Cognitive Shortcuts That Influence Purchase Decisions
June 17 2014 · Steve Benjamins
Most people haven’t looked at all the data possible before making a purchase decision. It’s impractical. Because of that, people will often rely on rules of thumb or mental shortcuts to make purchase decisions.
These shortcuts are called heuristics.
Heuristics help people make quick decisions, but are not guaranteed to be optimal. And sometimes heuristics are leveraged (or exploited) by businesses to increase sales.
Here’s a few examples:
1. Price Anchoring
Price anchoring is commonly used by retailers who will suggest a price, scratch it out and then offer a lower price. It works because when people are uncertain of a price, they will often anchor around the first suggested price.
Amazon does this constantly:
This also happens in salary negotiations: hiring managers will often ask applicants what their desired salary is. Most applicants will low-ball their desired salary because they want the job. Unfortunately for the applicant, this ends up anchoring the salary negotiation around a low number.
Note: Does price anchoring in salary negotiations sound scummy? That’s because it sort of is. But for better or worst, this is also how the world works. For great advice on salary negotiations check out Ramit Sethi.
The possibility of something becoming unavailable sharply increases its desirability (and therefore the price people are willing to pay for it).
In his paper, The Psychology of Unavailability, Michael Lynn, explains scarcity through the example of Cabbage Patch Kids dolls:
“In 1983, demand for Cabbage Patch Kids dolls exceeded expectations, and shortages occurred. This scarcity fueled demand and created what became known as the Cabbage Patch panic. Customers scratched, choked, pushed, and fought one another in an attempt to get the dolls. Several stores were wrecked during these riots, so many stores began requiring people to wait in line (for as long as 14 hr) in order to obtain one of the dolls. A secondary market quickly developed where sellers were receiving up to $150 per doll. Even at these prices, the dolls were so difficult to obtain that one Kansas City postman flew to London to get one for his daughter.
The Cabbage Patch panic dramatically illustrates one of the psychological effects of unavailability. Popular to begin with, the dolls scarcity and expensiveness (in terms of money, time, and effort) intensified people’s desire to own one. "
I’ve noticed that when I see a startups website for the first time, I instantly get a feeling based purely on how the website looks.
I’m far more likely to trust a startup website that seems to look the part (i.e.: sleek, modern, clean, flat design). I’m certain that I am not the only person who does this.
Most of us can’t take time to assess every angle of a decision. And so we’ll often rely on stereotypes as a shortcut to trust. We’ll ask ourselves: does this look like how a (blank) should look like?
I try to eat organic food whenever I can. Why? Because I’ve also learned to feel suspicious of conventionally-raised, pesticide sprayed food (through a mix of documentaries and Michael Pollan books).
Whether or not you agree with me, you can see that I have learned to associate conventional food with contamination.
A sense that something is contaminated can be overpowering. The possibly alone of contamination will cause people to avoid it.
This is why an insecure SSL certificate can be so devastating for an ecommerce website.
When an SSL certificate is insecure, browsers give aggressive warnings to visitors. This feeling of contamination can linger in a visitor long after an insecure SSL certificate is resolved.
5. Earned Money vs Found Money
It’s common for people to waste found money and savour earned money.
For example, at a casino it’s not uncommon for winners to be more frivolous with money they won then money they worked for. For example, check out these Tweets:
I won $26 at Rivers Casino this afternoon. I'm buying all the drinks at Consol tonight. Who's in?! #LetsGoPens
— jtkola™ (@jtkola) May 4, 2014
— Evelyn (@EST_Evee) December 24, 2013
Won at the casino! So many free drinks at mug club tomorrow!
— Jeremy weber (@jeremyweber09) August 29, 2013
Note: I am not making fun of these people. I also love winning at the casino and being able to buy a drinks for friends too.
6. Sunk Costs
Even if someone doesn’t want to see a movie, they will often feel obliged to see it if they’ve already purchased a non-refundable ticket.
But why they should they still see the movie? The money they’ve already spent on the ticket shouldn’t matter (it’s already been gone) why additionally force yourself through a movie?
It’s because most people will stick with something they’ve paid for, even if they have no formal obligation to continue with it. This is known as the escalation of commitment heuristic but is also referred to as the sunk cost fallacy.
It’s why people are likely to finish a meal at a restaurant, even if they’re already full.
Or why they continue to read a boring book if they’re already halfway through.
Or why people stick around a boring bar if they’ve already payed cover.
7. Social Identity
Here’s a confession: when I started using Reddit, I thought I would browse, but never post.
Why? Because I initially didn’t feel like I was the type of person who posted on Reddit. Of course, over time, I got over that and started posting (and now I love Reddit).
But my initial hesitation reveals another interesting heuristic: sometimes we modify our decisions if we perceive that something will jeopardize our social identity.
Take the example of Google Glass.
Lately Google Glass has received some bad press over the term glassholes. Urban Dictionary defines “glassholes” as: “a person who constantly talks to their Google Glass, ignoring the outside world … In extreme cases this word is directly synonymous with stalker or creeper.”
A reputation like this is hugely influential to people considering purchasing Google Glass. Now when people buy Google Glass, they will ask themselves: am I the type of person who wears Google Glass?