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Mind Commerce: The Intersection of Psychology and Economics in Consumer Behaviour
Consumer behaviour is a complex phenomenon influenced by several factors, including economic, social and psychological variables. One emerging field that sheds light on the psychological factors driving consumer decision-making is neuroeconomics. Neuroeconomics combines insights from neuroscience, psychology, and economics to understand the neural mechanisms underlying decision-making. In this article, we explore how psychological factors such as emotions, personality traits, and social influence can influence consumer behaviour and purchasing decisions. By examining the interplay between brain activity, behaviour, and economic outcomes, neuroeconomics can provide valuable insights into the decision-making process and help businesses optimise their marketing strategies.
Power of Perception
Perception refers to how consumers interpret and make sense of the information they receive about a product or brand. This can be influenced by several factors, including past experiences, cultural background, and personal biases.
On the other hand, emotions can strongly influence the consumers’ decision-making process. Positive emotions such as excitement or joy can make a consumer more likely to make a purchase, while negative emotions such as anxiety or fear can have the opposite effect. Businesses can create marketing strategies that are more successful when they understand how consumer perceptions and emotions influence purchasing decisions. For example, they can use carefully chosen words and visuals to appeal to consumers’ emotions, create favourable associations with their brand, and enhance the entire shopping experience.
Neuroeconomic studies show that scarcity activates the brain’s reward centres, increasing product desirability and driving consumers to action. Businesses can take advantage of this psychological factor in consumer behaviour by creating a sense of scarcity through time-limited offers, exclusive deals, or other marketing strategies. For example, during the COVID-19 pandemic, hand sanitiser has become a very popular commodity due to its scarcity. Consumers rushed to buy disinfectants in bulk, leading to shortages and rising prices. The U.S. Consumer Product Safety Commission reported that sales of hand sanitisers in the U.S. will grow more than 600 per cent in 2020, with some retailers raising prices by as much as 500 per cent. According to a report by CNBC the sale of sanitisers surged to 470% in the first week of March 2020, compared to the same week a year earlier. The chart below shows the actual increase in hand sanitiser sales during the pandemic in the month of February:
This shows how scarcity affects consumer behaviour even in times of crisis. Awareness of product shortages is a powerful tool in the world of neuroeconomics, as companies can increase demand and even raise prices.
Psychological pricing is a marketing technique that uses pricing strategies to influence consumer behaviour. Behavioural and neuroeconomics can provide insights into the mechanisms behind this influence. The left-to-right orientation of numbers, for example, affects the way the human brain processes numerical values. This finding suggests that consumers might perceive a price of $9.99 as significantly different from $10.00, despite the small numerical difference. Similarly, the concept of loss aversion, a core principle of behavioural economics, suggests that consumers are more likely to act when they feel like they are losing something. Offering limited-time discounts or time-sensitive promotions can leverage this principle and create a sense of urgency that encourages consumers to make a purchase.
By understanding the impact of psychological pricing on consumer behaviour, businesses can design pricing strategies that appeal to their target audience and increase sales. Anchoring, bundling, and price framing are other pricing strategies that businesses can use to influence consumer behaviour. These strategies leverage consumers’ psychological biases and tendencies to create a perception of value that is more appealing to them.
Employing effective psychological pricing techniques can tap into the power of consumer psychology to create a more compelling and persuasive pricing strategy. Understanding the mechanisms behind the influence of psychological pricing on consumer behaviour can help businesses design more effective pricing strategies and drive consumer behaviour.
The Left Digit Effect
In a study conducted by the National Bureau of Economic Research, researchers analyzed the impact of price endings on sales for a mail-order catalogue retailer. The researchers manipulated the prices of products in the catalogue, such that some prices ended at .00 while others ended at .99.
The study found that items priced with an odd cent ending sold more than those priced with an even ending. Specifically, items priced at $39.99 sold more than those priced at $40.00, and items priced at $19.99 sold more than those priced at $20.00. Items with an odd-ending price sold on average 8% more than those with an even-ending price.
The study also found that the effect of odd pricing was greater for products with low-quality signals (e.g. unbranded products or products with limited information), as compared to products with high-quality signals (e.g. branded products or products with extensive information).
Social influence plays a significant role in consumer behaviour and purchase decisions, as demonstrated by various studies and statistics. For instance, a study by BrightLocal found that 91% of consumers read online reviews before making a purchase, and 84% trust online reviews as much as personal recommendations. Moreover, a study by Nielsen revealed that 92% of consumers trust recommendations from friends and family over any other form of advertising.
The impact of social media on consumer behaviour is also noteworthy, with a study by Influencer Marketing Hub revealing that the average ROI for every dollar spent on influencer marketing is $6.50. Additionally, a survey by Twitter found that 49% of consumers rely on recommendations from social media influencers when making purchase decisions.
The Flat Tummy Co. Case Study
Flat Tummy Co’s influencer campaign generated a 600% increase in web traffic and a 300% increase in sales within six months. Moreover, the campaign resulted in a 33% increase in revenue for the brand, with each dollar spent on influencer marketing generating a $6.50 return on investment. This case study demonstrates the significant impact that social influence can have on consumer behaviour and purchasing decisions. By leveraging the trust and authority of social media influencers, Flat Tummy Co was able to increase brand awareness, drive traffic to its website, and boost sales.
In conclusion, psychology plays a critical role in shaping consumer behaviour and decision-making. Perception, emotions, the power of scarcity, psychological pricing, and social influence are all powerful tools that can be leveraged to influence consumer behaviour and drive sales. Consumers are more likely to make purchasing decisions based on emotions rather than logic or reason.
By understanding the psychological factors that influence consumer behaviour, businesses can create effective marketing campaigns and drive growth. However, it’s essential to ensure that these strategies are aligned with ethical and moral principles to maintain consumer trust and avoid potential backlash. Overall, psychology plays a critical role in shaping consumer behaviour and should be carefully considered by businesses and marketers.
- Zhang, J., Jiang, N., Turner, J. J., & Pahlevan-Sharif, S. (2022). The Impact of Scarcity on Consumers’ Impulse Buying Based on the S-O-R Theory. Frontiers in Psychology, 13. https://doi.org/10.3389/fpsyg.2022.792419
- Coronavirus impact on hand sanitizer sales U.S. 2020 | Statista. (n.d.). Statista. https://www.statista.com/statistics/1104484/impact-of-coronavirus-on-sales-values-of-hand-sanitizer-in-the-us/
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