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How to use power of Behavioural Economics in e-commerce

By Anton Hellkvist

I would like to start off with a confession: I have never done anything irrational in my life, ever. Consider that for a second… Never?  

Well, that’s not true. However, that’s how many theories of Economics are based on. In a perfect world, everyone is perfectly rational and makes optimal 100% logical decisions, carefully considers costs and benefits in any given scenario to decide will give the greatest outcome, all the time. Behavioural Economics argues that people are actually not at all always rational, and studies how people actually make decisions and behaves and that we are more often than not, quite irrational.

There are often small things you can do that will have a unproportional outcome in comparison to what the input actually is. For example, changing the wording of a button from “Register” to “Continue” made one large online retailer $300 million in a year. 

Behavioural Economics is important because a lot of the concepts and ideas discovered in this field will translate into direct actions you can take on your website and marketing to optimise it for conversion and sales. We will look closer into two different concepts in this article along with concrete suggestions on steps you can take today. First showing that the perceived value of something changes depending on the context of how it is presented (Framed). Secondly, we discuss the paradox of choice and that more options aren’t necessarily better.

Framing

Our decisions and how we think about certain things can be influenced by the way they are presented. This means that it’s not only what is being said that matters, it’s also how. The framing effect is essentially how our preference changes depending on how something is presented.

For example, a bottle of wine in a restaurant will look like a better deal if it’s put next to a pricey vintage champagne than if it’s put next to the cheapest bottle of house wine.

Or consider the same game framed in two different ways:

  • A lottery where a ticket costs 50kr and you have a 10% chance of winning 1000kr.
  • A free lottery where you have a 90% chance of losing 50kr, and a 10% chance of winning 950kr.

The games are identical with the same expected outcome. The point is that you are likely to choose different options depending on how something is framed and presented.

For e-commerce, this framing is particularly important for larger ticket items. If you break down prices into smaller bite-sized blocks, our brains are much better at processing that information and the potential value of it. For example, it’s easier to take a decision on a 89kr / month video subscription, than spending over 1000kr for an annual purchase. The same goes for products that will be used over a period of time, it’s easier to justify a purchase if you break it down and remind the customer of the daily/monthly value. So by framing your products and pricing in a different way, you are able to impact how the value of your product is perceived and make the purchasing decision easier for your customer.

This leads us to the next concept that looks at choices, and the fact that more is not always better.

Paradox of Choice

Have you ever been stuck when trying to decide what movie/tv-show to put on, or what gift to buy to someone, simply because there were too many options and you couldn’t decide which choice would be the perfect fit?

Being able to choose and having the freedom to make decisions ourselves is a good thing, but too many options are not necessarily better. When we are presented with too many options, the likelihood that we either procrastinate and do nothing or postpone the decision in order to find the perfect fit increases. Or even that once you have made a decision, you’re left with a negative feeling where you might be asking yourself it you made the ‘best’ choice or ‘could have picked a better option’.

This is what’s referred to as The Paradox of Choice, or Choice Overload.

Narrowing this principle down to an online storefront, we see that instead of overwhelming visitors with choice is to bundle and break down the options into more specific categories. Additionally, by knowing who your visitor is when they enter your store personalising the offering, you can optimise the shopping journey for your visitors and drive conversions. Making it clear and easy for your consumer to navigate, and by not overwhelming them with options will help reduce friction.

The concepts covered above are two of many in the field and are powerful ways to influence and improve the content of your site. Applying the thinking of Behavioural Economics to your marketing and digital content is a powerful way to influence and improve the content of your store.