Marketing is one of the most fundamental activities of the free market and Behavioral Economics is certainly a very hot area in marketing. Even though many of the irrational behaviors highlighted in behavioral economics have been known in marketing for years—as pointed out by Philip Kotler—Behavioral Economics makes a significant leap forward by formalizing these behaviors into a model that can be applied consistently. Marketers can make tremendous strides by using the insights of behavioral economics to increase sales.
- Free is more powerful than a discount… example “3 for the price of 2” is seen as better than “33% off”.
- Social proof is critical to building credibility and conversion.
- Price is a proven quality signal, so it’s best to show high ticket price and then provide a discount.
These are powerful insights, but Behavioral Economics can also benefit from some core principles of marketing. Specifically, marketing sees potential buyers as unique individuals. It’s important to keep this in mind before gung-ho applying the broad conclusions of Behavioral Economics from experiments.
Behavioral Economics allows marketers to focus on behavior, not just intent. The latter is what marketers are generally limited to working when working with market research surveys.
Within the framework of Causal Economics, marketers work tirelessly to demonstrate X = Change in B / Change in C ≥ 1 as much as possible and certainly more so than competitors.
Causal Economics provides many insights beyond those of Behavioral Economics. For example:
- Take into account the full cost potential buyers face, costs that impact them completely outside of the consideration of the marketer’s solution. Buyers don’t see them as unrelated sunk costs. They matter.
- Be more transparent in communicating the true cost of solutions to build credibility and trust over the long term. Most marketers present infinite or huge benefits and mysteriously minimal costs, which is just the price paid, and even that is top secret until he end. It all signals BS.
- Think in terms of long term customer value, full C and B over the long term.
- Sales and marketing can align when there is joint end-to-end funnel ownership, where each bear C and B across the funnel tied to results. Sales and marketing should have comp tied to revenue and margin. All employees should even when measurement is tough. Pay more for performance and less for lack of it.
- Think in terms of cost thresholds. People only take action when (C) hits a certain level, which makes status quo unacceptable.
- Decisions aren’t instant. They build up over time and marketers incrementally chip away at the mindset, with incremental progress measured over time.
- Referrals/networking will always be king and dissatisfied customers are your most dangerous situation.
- In so many ways, Causal Economics is an academically formalized theory inspired by the insights that have been delivered for years by behavioral experts like Anthony Robbins. Marketing is all about understanding buyer and competitor behavior … overcoming costs to achieve benefits.
Review the foundational academic research on Heliyon here.
Additional Exernal Resources