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Consumers have power to make any brand-name a success/failure. There is a perception that economic-decision-making is driven by emotions rather than rationality.

On the other hand, the marketers have a tough job of ensuring that the products & services offered by their Organisation are not being ignored & rejected by the prospective customers altogether. Instead, they have to explore innovative ways of attracting new & returning customers.

Noble Prize Winners, #Richard #Thaler & #Daniel #Kahneman have done some excellent work on ‘Behavioural-Economics’. B.E – Behavioural-economics is a complete ecosystem; which exists in every organisation. Internally the B.E revolves around the emotions of employees v management decision making. Externally, the B.E revolves around the emotions of customers v the repeat sales & profit margins.

What is B.E – Behavioural Economics?

B.E is about emotional decision making on the part of consumers (externally) & employees (internally).  B.E enable us to measure, quantify, & analyse the mere reasoning behind a particular customer decision.

For example, a FMCG Company using B.E strategy can deploy measures to manoeuvre loss making product by tweaking its pricing strategy (Buy 1 Get one Free).

Facets of B.E

Richard Thaler advocates that the following principles should be deployed by the marketers to manage consumer psyche accordingly.

  • Free Bee’s: According to Daniel Kahneman’ human decision making is subject to its own perception bias.

Economically speaking, consumer decision making is based on emotions (price conscious consumers).

In the UK, Black Friday sales are a norm nowadays. Black-Friday sales lead to record sales. Customers love Free-stuff e.g., YouTube videos or Free download of an Anti-virus (Avira).

Richard Thaler argues that the word FREE has power. A psychological power that infuses interest in the mind (dopamine effect) of the relevant consumer that they proceed to acquire the product/service.

  • Defaults: are the perquisites required by the seller.

Richard Thaler advocates that any product/service that has default characteristics is bound to lead to better results in terms of profit margins, & number of units sold.

For example, a buy one, get one free offer (default condition); whereby you got to buy one unit in order to claim the Free-bee. Free download of a software, if you register (default condition) with the Company providing the software.

  • Alternatives

Richard Thaler argues that the more alternative you provide to your consumers, the less likely they are to buy into your products/ services.

This happens, when a FMCG Company selling clothes doesn’t gets its pricing strategy right.

i.e.

Type A – 2 Jeans £100

Type B – 1 Jeans £99

Type C – 3 Jeans £150

In this instance, the average price is £50 for Type A & C. Type B is merely created to restrict customer perception bias. Type A & C are likely to lead to better sales as customers are likely to compare with Type B (which is actually same product as Type A; but marketed differently, to eliminate the customer perception bias, when it comes to buying).

  • Overwhelming response

Giving too many options to buy product/service can lead to information overload on the part of consumers. Resultantly, this can lead to poor sales & profit margins respectively.

Economic Ecosystem

In every Organisation, there is bound to be value ecosystem driven by its employees & customers alike. According to the principles of B.E; if the employees of the Company are satisfied; it can lead to cost reduction (absenteeism, reduction of bottlenecks, process reengineering).

Satisfied customers recommend the products/services to others. They often repeat buy the same product/service. They become the free form of advertisement/brand ambassadors for the Company as they feel satisfied with the products/services of the Company.

In summary, the likes of marketers, & commercial finance professionals are using B.E principles & transactional data to make more informed business strategies to launch new products & services.

The likes of #Power #BI have made it possible to quantify the impact of B.E & make reliable future forecasts (#regression).

Thus, the relationship between price & demand can be non-linear on the basis of B.E. As the economic decision of consumers are based on ‘emotions’ rather than ‘rationality’.