Leverage the irrational
Editor's note: Adam Jones is analytics manager and is based out of research company B2B International’s New York office.
The idea of the robotically rational and emotionless human has been played out in sci-fi movies to great effect over the past couple of decades. Naturally it is possible to push these boundaries further on the big screen than in real life, yet the common assumption by marketers (and for the most part the general public) is that humans are meant to be rational beasts. However, could any marketer honestly say that this is truly the case?
The study of behavioral economics provides an illuminating window into why this is not the case. While humans may believe they behave and think rationally, they are hampered by universally common and naturally-occurring cognitive biases – even in the case of business decision-making.
This article aims to serve as an introductory guide into the world of cognitive bias and how business-to-business marketers can begin to combat or leverage these irrational aspects of human psychology for greater marketing gains.
The theory: Status quo bias
What it is: Inertia. People prefer the brand/provider they know, even though it might not be the best solution for their needs.
Summary: People do what they have always done.
A practical example of the irrational at play: A business sticks with a desktop printer brand as it’s the brand it has always used and the only brand it knows much about. Plus, it hardly ever thinks about switching, even though other brands could better meet its needs.
Considerations for B2B marketers: Try and break the inertia by increasing brand awareness, such as through an increase in communications, more impactful marketing, etc.; and developing more compelling customer value propositions to encourage people to switch, e.g., incentives, better communicating the ROI (increased productivity, etc.). Make sure market research examines past behaviors as these usually provide more reliable insights than hypothetical questions on future intentions.
The theory: Loss aversion
What it is: Preference for a current supplier for fear of suffering a loss in switching, versus achieving a gain from a new provider.
Summary: People with money won’t bet the farm.
A practical example of the irrational at play: A frequent airline flyer sticks with their current airline so as to avoid losing their frequent flyer status and benefits, even though they could get more benefits (better fares, more points, more rewards, etc.) by switching airlines.
Considerations for B2B marketers: Consider helping customers with the switching process, e.g., integrating software, training on new equipment, minimizing downtime through temporary resources, offering money-back guarantees to alleviate concerns, etc. Strengthen the customer value proposition by better demonstrating the benefits of switching (ROI, improved productivity, etc.).
The theory: Sunk cost effect
What it is: The tendency to continue investing money/time/effort in a product or service even though it is failing expectations, meaning the emotions behind not giving up outweigh the logic of doing so.
Summary: People won’t give up when it is obvious the idea is a bad one.
A practical example of the irrational at play: A business that has engaged with an IT services provider on an annual contract finds it harder to rationally decide whether service delivery is acceptable, compared to a business paying a fixed monthly cost. Despite the cost already having been incurred (and therefore irretrievable), the sunk cost still motivates future behavior.
Considerations for B2B marketers: Maintain a consistent level of engagement with customers and increase the number of potential touchpoints. Ensure there is a clear channel for customers to access relevant employees and internal protocols to encourage employees to proactively reach out.
The theory: Endowment effect
What it is: The practice of paying more for a brand or product/service already used, versus switching to a new (and possibly cheaper) alternative.
Summary: The devil you know is better than the devil you don’t know.
A practical example of the irrational at play: A construction company continues to use its incumbent supplier of aggregates, despite a competitor offering a better product. The fear of the unknown, coupled with the potential loss incurred from an error with the new product, enables the incumbent to command a premium.
Considerations for B2B marketers: Don’t forget to continue building relationships with customers beyond the initial customer setup. These are customers likely to value your business more than new accounts, while being more open to paying a premium for service delivery. When bringing new products to market don’t fear carving out a niche as opposed to going for wide appeal. You are going to have to work hard to convince people to switch so segmentation is key to successful marketing of new products.
The theory: Hyperbolic discounting
What it is: Preference for benefits in the immediate to short term versus in the longer term, based on a possibly false perception that it’s better to be rewarded now rather than later.
Summary: A dollar now is better than two dollars tomorrow.
A practical example of the irrational at play: An insurance company offers payment plans that are charged every month, twice a year or once a year. Despite saving almost $100 by choosing the lump sum annual payment, a small business would rather incur the smaller immediate charge.
Considerations for B2B marketers: Ensure that the immediacy of customer service is a key facet of relationship repair and issue resolution. Even if tokens are small (i.e., a phone call) they are reassuring if delivered soon after the issue is raised, rather than leaving the customer guessing as to your response. To encourage supplier-switching, consider an upfront benefit such as a sign-on incentive or giveaway. The incentive doesn’t have to require a significant financial outlay to be enticing (so long as the prospective customer sees value in the incentive) and likely can be recouped over the length of the relationship.
The theory: Cognitive framing
What it is: The way in which information is presented, or the type of information presented, greatly influences decision-making and invokes more of an irrational response.
Summary: It is not what you say, it is how you say it.
A practical example of the irrational at play: A supplier of piping in the construction business realizes that its customer bases’ expectations for delivery vary wildly. It realizes it can change its brand promise to make itself look more impressive, without altering customer perceptions of it. To raise appeal among prospective customers, it changes its brand promise from “90 percent of deliveries within 72 hours” to “98 percent of deliveries are on-time.”
Considerations for B2B marketers: Don’t fear going bold with any messaging. Emphasize product/cost benefits by the largest magnitude possible as these figures are most likely to impress. Be sure to focus marketing on the benefit to the customer, i.e., how your product can help to make your customers’ business lives easier/more productive or to help them deliver better value, etc.
The theory: Anchoring
What it is: Presentation of preliminary information to deliberately bias the interpretation of other information that follows.
Summary: Put your best side forward.
A practical example of the irrational at play: An adhesives brand has developed a new product with the durability three times better than its previous incarnation. It realizes this is a strong marketing plan and plays on this fact as a key demonstration of innovation within the company. “Three times stronger than our previous adhesive” is used as the marketing tagline, as opposed to “Will serve you right for 72 hours.”
Considerations for B2B marketers: Ensure that pricing strategies are well-thought-out and researched. Once a price point is set it is difficult to raise it without a significant business case leading to profits being left on the table. Utilize a comparative marketing approach, using your competitors as a benchmark from which your product is improved (e.g., 50 percent larger than the nearest competitor).
The theory: Von Restorff effect/distinctive encoding
What it is: Highlighting a particular element of a product or message, or presenting it in a novel way, to trigger an irrational response and drive brand/product recall.
Summary: When something stands out like a sore thumb.
A practical example of the irrational at play: An electrical components brand organizes an annual robotics tournament where entrants must use the products it supplies in the robots built. This novel way for customers to use products, and the social occasion of the annual tournament, creates and emotional connection to the brand that traditional marketing platforms couldn’t build.
Considerations for B2B marketers: Product differentiators should be pushed to create a wow factor. It is OK to play on a niche particularly when competing with brands with bigger marketing budgets. However, it is worth noting that being memorable isn’t the only task of marketing but rather being memorable for something positive. Consider decluttering marketing materials and messages. A clear and distinct position, delivered in a clear style, will be more memorable than bombarding buyers with information. A well-thought-out and distinct CVP running through the company will aid this process.
The theory: Peak-end rule
What it is: Judgment based on the most extreme point of an experience – especially at the end (be it positive or negative). The intensity of this point invokes an irrational response which then clouds judgment.
Summary: You remember the last thing, not the first thing, that was said.
A practical example of the irrational at play: A customer is becoming increasingly frustrated with their utilities supplier. After receiving another incorrect invoice they have begun to lose faith in their supplier. After contacting someone in customer service willing to go above and beyond to straighten out their issues, all is forgiven. This one piece of attentiveness with a particularly emotive customer provides a lot of goodwill toward the supplier moving forward.
Considerations for B2B marketers: Identify all potential customer touchpoints and ensure there are protocols in place for a seamless experience. Where there is the potential for issues, ensure a well-trained response is in place (e.g., a detractor management system or touchpoint survey). For particularly emotive aspects of the customer relationship (credit control/invoicing/collections) dedicate resources to deliver a quick response, even if only small.
The theory: Zeigarnik effect
What it is: The pain of an incomplete task negatively biases a total experience or brand perception, therefore skewing the big picture.
Summary: Painful experiences are not forgotten.
A practical example of the irrational at play: An online retailer decides to increase the number of complete interactions once a customer orders a product through its site. Instead of accepting the delivery and then ensuring that the product arrives, it first confirms receipt of the order, confirm that the product has left its warehouse, confirms that the product will be delivered in three-to-five business days and then ensures the product is delivered. The customer is kept in the loop on how the delivery is progressing while also experiencing many small, “complete” interactions with their supplier.
Considerations for B2B marketers: Completing tasks for customers should be a key part of service delivery. Customer service/account management need to ensure issues are resolved, delivery staff need to ensure all orders are made in full, etc. Incompleteness leads to individuals/companies experiencing dissonance, which im-pacts on customer satisfaction and loyalty. Break down customer interactions into smaller chunks of “completeness” by increasing the number of touchpoints.