I want you to think long and hard about the time you last made a commercial decision. It could be a big decision, like the time you made an offer on your first house, or it could be a small decision, like last week, when you were deciding what brand of beer to buy at the bar.
Chances are that whatever decision you made, you weighed up the pro’s and con’s, considered the financial implications, and acted accordingly, safe in the knowledge that you’d made the right, rational choice.
Except... you probably didn’t...
You see, you’re not nearly as rational as you think you are. That’s not an insult. Neither am I.
In fact, humanity as a whole is pretty lousy at making considered choices. So much so that there’s a whole academic discipline, known as Behavioural Economics, dedicated to the subject (for those looking to get a decent grounding I can’t recommend highly enough Prof Dan Ariely’s book, Predictably Irrational).
Riding roughshod over homo-economicus of the nineteenth century, Behavioural Economics introduces the concept of judgemental heuristics; cognitive rules of thumb, that we use for all but the most simplistic of decision making processes.
These heuristics are invaluable in day to day functioning, enabling decisions to be reached quickly within complex environments such as the stock market, speed dating nights, or driving on the M25 in rush hour, without the need for complex calculations or methodologies.
Heuristic theory suggests that the rational, considered economic decision maker that underpins traditional economic studies is a myth, replaced by humanity as a more emotive beast; responding to mental shortcuts, guesses, and semantic influence.
Most marketers understand heuristics, if not academically, then at least on an instinctive level.
We use TripAdvisor ratings to trigger social proof heuristics (why make up your own mind when others can do it for you?), create advertising campaigns with stars in white lab coats to trip the authority heuristic, and give away free shampoo samples to activate the reciprocity heuristic (which, incidentally, is why you should never accept flowers from Hare Krishnas in airports).
But how do heuristics translate into ecommerce? Surely you can’t use a heuristic to persuade your customers to spend more online?
Turns out you can.
This July I was lucky enough to be able to run an experiment testing the power of the anchoring heuristic.
The heuristic, originally identified by Professors Daniel Kahneman and Amos Tversky in their 1974 paper, Judgment under uncertainty: Heuristics and biases, subconsciously steers human decisions towards a numeric anchor in times of uncertainty, whether the anchor is relevant to their choices or not.
You may not, for instance, be surprised to learn that exposure to a £20,000 handbag on your way into a flagship Gucci store tends to make customers more receptive to spending £200 on a T shirt once inside (the T shirt, by comparison, comes off as a veritable bargain).
You might however be surprised to learn that even seemingly irrelevant anchors, such as telephone numbers or social security numbers can have a profound influence on customer spend.
So how does this translate online?
Bateaux London was about to launch a new premium package online.
This new package (essentially their premium dinner package product, but with some very nice Champagne included) had a significantly higher price point than the next alternative down the price scale; providing me with the perfect opportunity to investigate online anchoring in practice.
If the theory were to hold true, exposure to this new product (the anchor) should result in an increase in average customer spend per transaction, even once the sales of the new product had been factored out of the results.
Interestingly, this should not just be the case for other, similar, dinner packages, but also for very different product ranges, like their tea and lunch packages.
The experiment, kindly built by S-Digital, was run as simple A/B/C test, with web users being presented one of three views.
- The control - participants were not exposed to the anchor.
- The anchor – participants were exposed to the anchor product.
- The anchor plus – participant’s exposure to the anchor product was increased through the use of gold highlights around the anchor.
The results were, quite frankly, astounding. Although the anchor product itself did not sell particularly well, there was a marked increase in average spend per transaction across the full product range.
Simply from exposing customers to the anchor product, Bateaux saw an average transaction value increase of 11% in dinner package sales, but even more significantly, a 26% increase in lunch and tea package sales.
Needless to say the new product has become a permanent fixture.
But this example is just the tip of the iceberg of what can be achieved through application of heuristic theory online.
If I’ve whetted your appetite and you want to learn more about the power of heuristics, you can join me at Econsultancy's Festival of Marketing in October, where I will be speaking at Funnel and presenting my full findings, and a lot more besides, on the Engage stage.
See you there....