How to Implement Digital Psychology Into Your Marketing: Anchoring, Commitment, and Loss Aversion
I’ve always wondered why people behave the way they do. I might have been in grade school when I first became aware of that. Back then, I was probably too young to understand that a significant part of our behavior stems from psychology, cognitive biases, and similar scientific stuff. As I’ve grown older, I’ve developed an interest in marketing, and that has turned out to be the career path I’ve followed. And guess what? The two fields have more in common than it seems like at first glance.
Months ago, I stumbled across digitalpsychology.io, and it immediately caught my attention. Digital marketing is as competitive as ever, and attention spans are getting shorter. Getting the eyes of your target audience on your product is getting increasingly difficult. That’s why the knowledge of why your customers behave the way they do is priceless. Implementing some of those digital psychology mechanisms can help you get a competitive advantage.
What’s digital psychology?
Digital psychology merges three different disciplines: behavioral economics, psychology, and digital marketing. This combination tells us how to communicate with our customers more effectively and how to have more influence on their decision making.
The reason why digital psychology is so effective is the fact that it’s based on heuristics. According to Verywell Mind, “A heuristic is a mental shortcut that allows people to solve problems and make judgments quickly and efficiently. These rule-of-thumb strategies shorten decision-making and allow people to function without constantly stopping to think about their next course of action.” That’s just how our brains are wired, and that’s also why we often fall for precisely the actions marketers, salespeople, and designers want us to take.
The most important thing about digital psychology is that you can apply it to different areas of your business. Marketing, sales, and user experience can all benefit from those principles to the same extent.
Different approaches to anchoring
Anchoring is a cognitive bias. It's when an individual relies too heavily on the first piece of information (known as the "anchor") to make subsequent judgments during decision making. The initial anchor serves as a reference point and influences our judgment on whatever comes next. Impatient buyers are especially susceptible to anchoring.
Imagine researching laptops before you buy a new one. Whether you browse online stores or go to a consumer electronics store to look at the laptops in person, you’re going to weigh a couple of different options. After you’ve done your research, the best idea would be to sit back and think which of the laptops fits your needs the most and gives the best value for money. Most people do the opposite. That’s because anchoring kicks in. You have already decided which laptop you’re going to buy, and it’s most likely one of the first ones you had a look at. As long as it’s in line with your budget, of course.
In his guide to digital psychology, Daniel Stefanovic presents two different approaches to designing pricing pages. Depending on which pricing option you want to sell in the first place, you can list them starting with the highest price first. Assuming you have three different pricing plans, anchoring the most expensive one at the top makes your users believe the middle plan is a great deal.
Conversely, try structuring your pricing the other way around and anchor the cheapest plan starting from left to right or at the top of the page. This should point the consumers toward the higher plan as long as the pricing difference is relatively small.
It turns out that listing incidental products with significantly higher prices can also influence a decision to buy the cheaper product. One of the studies by Nunes and Boatwright proved that the higher the cost of an incidental product, the more likely we are to pay for the one we actually intend to buy.
Commitment and consistency
Have you ever felt like you’re too invested in something to quit even though you don’t like whatever the investment was? We’ve all been there at some point. The last time it happened to me was when I watched “You” on Netflix. The series started out promising, but with each episode, I disliked it more and more. Guess what? I watched it to the end, mostly because I had already watched a few episodes and didn’t want the time invested in it to go to waste. So, I wasted some more time watching the remaining episodes. That’s called sunk cost fallacy.
Commitment and consistency can be further broken down into a few more biases like status quo bias and the IKEA effect. With its catchy name, the latter suggests that people value things more when they put work into them. I’d say it’s more about sentimental value than the real, perceived value, but I can’t deny that assembling a few pieces of IKEA furniture feels good.
Commitment and consistency are more common around us than we realize. The other day, my wife told me she found a gorgeous dress online, and you don’t have to pay for it until you try it on and make up your mind. That’s pretty cool, I thought before I realized we just got tricked into what’s probably going to end as a purchase. It’s already here, so, you know.
Other examples that we fall for include online auctions, wish lists on ecommerce sites, and cross-selling. All of them require different levels of commitment and consistency from us. However, once we’re already invested in the process, we’re more likely to proceed even though it makes more sense to stop.
Loss aversion isn’t as strong as you think it is
Out of all digital psychology principles, loss aversion is probably the one that is known even to people uninterested in psychology and biases in consumer behavior. The idea behind it is that we fear losing something more than we’re happy to get something of the same value.
This reminds me that we’re more likely to remember a negative review of a restaurant than a positive one. Or, statistically, people are more willing to share a negative experience with their family and friends than they would be if something positive happened to them.
It might seem like we’re all just overly pessimistic. According to research called “Loss Aversion Is an Affective Forecasting Error,” “Loss aversion occurs because people expect losses to have greater hedonic impact than gains of equal magnitude.” The research focuses on people and their predictions on how the gambling losses and gains would affect their mood.
It turns out that losses didn’t influence the gamblers as much. They overestimated the losses because they “overestimated their tendency to dwell on losses” and, at the same time, underestimated their ability to rationalize them.
All of that doesn’t change the fact that loss aversion is successfully utilized by companies in their marketing and sales communication. As a marketer who has been working in the SaaS space for the last five years, I’ve visited hundreds of other SaaS websites. I don’t want to paint with a broad brush, but I’d say it’s safe to estimate a majority of them offer free trials.
Free trials have different expiration dates. Whether it's 14 or 30 days, you don’t want to miss out on all the features at your disposal once you get to the end of the testing period. Chances are you started a project and made significant progress that will go to waste if you don’t upgrade your plan.
I’m not saying loss aversion is the only factor that pushes people to purchase a paid version after their trial. Sometimes, a product or service is so good that an upgrade is a no-brainer. However, when you’re on the fence, loss aversion is the deciding factor more often than not.
Remember when Sephora introduced a color-coded basket system?
There is a fellow introvert on the Sephora customer experience team who deserves A RAISE RIGHT NOW pic.twitter.com/4Aan7lUyVD— Cami Williams #BlackLivesMatter (@cwillycs) November 4, 2019
Its goal was to distinguish shoppers who would like assistance from the shopping introverts who would prefer to shop on their own. I can imagine neither of them would like to start shopping with something already in their basket. This ties in with Daniel Stefanovic mentioning another loss aversion tactic that feels particularly off to me. Pre-filling a shopping cart with complementary items creates a sense of urgency, but there’s just something shady about it. If you don’t do this in your physical store, why would you try to pull this off in your ecommerce store?
More digital psychology coming soon
I started writing this article to cover all digital psychology principles, but, midway through, I realized this would take at least 5000 words. I decided to do justice to the remaining principles, and I’ll talk about them in detail in the next two articles.
Wrapping up anchoring, commitment, and loss aversion, I’d like to ask if you are using them in your communication? If yes, let us know about your experience.