What Has Behavioral Economics Got to Do with Marketing

team of individuals discussingFor years, marketers have unknowingly applied behavioral economics in their strategies. Behavioral economics proposes a link between economics and psychology. This theory explores why people sometimes make irrational decisions and why their behavior deviates from traditional economics.

Rather than making decisions based on facts such as price and quality, people sometimes make decisions based on emotions. Behavioral economics helps explain why someone will choose to go for A instead of B.

When you hire an experienced marketing agency in Salt Lake City, they’ll implement some practical techniques informed by behavioral economics.

The power of positioning

Economists say that everything has a price and that everyone has a maximum price they’re willing to pay for a product or service. In behavioral economics, how marketing agencies position your product can change the equation.

A good example is restaurants, where most find that the bottle of wine which falls second in price is usually very popular. Why? Customers who buy the second in price feel they’re getting something fine while not going over the top in price and this way, they feel they are saving. The power of positioning helps explain why marketers will offer a few inferior options.

Social proof

Behavioral economics proposes people innately desire acceptance and for this reason, they base their decisions of social norms. That consumers are easily influenced by what products others buy or the services other people use.

This explains why word of mouth remains an effective tool of marketing. In this digital era, online reviews on your Facebook page or on Yelp can serve as social proof for consumers. A marketing survey found that 88 percent of shoppers look at online reviews before purchasing products.

Endowment effect

Customers prefer items that carry some sort of ownership as compared to a similar item owned by another customer. To increase emotional attachment to a product, markets utilize customization.

The ultimate goal of personalizing products is to increase their value in the eyes of the customer. Marketers have long been vaguely aware that irrationality in some way shapes consumer behavior.

Once you understand what behavioral economics is all about, this irrationality becomes more predictable. Understanding behavioral economics will help you position your products or services more strategically.