• Kanhaiya Maheshwary

5 Cognitive Biases that Marketers exploit to influence your decision making!

Updated: Oct 29, 2020

My undergrad program, Bachelor of Mass Media, was a pretty fascinating one. Over the course of 3 years, spread across 6 semesters, we studied 36 different subjects! The course makers (a random team of educationists at the Mumbai University) believed that as advertisers and media specialists, we should possess a breadth of knowledge regarding History, Cultural Studies, Marketing, Psychology, Design, Branding etc. And while I can't recall each and every subject, there are a few that left such a deep impression on me that till date I keep studying them both formally and informally. Psychology was one such, besides my profession Marketing (of course).

Psychology forms an important part of pretty much every business discipline, especially marketing. Marketers need to understand what motivates their customers, what are their fears and feelings, and so on. And there's one specific theory within psychology that is probably one of the most important ones for marketers - the Cognitive Bias theory. Back in 1972, researchers Amos Tversky and Daniel Kahneman defined Cognitive Bias as any error in judgment caused due to the way humans try to simplify or contextualize information.

Cognitive Biases form a part of our everyday life, and they are inescapable. They arise out of our previous experiences, social conditioning, and simply individual beliefs formed over time as a result. Marketers try their best to exploit these inherent biases in humans in various ways. Let's check out 5 such cognitive biases -

1. Confirmation Bias

Confirmation Bias is one where people only seek and absorb information in accordance to their pre-existing beliefs and ideas. This happens most often in the case of religion or politics, where a right-leaning or left-leaning person will only pick up that piece of information as it pertains to their beliefs, whilst ignoring anything that doesn't confirm with their notions.

In marketing, this bias is serviced both before and after a purchase has been made. These days, websites features success stories and testimonials to entice a purchase, and then put out thank you emails (or even better, printed notes sent along with the product) in order to feed the confirmation bias. Brands also show stats to affirm you of your purchase by saying "You are now a part of a X number large family".

Recently, I had purchased an expensive coffee. In order to feed to my confirmation bias, the company sent me a printed letter -

Another general use case of confirmation bias is social media algorithms feeding you only a certain kind or category of content over and over again knowing you will spend time to interact with it.

2. Loss Aversion

Simply put, loss aversion says that the loss of losing something is far greater than the joy of gaining something of an equal value. To explain this a little more clearly, let me give you an example. Let's assume your friend offers you a bet, wherein flipping a coin heads will win you $20 but if it flips tails you lose $20. Are you likely to take the bet? No. Now let's consider he/she changes the terms of the bet and now flipping a heads wins you $40 but if it flips tails, you lose $20. Will you take on the bet? Likely. This shows that the psychological impact from losses is generally more than the impact of wins of an equivalent amount. How do marketers use this?

Countdown Offers

Do you notice those count down tickers on websites asking you to purchase within the next X hours to avail a certain percentage of discount? If you are an evolved customer, you may not fall for it, but most people still do. The pain of losing out on that discount far outweighs the joy of not having spent money at all to buy that product / service at that time.

Trial Subscriptions

You wonder why every online service offer a free trial these days? Psychologists say that once you start using a service, you start feeling like an owner. And once that trial period is over, you experience a feeling of 'losing' out on that service. In order to avoid this minor psychological setback, you end up paying for it in order to keep using all the features.

3. Anchoring Bias

Anchoring Bias is a phenomena where people rely on the first piece of information they receive as a basis of comparison for every subsequent piece of information. Let's take a hypothetical situation again to understand this better. Consider yourself browsing Amazon.com. Let's assume that you searched for 'polo neck tee-shirts' and saw 2 results, with the first one being a $60 tee-shirt and the second result being a $45 tee-shirt. You may think of the second result as reasonable and purchase it. Now let's rewind this scenario again. You search for the same thing and are presented with just one option - the $45 tee-shirt. You may think that it is better to look elsewhere first than to buy this. This happened because there was no 'anchor' in the second situation for you to base your decision on.

Another example is the way the information is presented. Consider that you searched for a particular jacket and saw only one result on Amazon for $300. In the absence of an anchor, you may want to look elsewhere. But if the result was displayed in a way where it read $1,000 struck out to show $300, the $1,000 becomes the anchor.

This learning proved out to be golden for marketers, because they have been using it ever so often in both retail and the online world by presenting information in a specific manner.

4. The Compromise Effect

Compromise effect is slightly similar to the Anchor Bias, yet has its own unique use cases. This theory says that a customer is most likely to choose the middle option in order to safeguard his/her purchase and will avoid choosing the extremes. However, this theory is subject to certain constraints. It works only when the choices are limited. As the choices keep getting wider, customers may end up choosing extremes.

In the brick-and-mortar stores, you will find companies usually having 3 different SKUs of the same product, priced differently per unit. For example, a bottle of Coke might be presented in 300 ml, 500 ml, and 1 liter variants, priced at $1, $1.35, and $2. Of course, the presence of the 300 ml at $1 makes the 1 liter variant seem so much cheaper for $2! In most cases, the most expensive variant is only manufactured so as to drive the sales of the middle one.

If you are an avid surfer and subscribe to online services, you might have seen it a lot of times in this manner:

In the case of such online subscriptions, the prices are so designed and arranged so as to sell the middle variant the most. The most expensive one might seem wasteful whereas the cheapest one might seem to be the one lacking features. Hence, the middle one gets sold the most.

5. The Framing Effect

This is one of my favorites, and I've seen it being both widely used and misused by marketers and market researchers. The Framing Effect simply says that how you put forth a piece of communication to your users can determine their actions. The very same information having the same implication might actually produce different reactions when presented differently.

Let's go back to the root experiment conducted by Amos Tversky and Daniel Kahneman, the researchers that I mentioned at the start of this blog. They introduced a hypothetical situation to a group of participants in which the US was preparing itself against the impact of an unusual disease that originated in Asia (doesn't it seems eerily accurate?) and was expected to kill 600 people. The participants were given two different programs to choose from, with the following descriptions: 1. Program A would save 200 lives. 2. Program B had a 1/3 probability that 600 lives will be saved, and 2/3 probability that those 600 will die. In theory, both options mean the same. Yet, 72% respondents choose option A, and 28% chose B.

The Framing effect is particularly helpful in public service announcements where stressing on the negative yields far more intended actions than focusing on the positives. For example, communicating that non-smokers live up to 80 years is less effective in getting someone to quit smoking than advertising that smokers die 30% sooner than non-smokers. Another example would be that of subscription services, especially digital newspapers like NYT or Washington Post. Instead of quoting an annual subscription of $365, their ads will say "Read for as low as $1/day".

Cognitive biases can virtually be endless. Most of these biases are simply the by-product of our conditioning, irrational fears, and lived experiences. Understanding them deeply can help marketers with regards to various decisions, ranging from designing the right product SKUs to coming up with the ideal pricing.

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