This article was taken from the June issue of Wired magazine. Be the first to read Wired's articles in print before they're posted online, and get your hands on loads of additional content bysubscribing online
Slashed work hours, a laid-off spouse, Bernie Madoff scampering off with the family funds -- for one reason or another, the recession has forced most consumers to take a long, hard look at their budget and give their spending habits an overhaul.
And so we’ve seen such changes as higher savings rates, an end to “sleep shopping” and hyper-preoccupation with getting more bang for one’s buck. This, of course, has made it that much harder for marketers, as the advertising methods that worked on last year’s shoppers are no longer good enough. And the million-dollar question: how long will current consumer behaviour last?
Is it permanent or will the economy’s recovery (whenever that maybe) reverse it? A look at behavioural economics suggests that, although not permanent, these changes are for the long haul. As it turns out, we truly are creatures of habit. We pick a pattern of behaviour and, without thinking too much about its wisdom, we stick to it. We rethink this habit only when we have a very good reason to change our ways.
A hard, recessionary hit to our cash flow is a reason to change; a slow financial change for the better isn’t. That’s why new consumer patterns have emerged since the housing market took a hit and why they’ll remain long after this current recession passes.
As an example, take fuel prices in recent years. Not too long ago, drivers in the US were accustomed to overvaluing pricey, mammoth gas-guzzlers. Even as petrol prices rose over time -- from $2.50 a gallon, to $2.90 and then to $3.30 -- Americans continued to buy the same kinds of cars. But once prices hit the $4 mark, they cried out in outrage and began switching over to smaller vehicles and hybrids.
Though prices had been consistently increasing, it took a nice, round, ominous number like $4 to scare them into rethinking their consumption. And later, when the price of fuel has fallen, many have maintained their new habit of buying smaller and more efficient cars. (Evidence: many car commercials continue to emphasise fuel frugality.)
Another example: through a clever study, Brian Wansink, author of Mindless Eating, found that we’re so used to munching popcorn in cinemas that we’ll automatically scoff down handfuls -- even if it’s stale.
Moviegoers indistinguishably ate popcorn, irrespective of whether it was fresh or two weeks old. Why are we such creatures of habit? Because it’s easy. The process of making decisions, however minor, involves a labyrinth of complex computations. The choice to visit Starbucks again and get our usual is simple. On the other hand, a step-by-step weighing of factors -- such as whether Starbucks is worth the price (“Should I go to Caffè Nero instead?”), whether the cappuccino or the latte is better value for us and whether we’ll enjoy the brew as much as we think -- is a very complex process.
It takes a crisis to get us to ask, “Wait, what am I doing?” Only then do we pause and come up with a new way of going about things -- which is what consumers did following the burst of the financial bubble. In order to look into this process of habit formation and stickiness, Drazen Prelec, George Loewenstein and I did a few experiments.
We had MBA students write down the last two digits of their social security number (mine are seven and nine) and then asked them whether they would pay that number in dollars (in my case $79) for, say, a bottle of Côtes du Rhône 1998. We then asked them to write down the maximum amount they would to pay for the product.
Our results? The mere mention of the last two digits of their social-security number influenced how much they were willing to spend. Students with numbers ending between 80 and 99 placed bids that were 216 to 346 per cent higher than those bids from students with numbers from 1-20.
This effect carried over to subsequent choices the participants made about related products. In real life, people usually don’t think about the last two digits of their social-security number and instead they fixate on “anchors” that are the price tags.
If you buy a sofa for £1,000 -- or seriously contemplate doing so -- from then on in future sofa shopping trips you’ll be willing to accept a range of prices, but only as long as they don’t deviate much from that £1,000. Like a bungee cord, the original anchor will pull you back. In other words, while an anchor is often arbitrary, once established in our minds it influences our future decisions in a consistent manner.
Our habits are based on our past decisions. They can be formed from a random or arbitrary starting point and, once we start on a habit path, we don’t readily change. The challenge and opportunity for marketers is to come up with ways that will compel people to reconsider their current habits.
More Dan ArielyBonuses boost activity, not quality
MicrobiographyDan Ariely is the James B Duke professor of behavioural economics at Duke University, North Carolina, and author ofPredictably Irrational(HarperCollins)
This article was originally published by WIRED UK
