Behavioral economics

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  • Applied Psychology

    (c) 2016, Jeff Gilman The Center for Business Innovation

    Behavioral economics provides science based ways to increase marketing effectiveness.

  • About This Slide Deck One of a series of case studies

    For business and non-profit organization people

    Designed to point out innovations

    And promote creative thought


  • Who This Is For

    Owners, operators and managers of small businesses and non-profits seeking creative ways to gain a competitive advantage.

    People seeking innovations to apply to their own operations.

  • Who This Is NOT For

    People seeking a simple - one size fits all solution.

    People looking to get rich quick.

    People that want the secret handed to them.

  • Why Listen To Jeff? Started, bought, developed, sold several businesses. Consulted for several


    Big 6 consulting firm background.

    Experience in large and small business, non-profits, and government.

    MBA, BS Accounting

    In addition to the US, Jeff has worked in Pakistan, Barbados, Saudi Arabia, and other countries.

    Big picture.

    Seasoned and experienced.

    Former SCORE Mentor

  • DISCLAIMER There is no warranty or representation that this information will meet your requirements, that it will be of satisfactory quality, that it will be fit for a particular purpose, that it will not infringe the rights of third parties, that it will be compatible with any situations, and that any of the information provided will be accurate. We make no guarantee of any specific results from the use of this information. No part of this information or conclusions is intended to constitute advice from professionals and your own analysis and the content of this information should not be relied upon when making any decisions or taking any action of any kind. No part of this information is intended to constitute a contractual offer capable of acceptance. No goods or services are sold through this information and service details are provided for information purposes only.

  • Business Science vs. Business Intuition

    There are many perspectives and often disagreement on business problems. Some of this discord is because of honest difference of opinion - two people can look at the same facts and come to different conclusions.

    Much disagreement is because people, driven by purely pecuniary interests, offer supposedly common sense solutions as the key to business success. They promote their tonic as the cure all, be all, end all, for all ailments. Of course, most of this is nonsense. My response is, there aint no free lunch.

    Occasionally one of their acolytes enjoys a success which is offered up as proof of their wizardry. However, in science, it is important to count the hits as well as the misses and thats what separates business science from the mere promoters.

    The Center for Business Innovation is committed to the science of business - to finding scientific proof of what works and what doesnt so that entrepreneurs and business people of all levels of experience and abilities can enjoy the greatest possible chances for success.

  • Introduction

    We live in a competitive world:

    lots of competition,

    near equal access to resources (same internet, same software, same technical support, similar retail space),

    often selling the same products,

    with great price pressures.

    How does one firm stand out from another?

    Behavioral economics is the study of how people make decisions.

    Idea gained prominence when Dr Daniel Kahneman won the Nobel Prize for his research in 2002.

    Key concept is that people are NOT rational decision makers. That is, people are influenced by things other than rationality including personal biases, emotion and so forth.

    Thus it is important to communicate with people in ways that improve the likelihood of them accepting your message.

    A choice architect has the responsibility for organizing the context in which people make decisions.

    Richard H. Thaler, Nudge: Improving Decisions About Health, Wealth, and Happiness

  • The ProblemGetting noticed

    1. Differentiate oness self in a competitive world.

    2. Inspiring action.

    3. Get the sale before the other guy.

    4. Build a brand.

  • Background: The need for results

    The story begins with any business or organization, yours maybe.

    And the need to more effectively convert people from prospects to fans.

    An important way to do this is thru the tools of influence - that is - ways information is presented that make people most likely to accept it.

    The techniques presented can be used, individually or in groups, in any form of communication.

  • Background: The problem with communications

    Many of us believe that presenting the facts or sharing information is how information is exchanged or how people are made into customers or supporters.

    This is not true.

    People hate to think. The brain, contrary to popular opinion, does not like to analyze and parse information to see how it if of benefit.

    The brain likes to exclude information and do as little as it can. Your brain is happiest when it is ignoring information out rather than gathering data and thinking about it.

    Therefore, the brain has developed a set of rules - heuristics - to get thru the day.

    These rules allow the brain to make fast, and generally good, decisions without wasting time or energy.

    If these rules are understood, the communicator has a direct feed into the brain and can by pass the filters designed to keep information out.

  • Principals of Influence6 heuristics the brain uses to make fast, effortless decisions

    Social proof - following the other guy. (Like mother said, if everyone else jumped off a bridge would you too? Of course you would, thats what everyone is doing.)

    Scarcity - the less there is of it the more valuable it is. (Don McClean, author of Bye Bye American Pie, sold his original manuscript for $1.2 million. But the photocopy, as an exact duplicate as anyone might need, is not worth 50 cents.)

    Reciprocity - I owe you. (Phrases such as much obliged or Im beholden are part of our culture. There is a strong internal pressure to level the scale - to payback - to be a good person.)

    Consistency - humans strive to be consistent - to behave in a predictable fashion. (Research shows its easier for someone to take the second step after taking the first.)

    Authority - we obey authority figures. (Every con man knows dressing the part is half the battle. Dress like a banker and you are half way to getting an old lady to hand over her life savings.)

    Liking - we tend to do business with people we like and trust. (Politicians love to be photographed kissing babies because they know it makes them likable - and instant liking is more powerful than a 50 page position paper.)

  • Influence Is Based On Research conducted by Dr. Robert Cialdini

    Regents' Professor Emeritus of Psychology and Marketing at Arizona State University

    He is best known for his 1984 book Influence: The Psychology of Persuasion. The book has sold over three million copies and has been translated into 30 languages. It was listed on the New York Times Business Best Seller List. Fortune Magazine lists the book in their "75 Smartest Business Books".

    His two other books, "Yes! 50 Scientifically Proven Ways to Be Persuasive" and "The Small BIG: Small changes that spark a big influence" were named a New York Times Bestseller and The Times Book of the year respectively.

  • Six Slides Depicting How Others Have Used The Principals Of

    Influence To Connect

    Examples taken mostly from web sites for illustrative purposes only. The same applies to billboards,

    sales funnels, etc.

  • Social ProofAmazon and other leading web retailers have adopted the principal of social proof using:

    Ranking systems. Best Seller tags Reviews. Counting the number of reviews. Ordering the reviews in the sequence

    others find most helpful. The verified purchase, seller, etc.

    What they know is the buyer is not going to compare dozens or even a few other books to arrive at a buying decision. Rather, the buyer is going to take the path of least effort and silently say to herself, what do other people think? and follow.

  • ScarcityeBay and others have adopted the principal of using scarcity to influence buying behavior:

    This eBay ad tells us there are only 3 available and 105 people are watching - waiting to beat us to the purchase.

    It also tells us how many people are looking at it per hour to increase the pressure on us to act and beat the other guy to the purchase.

    What they know is the buyer is not motivated if supply is plentiful. However, the buyer can be spurred to action if they realize the supply is limited and they might miss out.

  • ReciprocityIt is human nature to feel obliged if someone does us a service. Many marketers have adopted the principal of giving something first to get something later.

    Seth Godin, master marketer, has made giving free stuff into an art. Giving free stuff creates that feeling of obligation which can only be satisfied by

    buying something from the giver.

    Think of the musician that is giving her music away: how can that work out? Think of it like this:

    She gives you a free song (in exchange for your email address). Later she sends you an email saying she wi