Thursday + Gregory Huffstutter = The Ad Man Answers
Q: How rational are consumer buying decisions?
A: For this one, I’m going to defer to a report by MediaLife's Heidi Dawley, who concludes:
Simple fact is,
we're fools with money
We as human beings are highly rational, and the belief we share in that rationality pervades our every thought and action across countless decisions each day, minor and major, from the $4 cup of latte we pick up on the way into the office to the really great deal we just got on our new flat screen TV, with free shipping.
Now here’s some disappointing news. That's all hooey.
This grand notion of rationality is entirely in our heads. In reality, we as humans are predictably irrational in our decision-making process, and that's proven over and over again by the poor buying decisions we make. We overpay, we buy things we don't need. And perhaps most discouraging, we never seem to learn from our mistakes.
In short, we're kidding ourselves about our ability to make rational buying decisions.
“The idea that we could compute all the possible options of every motion and decide what the optimal course of action is – I just think it’s inhumane,” says Dan Ariely, a behavioral economist at MIT and author of “Predictably Irrational: The Hidden Forces that Shape Our Decisions," a new book on how consumers really behave in the marketplace.
“We are just starting to understand that the reality that we experience is not just about what’s out there. It is about what we create.”
This of course hardly comes as news to marketers, whose very expertise is in persuading people not only to buy their products but to rest in the comfort that they made the wisest decision.
As a behavioral economist, Ariely looks beyond theory -- say, Adam Smith's writings on capitalism and how it works or ought to work in the grand scheme of things, to how things actually work based on observing consumers in action.
It's enough to break Smith's heart, were he to return. A lot of Ariely’s experiments show just how much consumers are swayed by what they choose to believe versus the facts at hand. Call it willful self-deception. While believing they're weighing the evidence at hand, they often reach back into memory -- all those associations built up over years -- to make decisions.
Case in point: Ariely tested pricing on a pain reliever that was actually a placebo, vitamin C. First he priced it at $2.50, then at 10 cents. Which one delivered the greater pain relief, in the minds of test subjects? Most thought the $2.50 pain reliever was effective. Half that number thought the cheaper one did the job.
Our minds are embedded to believe in a correlation between price and quality, when in so many cases it's simply not true.
Yet at the same time consumers are invariably taken in by offers of free this or free that. The word "free" may be the most powerful word in the English language, and certainly the most powerful device in the quiver of marketers, even though common sense tells us that nothing is really ever free.
In another experiment, Ariely offered two beers to groups of students, one a name brand and the other a brew containing a special ingredient. The special ingredient was balsamic vinegar, but the students were not told that. They mostly preferred the special brew.
However, if told beforehand that the unique ingredient was vinegar, they found the drink unpalatable. Balsamic vinegar is not an expected ingredient in beer, so it must not taste very good, and of course it didn't.
“Your ideas,” he explains, “change the realities of what you experience."
He firms that notion up citing yet another experiment, a Pepsi versus Coke taste challenge. The participants tasted the two drinks, and as they did so their brain activity was measured. Researchers found that the brain reacted differently when the product names were revealed than and when they weren’t.
The mention of Coke stimulated the area of the brain relating to higher order association. That's to say, the mention of the Coke name earned a more positive response.” That’s where the higher enjoyment comes from, not the taste,” says Ariely.
Coke's years of brand building were paying off where it mattered most, not in the mouth but in the brain.
What might consumers take away from Ariely's research? That perhaps we ought to rethink how we make decisions based on the real facts at hand versus the entire set of beliefs we've stored up.
Ariely also believes there's room in the marketplace for products that accept our irrational side rather than exploit it. One idea he proposes is a credit card that would allow the user to set certain limits for different types of products per month. This would help people live within budgets.
Another is a healthcare plan where dates of important screening tests are mandated, either by the company or upfront by the consumer, to avoid procrastination, another key failing of the not-so-rational human brain.
“My hope for behavioral economics is that if we could design a world that is suited for our needs, that would be great,” says Ariely.
We should perhaps remember what “Star Trek’s” Dr. Spock told us years ago: “Nowhere am I so desperately needed as among a shipload of illogical humans.”
Gregory Huffstutter has been punching Ad Agency timecards for the past decade, working on accounts like McDonald's, KIA Motors, and the San Diego Padres. He recently finished his first mystery, KATZ CRADLE and is currently on submission. The first 100 pages of his novel are linked here. For general advertising questions, leave a comment or send e-mail to katz @ gregoryhuffstutter dot com with 'Ask The Ad Man' in the subject line.
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