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Economical Behaviour or Behavioural Economics?

“This is probably the worst day I’ve ever had.”, muttered Ananya as she picked up her bag on her way out of the office. Should I try to hail a cab or just book an Uber? Of course, the convenience of Uber made the choice obvious.

Upon opening the Uber app, the default option of UberGo made the decision of choosing the kind of ride easier. There are several reasons why most apps have a pre-set option. The consumers tend to feel a sense of ownership of the default which in turn makes them value it more. It also helps reduce the number of choices a consumer has to make during their experience. When consumers are presented with too many options, they feel overwhelmed which leads to unrealistic expectations and decision-making paralysis. Thus, the default option helps to overcome this problem of choice overload. Usually, the most attractive option is pre-selected so as to uphold the consumer’s trust. So now, she was waiting for her UberGo.

Now, any service provider wants its consumers to have a good experience so that they return to it and recommend it to their friends and family. Afterall, word of mouth is one of the most important ways of increasing brand loyalty. A study from the Wharton School of Business has concluded that referred customers are between 16% to 24% more loyal on average. According to the Peak-end Rule, people judge an experience based on how they felt at two points: its peak, the best or worst part, and its end. They don’t average it on the basis of how they felt at every moment of it irrespective of whether it was a good or bad experience. For Uber, the peak is usually the wait time, which makes or breaks a consumer’s experience, so they want to keep the consumer busy. This is based on the principle of “Idleness Aversion” which states that people are happier when they are busier, even if they’re forced to be busy. Ananya was kept entertained by the animation that kept her informed of how far her ride was while she waited for it. Knowing that it was only a few minutes away and was coming closer each passing second, made the wait easier. People tend to be more motivated by how much time is left to reach their target rather than how far they have come. This is the Goal Gradient Effect.

It was finally here; she hopped into her ride and was greeted by a smiling employee. On her way home, she could feel the hunger pangs. She was wondering what to cook for dinner when she saw a notification flash on her screen. It seemed like Swiggy could hear the thoughts playing in her mind. Bonus her favourite word, FREE, was a part of the sweet notification. ‘Free’ is one of the most powerful words in a company’s dictionary. While the offers ‘Buy one, get one free’ and ‘Buy two, get 50% off’ are essentially the same, the lovely dopamine hit that accompanies the word ‘free’ makes the deal a lot more attractive. She would get a pancake free on orders worth more than Rs. 500 from a cafe called Lil Mama.

Though the thought of getting a free pancake excited Ananya, she had her reservations as she had never heard of the place. It was time to look for some ‘social proof’. It’s human nature to copy the actions of others in order to conform and ‘fit in’. Traditional word of mouth has been tweaked in the form of reviews in the online era. The reason why companies focus on soliciting customer feedback is that it helps other consumers nurture trust in the company even if it’s the first time that they are visiting the brand. A survey shows that 81% of consumers trust a company with lots of positive reviews. So she scrolled through the reviews, seeing mostly 4 or 5 stars with comments such as ‘awesome’, ‘great food’, ‘the dal and naan reminded me of my mom’s recipe’. There were a few 2 stars as well but the volume of the 4s and 5s was enough to win her over.

Once she had decided her order, paying special attention to the word ‘Bestseller’, it was time to apply the code that would get her the free pancake. The happiness she felt while entering the code was palpable. She was eagerly waiting to devour her partly free meal when she saw that she had reached home. She was greeted with a “Goodnight, Madam. Hope you had a great ride.” Thus, Uber had managed to make the consumer happy in the end too. The greeting, the smiling face and the quick service ensured that Ananya gave the driver a five star rating.

After dragging herself and throwing herself onto the couch, Ananya decided to scroll through instagram, the ironic stress-buster for everyone in the 21st Century. After looking at happy couples and friends posting about their perfect work days, just as she was about to exit the app out of frustration, her eyes caught something that she had had her eyes set on since eternity. The Prerto Tote with Pearly Galore was on a 20% discount. Moreover, they were providing an option to get it monogrammed. Ananya felt like she had found treasure. This would be her special purchase; something that would only belong to her. Customisation establishes a partial ownership which helps create a sense of emotional attachment for the customer. The endowment effect makes a product more valuable for the customer by adding more of ‘you’ in the product. They are often willing to pay more to keep something they feel they already own, while new customers will be less inclined to pay the same price.

The joy she felt while clicking on ‘add to cart’ was palpable. Just as she was proceeding to make the payment, her eyes fell on yet another force of indulgence. The ‘people frequently bought together’ tab made her want to explore more. The pendants which only cost a dime anyway were also on sale. Not wanting to lose out on what others had bought, she didn’t give it much thought before adding it to the cart. It is said that the psychological pain from losing is twice the amount of the pleasure of a gain. Thus, it was the principle of loss aversion that was the driving force behind the purchase. The doorbell rang, her food was here. The shopping had almost forgotten about how hungry she was and what a terrible day she had had.

Someone wise once said, “When the going gets tough, the tough go shopping.” A study from the Journal of Consumer Psychology shows that retail therapy not only provides an instant serotonin hit but it also helps fight any lingering sadness which usually stems from situations that are beyond our control. As shopping inherently provides a sense of autonomy and personal choice, it helps restore control and gives us a sense of achievement. This joyous feeling doesn’t even necessitate actual purchases. The mere possibility of an eventual treat through scrolling, browsing or as we call it ‘window shopping’ can have the same effect. Think about it, who hasn’t abandoned a filled up shopping cart just because their heart was already full?

Online shopping can also ignite dopamine release in another way – waiting for your package to arrive which was exactly what Ananya was experiencing. All she wanted was to feel the joy of tearing open her package and flaunting her tote bag with her name written on it. The day had ended on a better note than expected and now she was waiting for the notification, “Your package has been delivered”, with a happy heart!

Surabhi Agarwal
Economics Major, SRCC

 

 

References

1. https://blog.crobox.com/article/nudge-marketing
2. https://blog.crobox.com/article/psychographic-marketing
3. https://medium.com/choice-hacking/how-uber-uses-psychology-to-perfect-their-customer-experience-d6c440285029
4. https://blog.consumeraffairs.com/how-to-improve-seo-to-attract-more-customers/
5. https://blog.gwi.com/chart-of-the-week/word-of-mouth-marketing/
6. https://thedecisionlab.com/reference-guide/psychology/social-proof/
7. https://www.digivate.com/blog/digital-marketing/behavioural-economics-marketing/

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