The classical theory explaining consumer behavior is based on the belief that people make their choice of goods or services quite consciously. They weigh the options and choose the most suitable for them. The process of making a purchasing decision is divided into five stages. First, a person realizes his need. Then he begins to look for information on how to satisfy it. Having determined the goods from the desired category, he begins to compare them.
Having chosen the best product, he decides to buy it. The last stage is a reaction to the purchase, an assessment of the correctness of the choice. This sequence may vary in different situations. For example, at a repeated purchase, the intermediate links of the chain are omitted. So, if a person wants to drink, he can automatically choose a drink of the brand that he liked the last time, skipping the selection stages. Many researchers argue with the idea that the decision-making process is completely rational.
The concept of "limited rationality" was first introduced by psychologist Herbert Simon. In his opinion, decisions made by people are limited by the information that they possess, their personal cognitive characteristics, and also the time during which they must be taken. Any person simply does not have enough resources and knowledge to make an optimal, perfectly balanced decision. Therefore, it is common for people to simplify existing options to the extreme to cope with the stress of choice. Limited rationality also explains why people can go to a more expensive and inconveniently located store, the owner of which they are familiar with, and not buy the same products cheaper in a faceless store near their home.
With limited rationality, the concept of information asymmetry is inextricably linked - a situation in which the buyer has incomplete information about the product. For example, the seller may be silent about the poor quality of the product. As the Nobel laureate George Akerlof showed in his works, insufficient information on the markets affects the price level. The buyer knows that it is likely to stumble on low-quality goods, therefore, to minimize their risks, he is ready to pay a smaller amount than if there were only high-quality goods on the market. As a result, sellers of quality goods who are forced to lower the price find themselves in the most disadvantageous situation.
The madness of choice
Economist Dan Arieli provides interesting examples of the inconsistency of decision-making in his book Predictable Irrationality. For example, if a travel company offers customers a choice of three options: a trip to Paris with breakfast, to Rome without breakfast and to Rome with breakfast, then with a high probability they will choose a trip to Rome with paid breakfast. This is called the "bait effect." Its essence is that consumers are more inclined to choose one of the similar options if they are also given a third - clearly different - option. In another chapter, Arieli writes about the irrational perception of the value of things. If the product first appears on sale, it’s enough to set an exorbitant price on it and remove an advertisement in which it will stand along with other expensive goods so that customers automatically rank it as items of high value. So, for example, it was with Tahitian black pearls.
Arieli also gives an interesting example with prices. He talks about another study of the placebo effect. Arieli noted that the healing effect of a placebo is enhanced if patients believe they are taking very expensive drugs. Another example of the irrationality of choice is the expectation effect, which proves that our ideas about things can overshadow the true feelings from them. So in an experiment conducted at MIT, a group of students were given two samples of beer for testing, without explaining that vinegar was added to one of them. Students liked beer with vinegar more. When the same group was offered the same beer, explaining which of them contains vinegar, the results were directly opposite. Knowledge changed their taste sensations!
Psychologists note that at the time before the purchase, people usually experience strong positive emotions (desire to possess, anticipation of pleasure and new opportunities). After the purchase, on the contrary, they become very vulnerable and often experience a feeling of remorse. The more effort, time and money a person spent on a purchase, the stronger his feeling of desolation. Psychologist Barry Schwartz, in his book The Paradox of Choice, writes that the main reason for this condition is the feeling of missed opportunities.
While most manufacturers believe that they should provide the consumer with the widest possible choice of products, in reality they only complicate the selection process. A person who has to choose one of 100 cheese options is stressed by the inability to calculate the pros and cons. The thought that his final choice cost him not two-three, but 99 lost opportunities is unbearable to him.
Stupor of variety
Researcher Sheena Iyengar went even further: she believes that the need to choose from a variety of similar products leads to consumer paralysis, in which most customers decide to completely abandon the purchase. Among other things, she conducted such an experiment. Two trays with jam probes were installed in the supermarket: 24 options were presented on one, and six on the second. Many more people stopped to try jam where there were more options, but only 3% of them bought jam as a result. Fewer people approached the rack with six types of jam, but 30% of them decided to buy it.
Iyengar gives three tips to entrepreneurs who want to avoid the problem of purchasing paralysis. First, cut back on stock. Paradoxically, this will make the customer selection process more enjoyable and increase the number of sales. For example, the company Procter & Gamble did, removing nine varieties of its shampoo and thereby increasing the number of sales by 10%. Secondly, specify. Customers cannot choose from many options because they do not understand how one product differs from another. Thirdly, divide products into categories.
American economist George Lowenstein devoted himself to the study of the influence of emotions on decision-making. As a result, he identified two types of such emotions: those that a person is experiencing at the moment, and those that he expects to experience in the future. The main emotion of the future is the fear of error, loss, the consequences of a wrong decision, and not an anticipation of the pleasure of making the right choice. The emotions of the present affect how quickly and deliberately a person decides what risk he will be ready to take. So, people who are in a state of mild sexual arousal, angry or hungry, make decisions faster than calm. Happy people do not make risky decisions. Frightened and frustrated people refuse to make a decision at all. Therefore, for example, the seller will not sell the car if he talks about its safety, because it will make the buyer mentally survive the accident.
There are several reasons for unexpected decisions to buy the item that the buyer just saw. People are more prone to impulsive shopping if they are hungry, tired, upset, or have already made several purchasing decisions that day. That is why stores place small goods like sweets and chewing gum in front of the cash register: customers come there prepared by other, larger, purchases. Another common reason is the so-called "projective thinking." It makes the mind believe that the present state will last in the future. So, for example, when it is very hot outside, people buy convertible cars and don’t buy black cars.
A sudden desire to buy also appears due to the “anchor effect”. Its essence is that we tend to judge things in comparison with the things surrounding it, and do not understand its objective value. Stores take advantage of this effect by shelving a television set at a discount between two very expensive televisions to make the value of the discounted item seem more attractive. The same thing is done in restaurants, including very expensive wines on the menu, so that the prices of "average" wines seem more reasonable.
One at all
For the first time, the halo effect was noticed by psychologist Edward Thorndike. He suggested that people tend to make their opinion about the whole subject based on one of its features. In a Thorndike study, officers rated their soldiers by their appearance. As a result, it turned out that outwardly attractive soldiers were automatically considered more intelligent, responsible and possessing leadership qualities. Thorndike subsequently proved how the halo effect affects the bias of judges in relation to defendants and teachers to students.
One well-known example of a halo effect in business is the iPod. Its incredible popularity has significantly influenced the increase in sales of other Apple products. In the automotive industry, there is even the term "halo vehicle" - a car that was created specifically to increase prestige and increase sales of cars of the entire brand as a whole. These models include the Dodge Viper and Ford GT.
A situation in which the buyer has only one version of the product: either he chooses it or does not receive anything. It is believed that this expression appeared due to the stables manager Thomas Hobson, who lived in Cambridge in the XVII century. Although there were more than 40 horses in the stable, Hobson himself chose for the visitors which horse they could pick up. If they refused the proposed horse, then they simply left with nothing.
Hobson did this because people constantly chose only the best horses, which in the end were too tired. Thanks to his rule, the load on the horses was distributed evenly. An example of the use of the Hobson method in business is the famous phrase by Henry Ford that cars can be of any color, if this color is black. Another example is the Labor And Wait household goods store, which sells only one (ideal) version of each item.
Photo: Daniel Firman