The classic economic theory first presented by John Stuart Mill, followed by thinkers like Adam Smith and David Ricardo, describes consumers and sellers as homo economicus. The aim of a consumer is to maximize utility, and as seller to maximize profit. They are the rational economic actors. Early economic theories assumed that people engage in selling or buying only after considering all the relevant information. However, by now we can see this is not true.
In some fields, logical processing in decision-making plays a large role-for example, when buying insurance, choosing a bank, or making an investment. When it comes to smaller or bigger everyday needs, emotional and intuitive decisions prevail.
Even though we like to fancy ourselves thinking we’re rational creatures who first collect all the information, weigh it, and only then make a smart decision, most of our choices are gut decisions, “predictably irrational.” Sometimes we realize this, sometimes we don’t.
We call our gut decisions intuition, or our sixth sense. Intuition is the result of emotional learning. Our brain memorizes the emotional reactions we have to certain experiences. When we have the same experience again, we attach the stored emotion to it. For example, if fire burns you, the next time you come in contact with fire, you know how it feels to be burnt, so you’ll avoid it. It seems that you are intuitively cautious around fire, but in reality, it is a learned fear. Intuition is nothing more and nothing less than the reactions we feel safe to have in the face of a new situation based on emotional memory. Listening to our emotional memory’s voice is instinctual, and grants us a better chance for survival.
If you make a purchase somewhere and the experience feels outstandingly good, you will probably go back to that place to shop, even though the grumpy seller in the neighborhood has better prices, or better-quality products. The opposite is also true-if you experienced something unpleasant at a shop, you won’t go back to purchase something there. These decisions may seem logical—“I got offended, so I won’t shop there anymore” but from a financial perspective, they are not. They are only logical if our main goal is to avoid the location of past unpleasant memories.
Influence Like Dr. Cialdini Influence:
The Psychology of Persuasion by Robert Cialdini is a must-read book. It helped me learn how I should present myself on the market, but more importantly, it taught me how to protect myself from the influence of others. He has been researching and studying why and how people get influenced for more than 30 years. During this time, Dr. Cialdini concluded that in most cases, people don’t understand the factors that affect their behavior.
In the following, I will summarize the six persuasion principles presented by Robert Cialdini. These principles are usually used by sellers to influence buyers. I’ll approach them from the buyer’s perspective as a warning, or as an awareness-raising tool. Become a more aware consumer by learning and remembering these principles and questioning your purchases based on them.
The Reciprocity Principle :
When we get something, we almost feel obliged to pay back what we received. The reciprocity principle explains why free gifts are so effective. There is a soap company in Europe whose marketing strategy is to have an attractive girl or boy distributing free samples close to the store. The people they hook with this free gift then have to listen to the features of the product—which of course are mind-blowing. Then they try out other samples, which are more expensive, but hey, they are much more helpful products. In many cases, people end up buying something just because they feel they “exploited” the goodwill of the cheerful seller by keeping him or her talking so much.
To make you feel indebted, sellers don’t even have to give you an expensive gift or talk for too long. It can just be some information or a small piece of a larger product that you’ll be tempted to buy. The secret is that sellers give you something for free to first buy your goodwill and trust. The rest is history, as the saying goes.
The Social Proof:
This principle is founded in the tendency of people to trust in what’s popular, or what’s endorsed by our fellow humans, than those things which are not. For example, laugh tracks in comedy shows, or satisfied customer short story videos on Top Shop, serve this purpose, Cialdini says.
We are more inclined to buy cooking equipment recommended by Gordon Ramsay or a friendly grandmother than one with zero endorsement. If we shop online, we tend to buy stuff that has more customer reviews and a rating of at least four stars instead of buying something with no reviews.
Commitment and Consistency:
The best new customer is an old customer, says the golden rule of marketing. It’s much easier to persuade an existing customer to buy another product from a store where he purchased before, and was satisfied, than it is to bring a new customer in. Remember the example I gave above? We tend to rather shop at a place that made us feel like an “appreciated customer,” rather than one which offers us a better value. This is why sellers have a specific strategy of how to keep people hooked on their store after their first purchase. And we as buyers are also happy to get the 30%-off coupon from the supplier we trust.
Sellers first earn customers’ loyalty, and then they make them commit to their product using different strategies. Customers feel automatically drawn to stick with them. I’d bring up Apple as a master at developing customer commitment and consistency. People who are satisfied with their iPhone, for instance, are less likely to change it even if there are better deals on the market.
Customers are rewarded for their loyalty with things like annual gifts or a higher discount percentage after spending a certain amount in that store, or a happy birthday email. They feel it’s a good deal to stick with that vendor. For example, I recently bought some makeup items at a cosmetics company. I got a coupon for $10 if I registered on their account. I registered and ordered more stuff online to use the $10 coupon. Right after that purchase, I got the notification that if I buy products of XY value, I’d instantly get a 10% discount for all my purchases during the year. If I spent XY+Z, I’d get this percent upgraded to 20% and free shipping, and so on and so on. Now I’m throwing out all the unused, dried makeup I bought that seemed like such must-haves at the time.
The Liking Principle:
People are more likely to listen to someone they like, admire, or look up to when it comes to product recommendations. They are also keen to listen to the advice of attractive people rather than average ones, listen to people who are similar to them, and to those who are kind and who praise them.
If a seller compliments something about me, I’m more inclined to buy something additional in that store or leave a tip. Or both. I almost feel obliged to see the reciprocity principle. A free compliment for my money.
Another personal experience proving the liking principle was my relationship with Costa Coffee. In a movie called Closer starring Natalie Portman, Jude Law, Julia Roberts and Clive Owen, I saw my favorite actors carrying around takeaway coffee from Costa Coffee Company. Since then, I’ve pledged my loyalty to them simply because the actors I liked drank it.
Put your hand on your heart and be honest with yourself. How many times have you bought something just because your favorite star, your best friend, or your grandpa said so? Right?
Authority:
People are attracted to authority and respect it. They are open to follow the lead of experts, geniuses, and high achievers. A PhD, professor title, expensive suit, or a posh apartment sometimes is enough to convince the unsuspecting customer about expertise.
Headlines like “studies show,” “experts proved,” and “scientists say” are catchy, attractive, and trustworthy. People like to read and gain knowledge from people who seem to know what they are doing.
People are insecure and uncertain when it comes to decisions they have to make without having any knowledge or emotional memory about it. They eagerly look outside themselves for information and professional guidance to validate their decisions. This is why authority figures have an incredible influence on people who seek advice in their field of expertise.
Scarcity:
People are genuinely attracted to unique or rare items. Purchasing and owning these items makes them feel special. In classic economic theory, scarcity relates to supply and demand in that the higher the demand for an item, the more expensive it will get. Why? Because more people want it than how much is purchasable; therefore, people are willing to pay a higher price for this product.
In other words, the less there is of something, the more valuable it seems. The rarer a thing is, the more people want it.
In most cases, there is no real scarcity, just sellers making us believe there is. Once I bought a ticket to San Francisco. It had a reasonable cost and a little red label, informing me that there were only three free seats on that plane. I bought the ticket instantly, but curiosity led me back to the airline’s page. Guess what? There were still three seats available even after I bought one. There were three seats available a week later, and a day before departure. Good game.
