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The psychology of marketing


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

Published in: Technology, Education

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: / • New pricing page: • 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