Irrational consumption: How consumers really make decisions

Here is a brief excerpt from a classic article written by Jon Cummings, Ravi Dhar and Ned Welch for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

To learn more about the McKinsey Quarterly, please click here.

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An upcoming behavioral economics summit addresses ways companies can build stronger relationships with their customers.

There is an attractive simplicity to the notion that consumers choose what they most prefer, that they are logical decision-makers with abundant time and complete insight into the factors determining the choices they make.

But consumer decision-making does not unfold like a game of Pac-Man: systematic digestion of information pellets en route to the optimal choice. Numerous factors—many completely unrelated to the core issue under consideration—can exert powerful influences on choice and consumption. And while most marketing leaders recognize this complex reality, they nonetheless often work from a linear and simplified—a “Pac-Mannish”—view of the consumer decision journey.

The well-documented emergence of behavioral economics (BE) has dramatically deepened and broadened our understanding of consumer decision making. Many marketers, for example, are familiar with “nudges”— small changes in how options are presented that influence consumers’ choices. As companies invest billions of dollars into advanced insights technologies and capabilities, we believe that companies can build stronger relationships with their customers through a more thoughtful application of BE.

The bedrock of belief

A shopper’s mind is not a clean slate. Information and experience are refracted through the lens of belief. Information that’s inconsistent with those beliefs is likely to be rejected. Even experience is malleable—we know that for many people the same glass of wine tastes better when poured from a $100 bottle than from a $10 bottle.

A deeper understanding of how beliefs work can help marketing leaders overcome some common marketing challenges. Take the food-and-beverage market. Consumer beliefs that healthy food is unpalatable are a significant barrier to purchasing it. If these beliefs are top-of-mind during consumption, they can also diminish the perceived satisfaction of that food and diminish chances of a repeat purchase. The problem is not that the product is bad; it’s that consumer beliefs are so strong that they override personal experience. In such situations, the timing of disclosure is essential. In this health food case, that would mean getting people to have the new experience first, then describe the health claim. Another option is to alter how information is presented. Flavor claims on the front of a snack food are relevant to all buyers. In some cases, it may make sense to locate health claims on a side panel, where they are accessible to highly involved and deliberative shoppers but less prominent to consumers who shop intuitively.

These insights can also create new opportunities for influencing consumers. For instance, consumer beliefs about the association between packaging and product can be very influential. Great chocolate comes in fancy boxes; large pack sizes and simple containers strongly signal value. Packaging is just one option. Communicating information about product origins, manufacturing processes, and specific ingredients can also alter consumer perceptions, not just of quality but of taste. For retailers, concrete flooring (vs. tile) leads consumers to perceive their products are better deals. For brand marketers, messaging that makes people feel guilty about a product can enhance product perceptions because consumers associate guilt with pleasure.

For these reasons, BE-based marketing should begin with inquiry into where beliefs originate and how they guide consumer behavior. A simple step companies can take to uncover these beliefs is making greater use of relatively simple observational research to uncover gaps between what customers say they believe about a product and how they actually behave. These gaps often reveal unstated beliefs the company needs to address. And because consumers generally aren’t aware of how incidental cues affect them, traditional customer interviews and focus groups are unlikely to reveal these opportunities.

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Here is a direct link to the complete article.

Ravi Dhar is George Rogers Clark Professor of Management and Marketing & Director of the Center for Customer Insights at the Yale School of Management.

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1 Comment

  1. Philip Kotler on October 26, 2017 at 10:18 am

    I am surprised about the claim that behavioral economics (BE) has discovered how consumers make decisions. Marketing has been reporting on consumer decision making for over 100 years. Marketing has created elaborate models of consumer decision making. BE adds nothing new, except possibly “nudges.” Even nudges are only a small concept in the larger field of social marketing. Social marketing takes a much more comprehensive planning approach to how to effect behavior change.

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