketers is to influence consumer behavior in favor of the brand they manage. Social science tells us that people are not consciously aware before they act, and that the majority of the decisions they make are emotional, not rational. The new belief therefore emerging from B.E. is that behavior is more important than attitude. As a result, we must seek to understand how people function, if attitudinal change proceeds from behavioral change or precedes it. The fundamental questions we should ask must be about people and human action rather than about distinction between rival brands.
Marketing communication can use some concepts from behavioral science to better frame choice and drive acquisition. Such concepts are hyperbolic discounting, regret aversion and loss aversion. Hyperbolic discounting describes the situation when immediate costs and benefits are more vivid in comparison with future costs and benefits. This concept can be used in markets such as banking and utilities or insurance, where the long-term benefits can seem intangible. Regret aversion describes the situation when people avoid making a decision that they fear they will come to regret. To diminish the procrastinating effects of regret aversion, brands need to make prominent use of incentives that increase gains such as ‘price guarantees’. Finally, loss aversion states that people are much more likely to be risk-averse when decisions are framed in terms of gain and risk-seeking when they are framed in terms of loss. So, brand should frame their marketing messages taking into account what kind of behavior they expect from their consumers. So, communicating that consumer might be losing about 100 euros if they don’t act is much more powerful than saying that they will save up to 100 euros.
Examples of using BE-based marketing
One example of integrating BE in communication is Volkswagen’s “Fun Theory”, a campaign that uses nudging to reframe a choice and to influence a particular behavior. Changing the stairs into a piano keyboard and make it fun for people to use them changed people’s behavior without changing their minds. Only with a minor change in choice, the stairs usage increased by 66 percent.
A different example of using BE insights in marketing communication comes from Nissan. Research form BE has reveled that for people it is easier to make compassion among products that to making absolute judgments. Nissan used this idea when has introduced Nissan Juke, positioning it as Qashqai’s younger brother. By opting for this positioning statement, the brand simplified consumer’s understating on the new product and the place it has in the product line. The results were very good, that by launch date sales exceeded their target by 300 per cent.
If now BE is used mainly for finding insights and generating creative ideas, in the future it could be used to improve marketing research, develop new products or to design better digital and mobile UX.