Why do we buy?
Understanding the psychology of buying is crucial for a marketer.
It’s also important for us, the consumer, to understand marketing tricks companies use to make us buy more.
Logic vs Intuition
A baseball bat and a ball cost $1.10 together.
The bat costs $1 more than the ball. How much does the ball cost?
The answer is simple, isn’t it?
Most of the people to whom this question is presented, their answer was that the ball costs 10 cents.
This intuitive response was also true of most students at the elite universities of Princeton and Harvard.
But this answer is incorrect.
The ball costs $0.05 ($1.05 the bat plus $0.05 the ball equals $1.10).
Something in our brain led to us intuitively, to give an incorrect answer to this apparently simple calculation.
Instead of doing mathematics we resort to our gut feeling.
Doing the actual calculation is much harder for our brain, and most of us don’t bother because of the 10 cent answer feels just right.
Daniel Kahneman the author of the best-selling book “Thinking, Fast and Slow”, refers to two systems of the mind.
System 1 integrates perception and intuition.
Kahneman says “it never sleeps, it’s quick, processes all the information in parallel, and is effortless, associative and slow-learning. It is made for fast, automatic, intuitive actions without thinking”.
In contrast, system 2 is slow, works step by step, takes up a lot of energy because it is effortful, but has the benefit of being flexible.
A useful metaphor for how these two systems work together is to see system 1 as an autopilot and system 2 as a pilot.
The pilot handles the tasks that require flexible decision makings, such as the take-off and landing while the autopilot handles an action that can be done automatically.
For marketers, understanding these two systems is crucial.
1. The framing effect
It’s a tendency of individuals to make different choices based on how a decision problem is presented or interpreted.
Daniel Kahneman and Amos Tversky made an interesting experiment.
The researchers asked the participants  which is the best option if a virus would spread in the U.S and that was expected to kill 600 people.
They had to choose between A and B to combat the disease.
|Framing||Treatment A||Treatment B|
|Positive||Saves 200 lives||A 1/3 chance of saving all 600 people, 2/3 of saving no one|
|Negative||400 will die||A 1/3 chance that no one will die, 2/3 probability that 600 will die|
In the first case where the situation is presented with a positive frame, 72% of the participants choose option A. Only 28% of people chose treatment B.
When it comes to benefits people want to be certain. This is the benefit of this program: 200 people will live.
The second group of participants  was given the cover story of problem 1 but it was presented with a negative frame.
In this case, program B was more popular as 78% choose it.
When it comes to losses, people will take risks to avoid losses.
This experiment shows how we frame choices. Thinking about the benefits or losses influences our decisions.
For example, medications focus more on benefits.
They tell you that the medication has 70% effectiveness rather than tell you they have a 30% failure.
The background indirectly affects everything we do without us being aware of it.
If we look at the two small squares in the center, it seems as if they are lying in front of larger ones.
The small squares seem to have different shades of grey.
But they don’t.
Objectively, they are identical but subjectively there is a clear difference.
The frames in the background change the perception.
The autopilot provides the frame, and the pilot focuses on the figure.
Together they create how we experience the world and build the basis for our decision making.
The framing effect is crucial in marketing.
For example, how a brand influences the product experience?
Brands operate as the background, framing the perception and with it, the experience of the products.
This framing effect of brands is not marketing hype; it increases the perceived value and the willingness to pay a premium price–even for objectively identical products.
2. Social proof
You’re waiting at the red light and you see a group of people staring at a tree.
You turn your head to see the cause of the excitement.
A stranded cat, maybe? Or perhaps the tree is about to fell? Before you find out, the lights change and you go on.
You’ve been influenced by social proof, becoming engaged in a situation because others are.
Robert Cialdini conducted an experiment to demonstrate how we are influenced by what others are doing:
He persuaded a hotel chain to change the messages they left in guest rooms trying to encourage towel re-use. 
He created three different messages.
The first stated the environmental benefits. And it was successful among 35% of visitors.
The social proof message which simply stated that most people re-used the towels raised the numbers to 44%.
He ran a third message asking people to re-use their towels because most people in their room had done so. This increased the rates to 49%.
Then Cialdini chose a group of students and asked which towel re-use messages would be more persuasive.
Most of them chose the environmental message. The opposite of how the people actually behaved.
The illusion of popularity
Most brands aren’t market leaders.
So, how can they stand out?
Well, they aren’t the number one in one category but they might be in sub-categories.
They can say: “X number of products sold weekly”, ” We’re the fastest-growing company, “8 out of ten people love this”.
The goal is to create the illusion of popularity.
On October 23, 2001, Apple launched the iPod. 
The competitors all had bland, black earphones.
Apple’s problem was that its logo wasn’t visible. And no one could tell you were listening to an iPod just by seeing your black headphones.
So what did Apple do?
White earbuds not only made the iPod stand out but also may have helped create a perception that more individuals owned iPod than actually did.
When social proof backfires
We saw how consumers are influenced by the behavior of others.
Negative social proof it’s when is used in such a way it has the opposite effect to that intended.
The evidence for this tendency comes from an experiment conducted in 2003 by Cialdini and his colleagues.
The experiment took place in Arizona’s Petrified Forest National Park. Back then, a ton of petrified wood was being stolen each month.
The park rangers reacted by placing signs that declared:
“Your heritage is being vandalized every day by theft losses of petrified wood of 14 tons a year, mostly a small piece at a time”.
But were these signs effective? Since they emphasized the number of thieves, the psychologists worried they encouraged more stealing.
The researchers created two signs and secretly placed marked pieces of petrified wood along visitor pathways.
The first sign which warned of the impact of stealing stated:
“Please don’t remove the petrified wood from the park, changing the natural state of the Petrified Forest”. And was accompanied by a picture of a visitor stealing a piece of wood, with a red circle over his head.
The second sign that showed how widespread this improper behavior was, stated:
“Many past visitors have removed the petrified wood from the park, changing the natural state of the Petrified Forest”, and was accompanied by a photo of people stealing pieces of wood.
The theft rate in the control situation with no sign was 2.92%.
The second sign resulted in 7.92% more theft while the first sign resulted in less theft (1.67%) than the control condition.
That means a sign designed to reduced crime, boosted it.
In Cialdini’s words, “This wasn’t a crime prevention strategy; it was a crime promotion strategy.”
3. Flowery descriptions
In a study by Brian Wansink of Cornell University, they presented menus either with descriptive labels or with labels with just the name on it (e.g. ‘red beans with rice’).
The question was whether the descriptive modifications would impact the perceived taste of the food.
The result was that the descriptive labels not only resulted in more orders but also led participants to rate those foods as tasting better than the identical foods with a generic name.
People perceive descriptions such as ‘tender grilled chicken’ to provide a higher value than just ‘grilled chicken’.
Value-oriented language can not only add perceived value but can also influence the perceived product performance.
In a test of messaging on meat packaging, the signal “75% lean” had a more positive impact than “25% fat”.
Price plays a major role in a purchase decision because of its impact on the customer’s budget.
Customers tend to perceive higher prices with a higher quality of the product.
A Ferrari wouldn’t be a Ferrari if it cost only $50,000.
The increase in price will lead to higher sales.
A good example is Chivas Regal. In 1970 they were experiencing low sales.
So, to reposition the brand, they designed a new label and raised the price by 20%. The whiskey itself remained the same. And with the new price, the sales rose significantly.
Media Shop Group, one of the leading direct-response TV networks in Europe introduced a new cosmetic accessory of 29.99 Euros.
The management pulled the product because the sales were extremely low.
A few weeks later they relaunched it with a new price of 39.99 Euros.
And this proved to be a huge success as the sales skyrocketed in a matter of days.
Price as an indicator of quality
A low price might raise concerns about the quality because we all heard the expression, “You get what you paid for”.
On the other side, high price = high quality is used as a rule of thumb.
When do consumers assess a product primarily based on the price? It’s when they are uncertain about the quality or when the product is new to them.
The Placebo Effect
An interesting study showed that we feel better if we take expensive pills.
Researchers at MIT made up a phony pain killer and invited the participants to try it. 
Some brochures showed a price of $2.50 per pill while the other showed $0.10.
The participants waited for 15 minutes to take effect (in theory). Then, they were given electrical shocks to test their resistance to pain.
The Results showed that in high-priced condition, 85% of people experienced a reduction in their pain. But only 61% of people did when given the cheap pill.
“Pay what you want” Pricing
On October 9, 2007, the English alternative band Radiohead started an interesting experiment: Instead of pricing their music in a conventional way, they would let the fans pay as much as they wanted to download their latest 10-song album- in Rainbows. 
This type of pricing came after years of frustration with traditional distribution.
And this caused fierce debate in the music business.
On one side this experiment was considered as important in an industry shaken by the shift from physical to virtual delivery.
On the other side, traditionalists who saw the “pay as you wish” method as a surrender to the pirates. Consequently, bringing the music industry down.
The program ended on October 29, 2007, and Radiohead had clearly won.
More than 1.2 million people visited the site.
Even though, only 38% of the fans actually paid for it. They spent $2.26 per album on average, which probably generated more than traditional selling.
Some fans even paid $12-$20.
Why Pay More?
At first, this method of pricing doesn’t seem to make sense. Why would anyone pay for something when it can get it for free?
According to Psychology Today, there are two reasons:
First, it conveys confidence. You are basically saying that “we are so sure about the quality of our product that you will pay for it”.
Second, it empowers the consumer. The company allows you to weigh the value and then pay an appropriate price.
Now you might think it only works in the music industry when you have a huge fanbase.
But, different types of businesses have tried this method and it has worked.
For decades, theatres in the US and England have offered “pay what you can” for certain performances.
An article from The Guardian explained how “Metro Cafe” is using this business model.
Metro Cafe is located in a corner of Santa Monica (one of the most expensive cities in California).
They started this as an experiment for only 30 days. And they matched the profits of the last month so they continued with the PWYW method.
Anchoring is a cognitive bias for an individual to rely too heavily on an initial piece of information when deciding.
A perfect example of this, is again, Apple
In 2007, Steve Jobs was introducing the iPad, and after showing his features he asked: What should we price it at?
If you listen to the pundits, we will price it at under $1000.
Then a giant $999 came upon his presentation screen.
He let there sink before saying, ‘I am thrilled to announce to you that the iPad pricing starts not at $999 but at just $499’. On-screen, a falling $499 crushed the $999 price.
What Jobs did so well was not to compare the iPad price with that of a MacBook – he compared it with the expectation of its own price
This anchoring mechanism by which price perception can be influenced by contrasting with other prices, it’s very effective
6. The Value-cost relation
We value things based on the options available. When we are thirsty and the only thing available is a warm cola, we value that option.
But, it automatically reduces the value of cola if we also have a cold beer.
Most people don’t know what to take unless they see it in context.
We don’t know what car we want until we see what someone else has.
We don’t know which are the best set of speakers until we hear another set of speakers that sound better.
Dan Ariely’s in his book Predictably Irrational (2010), explained this principle by giving an example from the offer of the Economist.
Each price was for a one-year subscription:
Economist.com subscription – US $59. 00
Print Subscription – US $125
Print & Web subscription – US $125
We aren’t sure that the first option is the best deal. But we surely know the third one is better than the second.
Did the experts at the Economist make a typing mistake? Or they were trying to show you the third option is a better deal?
Dan gave these options to 100 students at MIT’s Sloan School of Management, and the results were:
1. Internet-only for $59 – 16 Students
2. Print-only for $125 – 0 students
3. Print and internet for $125 – 84 students
He made the following experiment giving only two choices:
1. Internet-only for $59
2. Print and internet for $125
Would the students react the same as before?
This time, the first option became popular as 68 students chose it, up from 16 before.
And only 32 students chose the second option, down from 84 before.
Let’s do the math: In the second scenario, the value of the subscriptions is $8012 compared with $11,444 from the first scenario.
Having three options rather than two had an increase of 43% in value.
By changing the structure of the offer, the decisions for the web-only option changed dramatically.
This works because the value is fundamentally relative.
The estate agents use this. They show you a house very similar to what you will buy but a bit more expensive, later they show you a house that is a little worse.
You are more likely to buy the first house.
7. Sensory Marketing
It’s a type of marketing that appeals to all senses in relation to the brand.
It’s the most important sense in deciding because 70% of the information we get is from vision.
The choice of color, form, and shape of the product, is a key factor in marketing.
The primary colors are divided into two groups:
Warm(Red, Orange, Yellow) and cool(Green, Blue, Purple).
The red color is considered being a highly exciting one.
It stimulates appetite and is more attractive for the human eye.
Physiologically, the vision of the red color increases heart rate and it remains in the memory longer.
The orange color has similar but less intensive properties as the red color. And it is more popular among children and teenagers.
The yellow color is soothing, lively and cheerful.
Warm colors are often used in creative professions (transport, energy, media, and creative agencies).
Blue and Purple have relaxing qualities. And are used in technology, healthcare, and finance industries.
Green is associated with good health and serenity. It tends to be popular in the home and technology industries.
It represents 12% of human perception.
The sounds can activate the emotional part of the brain, thus, it is possible to use it as a tool to influence purchasing behavior.
Many companies have their own jingles.
For example, Microsoft Windows with its startup and shutdown sound.
They can also use music in the stores to increase the productivity of the staff.
And studies have shown that the rhythm of the music affects the consumer’s perception of time and their spending.
In restaurants, slow music pace leads to people staying longer, and it increases the average spent by 29%.
Bars tend to use loud music because it leads to increased drinks consumption.
A human being can remember over 10,000 different scents.
In addition, a global study shows that 80% of men and 90% of women associate a scent with a particular memory.
If you want to create a dynamic environment, full of energy and provoking, then you can use an aphrodisiac scent (heavy flowery, deep fruity).
This is suitable for bars, cosmetics and jewelry shops.
The purpose is to create a specific experience with the brand.
The willingness of the customer to buy increases when using the proper scent.
A sensory experience – Starbucks
Starbucks is one of the largest chains of coffee shops, with around 15 million visitors per day.
Since the 1980s Starbucks developed a strategy to deliver sensory experience and strengthen the brand.
The interiors use green and yellow colors together with pleasant lighting offer a pleasant visual experience.
Music is chosen with care and precision by the Starbucks Team.
In addition, the smell of freshly ground coffee, as well as comfortable chairs, complete the 5 senses.
8. Marketing manipulation by the Drug companies
Pharmaceutical companies using direct to consumer advertising (DTC) can persuade buyers to request drugs when they don’t even have any condition.
According to a CBS News HealthWatch, based on scholarly publications, nearly a third of adults discussed with their doctor about drugs they saw on TV.
In 1999, DTC advertising on behalf of big pharma amounted to $791 million, while in 2016 it went to $5 billion.
In a survey made by the FDA, 58% of physicians thought DTC advertising was making the drug seem better than it is. 
The case of Rezulin
The fact that one-third of users started a conversation with their doctor just because they looked at an ad, and that half of them received a prescription is quite alarming. It indicates that many people are getting prescriptions for diseases they may not have.
Look, if someone takes medicine to prevent a cold might not be harmful, but what if one takes a prescription for diabetes when it doesn’t suffer from it?
Michael Kamins the author of “Marketing Manipulation” shares the case of Rezulin.
Rezulin was a prescription drug for diabetes but a considerable percentage of users were taking it without having diabetes.
The problem was that taking Rezulin, especially for those who didn’t need to, was linked to 90 liver failures and 63 deaths.
Why were so many people taking this drug if they didn’t need it?
The answer lies in marketing manipulation.
Rezulin was advertised as a drug that could have the potential to prevent diabetes. And there are many people that have been categorized as “pre-diabetic”.
In a pre-launch advertisement for Rezulin, they said: “Is it possible to specifically treat or prevent the insulin resistance associated with type 2 diabetes?”
Later in a press release about the drug, they claimed:
Rezulin® is the first anti-diabetes drug designed to target insulin resistance…
Rezulin® is the first drug to work at the cellular level to improve insulin resistance directly enhancing the effects of circulating insulin…
On March 21, 2000, the FDA forced the manufacturers to pull Rezulin off the market.
But it is easy to see why Rezulin was the fastest-selling drug in history.
In just 4 months they reached $76 million in sales.