The study of economics assumes people are rational. It's the basis of most microeconomic theories, and has been the basis of most business education. Many business leaders hail as gospel that consumers will buy when the benefits outweigh the costs. So marketers emphasize the good and downplay the bad of their product. Sounds simple enough, and yet it's anything but.
People make irrational decisions all the time! But there are patterns in human behavior that can help predict how they'll be irrational. In fact, the Nobel Prize in economics has been awarded twice in the last 15 years to psychologists who showed that people do not make rational purchase decisions. Thankfully for marketers, there are patterns in human behavior that affect how and when we are irrational.
You might feel like YPO member Jake McKenzie can just about read your mind. He has spent his career studying how you will make critical buying decisions. He majored in psychology at Vanderbilt, and learned how to tap into the power of persuasion while working in marketing and sales. Today, McKenzie is the CEO of Intermark Group, the largest psychology-driven marketing firm in the country. Intermark uses psychology principles to craft strategies for clients that appeal to human behavior. McKenzie was named the Advertising Executive of the Year by the Birmingham Advertising Federation, and was the youngest person ever named to the Birmingham Business Journal's Top 40 Under 40.
Here, McKenzie shares what you don't know about your own buying habits:
1. You don't like thinking too hard.
McKenzie presents some hard truths about themselves. "There is a rule in psychology called 'The Law of Least Effort,'" he begins. "It says you will stop thinking about any problem, like a purchase, as soon as you think you can. That may mean when you have an acceptable answer, but more frequently, it's when you get tired of thinking about it." Unfortunately, this is part of the human condition. McKenzie explains, "We all have limited cognitive resources, so we have to be selective about how we use them. Thus, we look for shortcuts in our decision-making. It's these shortcuts that make us vulnerable to irrational thinking." Psychology-focused marketing offers easy shortcuts to making decisions, meaning you can think less if you choose a particular product.
2. Decisions are automatic and hidden.
Humans don't like thinking too hard, so they've found ways of automating the process. "Daniel Kahneman won the Nobel Prize in economics by illustrating that most of our decisions, including most buying decisions, are made by the part of your brain housing 'System 1' thinking. System 1 is an automated system that works without you asking, really without you even being aware of its existence, to make suggestions and decisions for what to eat, do, and buy," says McKenzie. The implications are remarkable: "This means that you can't turn it off. So even after learning how you are fooled by marketing, you'll still fall for those same psychological triggers again and again," he explains. McKenzie and other smart marketers like him have tapped into this to help their clients grow.
3. You'll deny that it works on YOU.
Humans don't like to admit they've been had. "When we make decisions with System 1, we will rationalize them even after the fact," McKenzie says. This can happen when someone asks why you made a decision. "We rationalize so we don't have to admit, publically or even to ourselves, that the decision actually was irrational. We believe that we're smart and educated about everything, so we attempt to reinforce our own belief in our 'rational' thinking," he explains. This opens you up to further exploitation. "When we cover our mental tracks this way, we blind ourselves to how we make decisions, making us even more susceptible to irrational decision-making in the future," warms McKenzie. Don't deny it just because it's uncomfortable. Instead, embrace it and see what you can learn from it.
4. We let others decide for us.
One shortcut people use is what psychologists called "social proof." McKenzie explains, "We simply look to see what others have decided, assuming that they already did the research and thinking so we don't have to." In fact, humans may look for proof more than they even look for quality. "A study about Amazon.com recently showed that we value the amount of reviews a product has MORE than the ratings the product had. In other words, we prefer a product with 3.5 stars with 2000 reviews to a product with 5-stars from 40 people," he says. Just one more reason to read the reviews!
5. You hate losing more than you like winning.
Analysts often say that the greatest sports heroes hate losing more than they like winning. Turns out their super-human effort is the result of a very human emotion. "Most people are hard-wired to avoid losses. If given the option to make an extra $1000 or to avoid a $1000 loss, most consumers choose to avoid the loss, even though microeconomic theory would say that the two options should be identical," McKenzie describes. He goes on, "Psychology-driven marketing frames products and services to leverage this mental loophole." In your own everyday interactions with clients, see how you can frame issues differently to make them appeal to their risk-averse nature.
6. You are open to suggestion.
This plays out in the real world all the time. "If you are presented with a number - say 711 - you will use that number in the next decision you make, even if it's unrelated to the context of that number," says McKenzie. He's got a great example to illustrate the effect: "If I ask you how long the Mississippi River is, your initial guesses will cluster around 711 miles, since you just read that number," McKenzie asserts. Marketers use this loophole to impact consumer decision-making. "So for instance," McKenzie shares, "showing an MSRP or 'original price' before showing the discounted price will make you think it's a great deal, even if the original price is made up." And if they're really good, the effect will be subtle. "It's 2,320 miles in length, by the way," McKenzie smiles.
7. You are terrified of missing out.
FOMO is real! "Fear of missing out" fits right in with humans' risk aversion. "Our fear of loss is a major driver of decision-making," McKenzie asserts. "If it's an item or service you can't easily obtain, your desire for it increases dramatically, along with the price you're willing to pay," he says. The fear of missing out makes you act faster and pay more. "That's why marketers post low inventory numbers on retail websites, have timers on shopping carts, or suggest possible product shortages," McKenzie discloses. The lessening quantity available also suggests that other people are buying the product, too, which feeds the human need for social proof.
8. You are prejudiced and biased.
This can be an uncomfortable truth to confront, but it's reality nonetheless. "Our brain stores information in 'schemas' - broad rules you develop regarding how you think the world works. These schemas are our brains' way of making sense of the world. Then we use that information to make corresponding decisions quickly, like how we use System 1 thinking," McKenzie explains. But these schemas are also the source of biases and blind spots. "We all have biases, beliefs we develop based on limited information, but that aren't necessarily true. Tall people must play basketball. People with glasses are smart. Pit bulls are aggressive," McKenzie admits. Those biases can be exploited in marketing to affect your decision-making. "We will trust a person wearing a white coat, even if they don't claim to be a doctor or scientist. We tend to think someone with a British accent is credible and believable. We expect white wine to be sweet. The list of schemas is nearly endless and applies to colors, sounds, music, and nearly everything you can see or hear," McKenzie reports. Psychology-driven marketing uses these schemas to affect your beliefs and influence your actions in ways you are unaware.
9. It doesn't always work the same.
Humans are sometimes aware of their own mental shortcomings, or have times of immunity to them. "We don't always fall for decision-making biases. It depends on circumstances, or trigger points. A trigger point is when you are most likely to be susceptible to different influences or messages," says McKenzie. "If you have always driven a Toyota, you won't change your view of Toyota because your neighbor recently bought a Ford, even though social proof is present. However, if you are at Stage 2 - beginning to shop for a new car - social proof can be effective in changing your view of Ford in some media," he offers. The trick is tapping into these moments. "Psychology-driven marketing knows both HOW and WHEN to use various tactics to be effective. These are called trigger points," reveals McKenzie. Start paying attention to your own changing tastes as you get closer to making a decision, and try to spot the influencers.
10. There are countless loopholes in your thinking.
Humans are intelligent, but business has figured out ways to hack into the brain. "There are hundreds of loopholes and biases in how we think and make decisions. Generally, we still get along well and make good decisions. You are reading this column after all!" McKenzie declares. He goes on: "But we all fall prey to biases in our thinking and decision-making that can and will be exploited by marketers. The best way to guard yourself is to acknowledge that you can be irrational, and we willing to question even your own thinking." Admitting your own shortcomings and analyzing the logic of your thinking will help you spot more of these methods.
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