The psychology of marketing

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How Cognitive Psychology is used in Marketing. My most popular talk so far.

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The psychology of marketing

  1. 1. The Psychology of Marketing How to Exploit Cognitive Biases for Fun and Profit, or Defend Yourself From the Same
  2. 2. Why is Marketing a Great Way to Learn Psychology? • Direct feedback: make money when you’re right, lose money when you’re wrong. • Well researched: billions of dollars go into Marketing each year • Plenty of data. Businesses routinely conduct experiments with sample sizes in the tens of thousands, compared to Academic experiments with sample sizes in the hundreds
  3. 3. Three Key Biases • Cognitive Ease • Anchoring • Distinction Bias
  4. 4. Three Key Biases • Cognitive Ease • Anchoring • Distinction Bias
  5. 5. How do we judge truth? • “The moon is made of green cheese” • “The earth revolves around the sun” • “The body temperature of a chicken is 144 degrees”
  6. 6. Cognitive Ease • On a 5-second level, humans are more likely to judge a statement as true if it’s easy to process • Unsurprising example: if you repeatedly hear the phrase “the body temperature of a chicken is 144 degrees”, you are more likely to judge it as true
  7. 7. Cognitive Ease Part 2 • Surprising example: even if you only hear the phrase “the body temperature of a chicken” several times, you are more likely to judge “the body temperature of a chicken is 144 degrees” as true. This applies for any arbitrary number.
  8. 8. Marketing Applications • Ads work by making a brand more familiar • E-mail campaigns and blogs aim for regular contact over a period of weeks • “Write how your audience talks” is the cardinal rule of copy writing • AdSense links that are the same color as the referring page have 20% higher conversion
  9. 9. Three Key Biases • Cognitive Ease • Anchoring • Distinction Bias
  10. 10. Anchoring • Experiment 1: participants were asked to write down the last 2 digits of their social security number, then bid on different items. Participants with high social security numbers bid on average 60%-120% more • Experiment 2: experienced judges proposed longer sentences if they’d just rolled a pair of dice loaded to give a high number
  11. 11. Anchoring 2 • When we hear a number and then estimate another, the first number influences our estimates of the second-even when we know the two are completely unrelated
  12. 12. Marketing Applications • Pricing a product at $500 and offering a 50% discount is much more effective than pricing it at $250 from the beginning • When offering multiple options, show the most expensive one first
  13. 13. Three Key Biases • Cognitive Ease • Anchoring • Distinction Bias
  14. 14. Distinction Bias • “Which dessert do you want?” vs. “Would you like dessert?” • When presented with multiple choices, people tend to significantly overvalue the differences between the choices. Two high-quality TVs may offer a nearly identical experience, but some people will pay twice as much for the slightly better TV
  15. 15. Ignoring Alternatives • In particular, distinction bias causes people only to focus on the choices explicitly presented to them
  16. 16. Marketing Application • Offer 2-4 options!
  17. 17. Case Study: Server Density • Old pricing page: http://web.archive.org/web/20120211140714 /http://www.serverdensity.com/pricing/ • New pricing page: http://www.serverdensity.com/pricing/ • Compare on all 3 points: Cognitive Ease, Anchoring, Distinction Bias
  18. 18. Results • >109% increase in revenue
  19. 19. Defense Against the Dark Arts • Willpower isn’t enough-even professionals who are aware of anchoring and trying to account for it have almost no resistance • To succeed, add at least one alternative beyond what’s presented to you, and compare the alternatives
  20. 20. References • Thinking, Fast and Slow by Daniel Kahneman • Influence by Robert Cialdini • The Copywriter’s Handbook by Bob Bly • Google AdSense Secrets by Joel Comm • Decisive by Chip Heath and Dan Heath • McGlone, M. S.; J. Tofighbakhsh (2000). "Birds of a feather flock conjointly: rhyme as reason in aphorisms.". Psychological Science 11 (5): 424– 428

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