Friday, April 9, 2010

Choice Architecture and Advertising

Say you want to buy a set of cheese from the pack shown in the picture? Which set will you choose?

If books like Nudge by Richard H. Thaler and Prof. Cass R. Sunstein or Predictably Irrational by Dan Ariely are to believed, our mind plays quite a few tricks on us, and those tricks actually influence our day to day decisions!  

This piqued my interest in the subject and I realized along the way just how invaluable this field of study, known as Behavorial Economics, is for the advertising industry.

Rory Sutherland via says: "Behavioural economics provides us with an intellectual framework, which allows us to better justify (and charge for) the ideas we already generate as well as generate new and better ones."

"The nine examples below are merely an indication of some of the concepts so far revealed in experiments. Significantly, many of these non-rational behaviours affect us unconsciously, and hence will not be revealed by conventional market research."

1. Loss aversion
2. I'll have what she's having
3. The power of now - and of instant feedback
4. The power of channel preference and interface
5. Scarcity value
6. Goal dilution
7. Chunking
8. Price perception
9. Choice architecture

I will concentrate on Price Perception and Choice Architecture for now.

Think about those Jimmy Choos you bought because the price said $300 in a collection where most of the pairs were worth $1000? Would you splurge similarly on a pair of Faded Glory boots at Walmart? No way. High-end brands and designer stores are all about Price Perception. The higher the price, the greater the perceived value. But ad agencies almost never have a say on the price. So let's move on to Positioning and Choice Architecture instead. Choice Architecture as applied to marketing is the influence of the surrounding options while making a decision.

Did you by any chance choose the $7 cheese in the picture above? Studies have shown that most people tend to choose the second most expensive item on the list. Even though we rarely go for it, the highest price on a list does raise the average. Do you detect a "nudge" from marketers there?

On one hand we find cheap things to be of poorer quality but on the other hand, we stay away from the super expensive. So the best way to market a product will be to price and package it reasonably and place it amongst some very exorbitantly priced products.

As Rory Sutherland says in the article "In an ingenious exploitation of framing effects, one salesman sold Rolls-Royces at a yacht show. Seen alongside a $10 million yacht, a $500,000 car seems like a bargain."

1 comment:

  1. the founder of Yankee Candle, Mike Kittredge, used to have about at least 20 different scents when he set up at craft shows. with a large variety, he says, people tend to pick a favorite and buy it. he also found people were more likely to buy if they were allowed to touch the product.