In order to sell more products or gain more clients, you need to understand how your target audience thinks and behaves. This is what behavioural economics is all about. It’s the study of consumer psychology and how it affects their purchasing decisions.
Once you understand common patterns in consumer behaviour, you can find ways to increase your conversions and maximise your profits. Here are 7 valuable insights that behavioural economics gives us.
By making a product, service or experience exclusive you increase desire for it. When something is rare, consumers tend to act with more impulsivity.
Similarly, scarcity tactics like “sale ends today” and “only 4 spots left” can drive up a sense of urgency, encouraging customers to make action immediately.
If people are presented with two options, they will tend to go for the cheaper option. However, when you introduce a third, more expensive option they will tend to choose the middle option.
For example, a mobile phone service provider could offer three packages:
The middle price point acts as an anchor – the third option is too expensive and the first option isn’t perceived as good value for money. Pricing like this will help drive customers to the second option.
Having a wide range of options to choose from sounds like a good thing, but it can end up backfiring. Presenting a potential customer with too many options can actually result in choice paralysis.
When making a decision is too hard, people will often choose the easy way out – not buying anything. Consider reducing the number of options you offer to encourage more conversions.
A small suggestion or nudge can influence what and how much people buy. For example, when you offer group pricing like “3 items for $15” people will tend to buy 3.
If you label one of your packages “best value”, you encourage more sales of that package. By using language like “luxury”, “deluxe” and “premium” you can influence the way customers perceive your product.
“Free shipping”, “free gift with every purchase”, “buy 1 get 1 free” – using the word “free” is a highly effective way to attract potential customers. Often more so than a discount.
Studies have shown that people tend to choose the free option even if a discounted option represents more savings or more value.
Receiving gifts or rewards for making a purchase can help encourage customers to engage with your business again. Offering customers additional value is a good way to generate loyalty and drive up repeat sales. For example, you could offer loyalty cards or discounts to customers who have previously made a purchase in your store, encouraging them to buy from you again.
Before people invest in a product or service (particularly if it’s a high price point) they look to what others are saying and doing. In other words, you want to show potential customers that other people like what you offer.
Ways to use social proof include positive reviews, customer testimonials, social shares, awards and credentials, celebrity endorsement and positive media stories. In addition to collecting positive reviews, it’s important that you act on bad reviews directly and swiftly. One bad review can outweigh a hundred good reviews, so it’s paramount that you handle them appropriately.
Need advice about smarter business tactics? Get in touch with Lawrence Group today.