Behavioural economics has been around for a long time, but its popularity over the past decade has begun to soar to new heights as more and more companies look towards behavioural insights to improve the customer experience and build relationships with customers to achieve competitive edge.
While the adoption of Behavioural Economics in the physical space is widely discussed, its application in online retail is less documented. Could a strategic approach to adopting behavioural economics in online retail be just what you need to set your company apart, bolstering leads, conversions and retention?
What is Behavioural Economics?
The term behavioural economics might sound intimidating for anyone who doesn’t have a background in marketing, economics, or psychology, but the basic idea is actually very simple.
“Behavioural economics incorporates the study of psychology into the analysis of the decision-making behind an economic outcome, such as the factors leading up to a consumer buying one product instead of another.”
Chances are that you’ve already had some experience with behavioural marketing. You just might not have realized it. Discounts, price comparisons, upsells, reviews, influencer marketing and celebrity endorsements are all marketing approaches that draw upon behavioural strategies.
Behavioural Economics – vs – Traditional Economics
Traditionally, marketers believed that consumers made their decisions based on a rational analysis of a product. But, that begs the question, why do emotional commercials and celebrity endorsements work? What makes behavioural economics different from traditional marketing approaches is that, while it does acknowledge the rational approach to decision making it also considers the multitude of psychological factors that play a part in that process.
How Consumers Make Purchasing Decisions
Behavioural economics helps marketers tailor the consumer experience by understanding how consumers make decisions based on; rationality, emotions, evaluations, and other psychological processes.
Each of these factors will bear different weights with different consumers. Some people are more inclined to think rationally, analysing technical specifications of goods or services, whereas others may rely upon reviews or simply “trust their gut”. It is very important to know which categories your target market falls into and what factors help them make a purchase decisions.
Benefits of applying Behavioural Economics to Your Online Business
Having carried out over 8000 multivariate test last year, we’ve found that, when used properly and appropriately, behavioural strategies can increase sales, lead to a better business-consumer relationship, increase retention and help nurture more leads.
Examples in online retail include Starbucks using ’gamification’ tactics to enhance the customer experience and generate additional sales, SportPursuit adopting ’loss aversion’ techniques acrosss their flash sale model, and almost every budget airline ‘chunking’ the entire purchasing process by locking down sales with low seat prices before adding ancillary offers.
As implied in that last example, behavioural economics can be harnessed throughout the purchasing funnel to help find and convert leads, and retain customers beyond this.
Behavioural Economic Strategies For Finding and Converting Leads
When used respectfully, behavioural economics helps you find consumers who already fit your target demographics. Increased engagement within social media has helped brands connect with leads in a personal way, often appealing to emotions and personal ideals in their messaging.
Following this, there are abundant opportunities to apply behavioural economics to online conversion, such as;
- Framing your products in rationally and emotionally appealing ways.
- Providing a default or base model and allow consumers to add features for a customized product or service.
- Providing a “best” or “fully-loaded” model and allow consumers to remove features to reduce price and customise the product or service.
- Using pricing psychology to increase the likelihood of purchase.
- Tailoring the purchase to your target customer(s), and use A.I. algorithms to personalize recommendations.
- Reinforcing how many other people chose the product they are looking at.
- Appeal to the desire for convenience
Behavioural Economic Strategies for Retention
In such a competitive environment, customer retention is essential. Marketers are becoming increasingly astute to behavioural approaches to retention, which likely explains the spike in subscription-based services over the past decade. Behavioural approaches help to create personalised experiences to help retain customers, such as;
- Using gamification to make membership fun and satisfying.
- Keeping customers connected to your brand through social media.
- Rewarding consumers for ongoing brand loyalty.
- Creating mailing list with exclusive offers, coupons, sales, and content.
- Rewarding premium customers through tiered-offerings.
- Responding efficiently to problems, complaints, and negative reviews.
- Offering special birthday discounts.
- Upselling and cross selling.
Implementing Online Behavioural Economic Strategies
As we’ve touched upon behavioural economics considers a multitude of psychological factors. A consequence of this different starting point is that behavioural economists can come to different conclusions about the logic and efficacy of almost anything. That being said, to ensure success when applying behavioural economic strategies online – measure and test, always.
Traditional online marketing measures of success (return on investment, clickthrough rates, purchase values, frequency of purchase, upsell rates) are all good starting points. Keeping track of sales is another obvious business metric to report.
Don’t restrict this to the overall sales number, but analyse the type of consumers you attract, the time of day they make a purchase, and other important variables. However, with a behavioural marketing approach, it is also important to consider more personal and emotional experiences too, given the relevance of engagement (e.g. social media interaction and subscriptions to mailing lists) for retention and loyalty.
FREE Behavioural Economics Practical Workshop 2020
Behavioural economics isn’t a new idea in the world of marketing, but it is evolving and bringing great gains with it. To understand what it can do for your specific business, Webloyalty and London Economics will be delivering a FREE practical workshop on the application of behavioural economics, which will cover;
- Terminology used in behavioural economics
- Applied examples including impacts in real world settings of behavioural biases and nudges
- The ethics of using behavioural economics to influence customer behaviour
- Hands on applications
- How to test and illustrate Return on Investment
To find out more, simply add your email details here and we will be in touch.