Danika Smit and Erika Harriford-MacLaren 

Imagine sitting in a café in Paris—poring over the menu—when your eyes land on chocolate mousse. Since you’re on a diet, will you hesitate, linger and rationally decide to avoid the calorie bomb, or quite quickly and emotionally decide to treat yourself?

Finn Raben, Director General of ESOMAR, opened with this example to the 60 delegates from 18 countries at the Summer Academy behavioural economics seminar. Reflecting on the relevance of behavioural economics for market research and how it affects our daily lives, on both a personal level and in business, Finn laid the groundwork for the highly anticipated moderator of the seminar, Mark Earls.

Mark Earls, author of Herd, is big on engaging his audiences. For this seminar, he motivated everyone to get further into the behavioural economics mode by using a little bit of their morning-coffee energy to do the wave – yes the one used in football matches around the world. Turns out, it was a good example of how people (and researchers) follow the crowd. Front to back, side to side, with and without noise, Earls got everyone to their feet before asking how behavioural economics played into their decision of whether to participate or not—a great example of how behavioural economics easily affects our decisions.

From academic theory to commercial practice
Caroline Hayter-Whitehill, Acacia Avenue, UK
John Kearon, BrainJuicer, UK 

John Kearon of BrainJuicer and Caroline Hayter-Whitehill took us on a whistle-stop tour of the quantitative and qualitative aspects of behavioural economics. First and foremost, John wanted us to remember that we think much less than we think we think. Our brain can be separated into two systems: System 1  (instinctive, intuitive and emotional) and System 2 (slower thinking, more rational and cognitive). We have always thought of the systems working on a 50-50 basis, however the reality is that they work on a 11 million versus 50 bits of thinking respectively.

According to Kearon there are three components to decision making: environmental, social and the decision itself.  Environmental is about context and relativity and affects our judgement. For example, playing French and German music in a liquor store subconsciously motivated consumers to buy more French and German wine. Socially, we copy what other people do. People will spend 2.76 times more on average when eyes are present. When it comes to making a decision, we are unreliable witnesses because we’re all really bad at predicting our own behaviour. How we feel changes how we act on things. Therefore, Hayter-Whitehill believes we should abolish the question “why” as it will not lead us to where we want to be.

From a behavioural economics perspective, when it comes to people and decision making the concept of loss aversion truly comes into play – i.e. people tend to place twice the value on losing something than gaining it. In context, people want things to stay the same and look for reasons to avoid changing their behaviour, which should be kept at the forefront of market research thinking. To encourage switching or changing, we need to get in tune with high emotional investment. When people make decisions they often heavily rely on one piece of information, or point of gravity, which is what market researchers need to tap into. Therefore how an experience is framed can lend to a product’s failure or success, and this framing is something we need to gain a better understanding of.

We have generally measured post-rational decision making, not what motivates people to decide. When applying market research, actual behaviour is paramount. We need to engage with specific behaviours; think behaviour change, not attitude change; identify cognitive biases and distortions; and work with the grain, rather than against it. Push participants to confront biases and to identify where there’s room for manoeuvering. Finally, when analysing, look back at the biases and see how they can make a difference. Don’t fall victim to loss aversion yourself. Everyone else is changing so don’t get left behind.

DIY Behavioural Economics
The morning session concluded with 4 interactive break-out groups, aiming to answer the following questions:

  1. What are the assumptions embedded in our current practice about how people choose? Current research practice versus Behavioural economics
  2. Which of these assumptions does behavioural economics challenge?
  3. What are the big implications for our general research practice?
  4. What are the implications for specific areas of research (e.g. Pricing, Product, Promotion, Place)?

Each group provided some unique perspectives when answering the questions – sometimes supporting each other with similar answers, but often raising new ideas and solutions.  Some key takeaways were:

Question 1.

  • Move away from questions and towards feelings.
  • Place little or no reliance on standard questions of market research (avoid post-rationalisation, but decision makers)
  • Gamification is a great way of making research fun while also mimicking reality.
  • Do more testing and experimenting. Behavioural economics gives great framework, but details need to be tested.
  • Segmentation – is it more efficient? Maybe applying behavioural economics is more effective than segmentation and targeting than actually applying human trues, like loss aversion could get us further faster.
  • We need emotional market research and emotional marketing.

Question 2.

  • Behavioural economics should shake up our thinking. Stop and think about how we’re approaching things and question how we can change it.
  • Instead of following the same way of doing things, start with an observation stage, this will help create the most efficient/appropriate project.
  • Expand your project time. Spending more time with people will give a better overview to how they really think about things.
  • Get closer to the delegates and gain more context—what is the reality that is relevant to the purchase of the product?
  • Observe the internal audience. Be critical of who’s doing the project and gathering the research.

Question 3.

  • Behavioural economics isn’t just about gaining different results, it’s about changing our thinking in more dramatic ways. How can we reinvent our relationships with our clients?
  • Context is key and the most important thing to consider when conducting market research. So how can we better stimulate and create it? Use observations and other information to help
  • Choices are not made in attendance of everything else, but through post-rationalisation
  • Avoid the scales – how is this a good reflection of what people are thinking and feeling?
  • Don’t assume you know the answers – we need to go in with open minds.
  • Don’t assume you know the questions – behavioural economists try to understand the attempt of people to explain why they do what they do, which can done through more observation and understanding.

Question 4.

  • Avoid setting up an environment that doesn’t work for the context of the research
  • Think of the problem as a puzzle. How can we refine and move forward? Ask questions that a respondent can validly answer.
  • Rather than trying to interpret every response, aggregate the responses and interpret that
  • Try to avoid giving too much information during the price purchasing point

As Earls noted, people don’t like to hear uncomfortable truths and that includes us in research.

PRICING – The Art of Psychological Pricing
Applied behavioural economics
Florian Bauer, Vocatus, Germany 

Behavioural economics has a lot of wow, but often no reflection on the ‘how.’ Dr. Florian Bauer, of Vocatus, believes that when working in the area of Behavioural Economics there are two key insight areas for marketing to remember: people are predictably irrational and there is no homo-economicuThere are several ways to use insights from behavioural economics for pricing according to Florian, including transfer (direct application which is rarely applicable because it’s more a post hoc explanation), abstraction (model of choice behaviour and more helpful because it guides thinking) and deconstruction (new research framework which is the best because it’s a holistic approach and challenges classical tools). So which constructs do we need to measure in order to derive the best results?Pricing is integral to commercial success and pricing motivation. In theory, the homo economicus would never buy something that costs more, but in reality, this is exactly what people do and this is where behavioural economics comes into play. Bauer used German consumers as an example, noting  that they were willing to spend more money if they knew it was in support of German farmers –  led by the heart versus the wallet. Price motivation is derived from a combination of price knowledge, price interest and price assessment and this is key for market researchers to remember. To find the optimal price, we need to gain a better understanding of customers and their decision processes, which isn’t so much about asking questions, but interpreting them in the right way. Classical pricing tools fail to understand the price measuring process because they focus solely on price assessment and this is where behavioural economics comes into play.

Willingness to pay is neither absolute nor stable and very often dependent on the framing of a product, a concept that this seminar proves is necessary for true success and understanding. A great case study underscoring this was from Hyundai. When the recession hit and people started spending less, Hyundai managed to increase sales by 9% while several other car brands experienced hugely decreased sales. They did this through a campaign that promised consumers the opportunity to return their cars and drop their leases should they lose their job. By focusing on what matters in the consumers life at that time versus what we anticipate their choices to be, Hyundai found success. Match point for behavioural economics corner.

Behavioural economics is here to stay and will fundamentally change the way we do pricing research.

Florian Bauer says that while it will not be a quick win, it will be a huge profitability lever. However, we first need to change the tools and minds that do the research. Market research needs to move from an inductive to deductive approach which may mean spending more time on analysis because it shows results and to try a new research approach that is mindful of framework (what do we need to know?), typology (if people aren’t homo-economicus, what are they?) and methods (what are the implications?).

PRODUCT – Designing for sales success
Getting concrete evidence on how behavioural economic principles are helping or hindering product sales
Rob Ellis, COG Research, UK 

Ethnography gives us insight into the process. Let’s face it, people don’t think linearly—there are always other variables to take into consideration. Ellis says that if we observe people over time, and combine these observations with the different touch points encountered, we can build evidence for how behavioural economics helps us better understand consumers and why they do what they do.

Reference points are important to behavioural economics and can be used as anchors for brand marketing allowing you to direct consumers to where you want them to be. By reducing complex choices to simple ideas, i.e. “will the golf clubs fit in the trunk?”, this makes it easier for consumers to process and in truth, this is how they think and work. Additionally, consumers fixate on current experience as much as previous experiences, so if they are given great service, they will be more inclined to decide in a brand´s favour. If a consumer has a bad experience with a sales person, they are 3x more likely to avoid the brand versus having had a bad experience with just the brand itself!

Consumers also hate loss more than they value gain. And understanding this is key to understanding just how behavioural economics works. However, the perceived gain is sometimes dependent on the individual´s own values, so don’t forget to keep the consumer’s perspective in mind when looking at gain. For example, consumers are twice more likely to opt for a car trade-in that gives them a higher price on their used vehicle than for an average discount on a new car. Why?  Because this validates their previous decision leaving them feeling more empowered than a standard price discount would.

Finally, develop solutions that stem from an understanding of cognitive biases and therefore nudge consumers in the right direction. Combine behavioural economics (why people aren’t doing something) and package it with something they will do to drive change.

PROMOTION – The Way it Works!
John Kearon, BrainJuicer, UK

As a former ad agency man, John Kearon of BrandJuicer led a very entertaining session on how behavioural economics can make promotion work. Kearon believes that making people “feel something overwhelmingly, is the stuff of five star commercials” and that in the end, the message just doesn’t really matter.  Think of those commercials like the Dancing pony ad for telecoms company 3 in the UK, or the T-mobile ad of the flash mob in Grand Central Station.  Neither really gave a message, but both became huge viral hits for their brand and drove revenue.  Why?  Because they engaged the consumer emotionally and connected them to feeling of happiness that they in turn associated with the brand.

Kearon believes that researchers and advertisers should scrap the golden triangle of plausibility (message – brand linkage – persuasion) and instead, engage, engage, engage, because engaging and provoking emotion is key to success. Emotional ads are twice as effective as the least emotional ads. If you try to make people think, they start feeling less; when consumers feel more, they buy more.

Don’t belive this? Then think of something that recently made you angry.  Make the same face you did.  Just by putting on that angry face you will begin to feel the emotion, same for a smile and a happy experience.  How we feel matters. Remember that the question “How do I feel about it?” often serves as the answer to “What do I think about it?” For Kearon its’s all about System 1.

PLACE – The P with the Most Q’s
How the shopping channel impacts choice and consumption
Stephen Philips, Spring Research, UK
Tiphany Yokas, Kraft Foods, Switzerland 

According to Stephen Philips of Spring Research and Tiphany Yokas of Kraft Foods, the problem with traditional methods  of research is that we consistently ignored the idea of context. From a shopping perspective, context has a major impact on how consumers decide and therefore one’s experience is fluid and changing. Retailers have over time harnessed the importance of context in decision making and presented their products accordingly – think point of sale at registers or snacks at a gas station.  Behavioural Economics allows us to be human when thinking about other human beings, and this allows us to remember that context is key.

Reducing options can make people more likely to reach a decision and to feel more satisfied with their choice. Framing the decision and anchoring consumers with reference points can also push them to make the decision you want them to make. However, as a researcher we must be aware that other factors like culture, society, weather, smells, sounds and more can also influence the decision-making process.  Play French music in a wine store and French wine sales soar.  Same for German music.

When thinking about shopping behaviour, think about whom the individual is, where they are and who is around them, as all of this influences them.  Shopping alone is vastly different than shopping with small children. The shopping moment must be captured, not before or after, but in real time, so be sure to study real cases to experience this.

Remember that while shopping trips may begin with a mission and list of what consumers need, they will often deviate to spend on extras. If we’re more aware of the mindsets going into the shopping experience, versus the consumption moments, we can more successfully relate to and engage the consumer, directing them to the choice we would like them to make.