In a recent article I tweeted about, Strategy+Business commented the PwC’s seventh annual global survey of consumers. The title and the content of the article ‘Competing for shopper habits’ was really good food for thought and encouraged to write this post.
In shopper marketing, there is a rule of thumb: only a mere 5% of purchase decisions are rational and the remaining 95% are purely intuitive. If, most decisions happen in the subconscious mind, can we really compete for shopper habits? There are 4 books I find particularly inspiring to address this question.
“Thinking fast and slow” by Daniel Kahneman.
The most famous researcher who dismantled the myth of the arch-rational decision-maker is the 2002 winner of the Nobel Prize in economic science, Daniel Kahneman. Ironically, he is not an economist but a psychologist – maybe another manifestation of the shoemaker syndrome. Kahneman proposes an alternative decision-making theory, more faithful to human psychology, called the “prospect theory”. But his work is more often epitomized by the System 1 – System 2 duet.
According to Kahneman, people are essentially relying on two systems when making decisions: a “System 1” using association and metaphor to produce a quick and dirty draft of reality, and a “System 2” drawing upon explicit beliefs and reasoned choices to produce a more complete and accurate picture of reality. “System 1” is fast, intuitive and prone to errors. “System 2” is slower and more rational but also labor-intensive and therefore way more tiring. That’s why instead of systematically analyzing every single situation and weighing the pros and cons of every option, our brains mostly rely on System 1 to make day-to-day decisions like purchases. In a nutshell, people are not rational when they are making most of the decisions they make.
“Predictably irrational. The hidden forces that shape our decisions” by Dan Ariely.
Dan Ariely, a professor of economics at MIT, and an evangelist of behavioral economics develops an interesting argument: people are not capable of consistently making the right decision for themselves. But the good news for shopper marketers is that they do so in ways which are systematic and repeatable – hence the subtitle of his book, “Predictably irrational: the hidden forces that shape our decisions”. What matters, he says, is to understand when and why people deviate and make irrational decisions.
“The Power of habit: Why we do what we do and how to change” by Charles Duhigg.
The New York Times business reporter, Charles Duhigg suggests that habits can be changed – if we understand how they work. Although not focused on purchase decisions, his approach is valuable for shopper marketers. According to the author, the neurological loop at the core of every habit consists of three stages: the cue, the routine, and the reward. When a task is done repeatedly, the brain anticipates the reward and a ‘craving’ forms. To change a habit, marketers need to understand the craving and find new ways to satisfy it. Interestingly, the research conducted by Duhigg shows that changing the routine – not the cue or the reward – is the most effective way to break the habit cycle. He also shares three drivers of success: familiarity, social commitment, and individual empowerment.
“Nudge: Improving Decisions about Health, Wealth and Happiness” by Richard Thaler & Cass Sunstein.
Nudging is another interesting concept for shopper marketers who aim at influencing behaviors. Richard S. Thaler and Cass R. Sunstein, professors in Economics and Law at the University of Chicago, established it in their best-selling book back in 2009. Their key argument is that details that may look insignificant can have a major impact on people’s behavior. Human beings, they say, often act in ways that seem detrimental to their own wellbeing: eating junk food, spending conspicuously, smoking cigarettes or failing to save money for their pension. Most efforts of private and public institutions to educate people about the risks are proving unsuccessful. Gentle “nudges”, rather than prescriptive “nagging”, are much more likely to drive real shifts in behavior. They use a now-famous example on how to best drive healthy food eating. “Putting the fruit at eye level [in the supermarket shelf] counts as a nudge,” they say. Banning junk food does not”.
If you have a book to recommend in that category, please feel free to leave a reply with the title and author.
Think Shopper 