The Behavioral Economics Theories Every Marketer Needs to Know

Successful marketers need to have a deep understanding of the consumer's thought process if they want to be able to create successful marketing campaigns. By understanding the customer decision-making process, marketers can develop marketing campaigns that meet their customers’ needs.

Behavioral economics is the study of the effect that psychological influences have on an individual’s decision-making process. If you are a marketer, understanding behavioral economics is extremely important. This is because it allows you to get a better understanding of the human mind. 

If you work as a marketer and want to learn more about the different behavioral economics theories, you have come to the right place. Here are some of the behavioral economics theories that every marketer needs to know:

1.     The Power of Free

Although traditional economics says that reducing the price of two commodities by the same amount cannot reverse consumer preference for one product over the other, this may not be the case. Research has suggested that consumers will always look for a good deal so, if you want your products to be successful, make sure they can compete with the competition. 

One brilliant example of this is online casinos. Online casinos such as all slots Canada, who offer amazing bonuses and deals to their customers, are much more likely to be successful than those that do not. 

2.     Motivation-Need Theory

In 1943, Abraham Maslow created a new theory - the hierarchy of needs. This theory suggested that individuals take steps to fulfill their needs based on a five-part priority system. In order of importance, the needs include:

• ·       Survival (psychological)
• ·       Safety
• ·       Love
• ·       Esteem
• ·       Self-actualization

Since this theory was introduced, business schools around the world have been using it to explain the need to tailor marketing messages in a specific way. If you want your campaign to be successful, you not only need to bring awareness to the product, but you also need to establish where it fits in the hierarchy of needs. Research suggests that most consumers will prioritize purchases that fall towards the bottom of the hierarchy, so it is important that when businesses create a marketing campaign, they create one that instills a sense of urgency or need in consumers. Studies also suggest that many marketers have been able to use this theory to create an artificial need for consumers. 

3.     Social Proof

Evidence suggests that consumers will often ask other people for information on what service to use or what to buy. Not only that, but research has also shown that they may choose to base their decisions on social norms in order to gain acceptance by others. 

Although word-of-mouth is still a brilliant way to expand your customer base, online reviews are also extremely valuable in serving as social proof for customers. In fact, almost 90% of consumers will admit to reading reviews online before purchasing a product. 

This means that, in order to be successful, marketers will need to work hard encouraging people to give them positive feedback and reviews. This will help you to become social proof. 

4.     Theory of Reasoned Action

The theory of Reasoned Action is centered on the significance of pre-existing opinions in the decision-making process. The main part of the theory is that consumers act on behavior based on their aim to receive or create a certain outcome. This theory suggests that consumers are rational individuals who will purchase items that fit their needs. 

According to this theory, the most critical thing in the decision-making process is specificity. A customer will only purchase a product when the product will help them to achieve a specific result. From the time the consumer starts looking for a product that fits their needs, to the time they purchase it, consumers retain the ability to change their opinion and mind and decide on something else that suits their needs. 

There are several lessons that marketers can learn from this theory. Firstly, when marketing a product, you will need to associate a purchase with a positive result. Not only that, but this result must be specific. The next thing marketers can learn is how important it is to move people through the sales pipeline. You need to speed up this process in order to stop consumers from changing their minds and finding an alternative product that suits their needs. 

5.     The Pain of Paying

For many customers, spending large amounts of money on long-term commitments is one of the worst parts of the purchasing process. Behavioral economists argue that we all want to avoid the Pain of Paying for products, which is easily done by reducing how often we have to spend money in return for goods and services. 

This is why many businesses are now choosing to move away from the pay-per-use approach that they once adopted and are now offering an “all you can eat” pricing strategy for their customers. For example, in 2019, iTunes and other music platforms wanted customers to pay to download individual songs; however, nowadays, they have come up with a new way of doing things. Customers can now pay a set amount of money each month to access all of the music in their portfolio. 

If you want to have a more successful marketing campaign, you will need to consider how painful you make the paying process for your customers. Think about ways you can apply this theory to adapt the way users consume your product. 

6.     Endowment Effect

Research has shown that consumers value items that they have an emotional attachment to more than the same product that is owned by another individual. Establishing a customer’s part ownership in a product being marketed through customization is one way in which marketers can increase emotional attachment with their products. Customization of products allows customers to make the product more valuable and it also allows them to add a bit of them into the product.

Understanding the irrationality and the consumer psyche of the human decision-making process is key to creating successful marketing campaigns or product features to test in the market. There are several behavioral economics theories that all marketers should not only know, but also understand and internalize. If you want to make your marketing campaigns more successful, make sure you know and understand the theories we have listed above.