In the business world, concepts such as competition, revenue, demand or supply are terms used to analyse, forecast and produce economic reports that provide a detailed view of a company's situation and its environment. However, there are a series of factors that conventional economics ignores, such as the influence of cognitive biases or emotions when making purchasing decisions. And it is precisely here that Behavioral Economics allows us to understand a little more about customer behaviour.
Not long ago, in-person interaction dominated all exchanges, with business agreements, decisions and economic actions limited to the physical interaction between company and customer. Now everything has changed — the digital business world is opening up and making it necessary to add disciplines such as psychology to understand the individual, get closer to them and reach them with products through emotions and impressions. We need to know what they think, what they need and how they want it.
Behavioral Economics, also known as Behavioural Economics, is a field of study that applies both economic and psychological principles to explain how people behave when making economic decisions. Now we not only study each person's preference or need — we also delve into how they respond to the information presented to them and in what ways decision-making is conditioned.
In the realm of digital business — and although decisions around promotion, sales and choices are now much faster thanks to the internet — some conclusions are drawn from incomplete or inaccurate data. Examples include accepting a short-to-medium-term profit forecast that ignores key factors like customer behaviour or opinion. And as you can imagine, in an effective marketing strategy, that is fundamental.
If conventional economics is the foundation by which every business operates, Behavioral Economics is a fundamental tool capable of providing greater accuracy when it comes to understanding the individual and the reasons that motivate them to buy. In an online business it is increasingly important to know your customer, to know how to build a marketing plan adapted and focused on working with emotions, on reaching them through the senses rather than through other factors like price.
Who would want the responsibility of determining what is best for their potential customer? For a digital business, the need to understand people is increasingly great — we are seeing how the traditional hooks that used to convince people, such as price or the desire to follow trends, are falling far behind factors like individual tastes, personal preferences, needs or even fears.
Behavioral Economics allows us to reach the person, to engage them emotionally, to captivate them, understand their needs and offer our product as the solution. We awaken a need and create demand that originates from the psychological level, allowing decisions to be made much earlier than conventional economic techniques based solely on interpreting numbers would allow.
Although decisions are made faster in the digital world, there are occasions when many of them are based on inaccurate studies and conclusions. This scarcity of data demonstrates the need to implement behavioural economics in the company's next action plan, as it means defining the concept of customer behaviour — moving from predicting how they would behave to perfectly understanding how they will.
To give an example with a very common cognitive bias: loss aversion is a clear aspect that can interest us if we understand that for the vast majority of customers, avoiding losses will always be preferable to generating equivalent income. In other words, understanding how the customer will react and reducing the risk of their fears allows us to focus our marketing strategy more precisely and in less time than expected.
One of the main objectives to achieve always centres on conversion — an aspect that allows sales to be maximised if we manage to convert internet users' visits into a purchase. Behavioral Economics has a lot to offer us, though we must not forget that each strategy, its advantages and ways of applying it to the business will vary according to our needs, resources and environment.
User experience. Providing an intuitive and comfortable user interface makes the purchase process simpler and faster. The shopping cart abandonment rate has always been a fundamental concern, requiring attention to even the smallest detail if we do not want to drive the customer away. In this case, we need to provide an intuitive environment with simplified payment processes.
Visit behaviour. Do you know what your visitors do as soon as they arrive on the page? Have you seen the heatmap? We can use web metrics tools to access valuable information, such as heatmaps or the sections most visited by customers. This lets you identify deficiencies and detect opportunities to improve the user experience.
Trial and error. Although this point can also be part of other strategies where Behavioral Economics is not applied, knowing what works and what needs to be eliminated always helps you understand what has the greatest sales impact. The fewer distractions and errors during the visit, the more likely the purchase will go through.
By having more data and perspectives on customer behaviour, we can offer better options and alternatives according to their needs. Through personalisation techniques, we analyse preferences to offer fully personalised offers or recommendations, increasing the probability of conversion. Moreover, knowing that opinions and reputation are key for customers to trust us — why not add a few reviews next to the product? It will reinforce their confidence.
Behavioral Economics, behavioural economics or simply psychology — various ways of naming the goal many digital businesses want to achieve: understanding the customer better to offer them what they really need. We are talking about a way of connecting with the consumer, of entering the market with the certainty of meeting their needs in an environment as competitive as today's. The optimisation of operations and success in marketing strategies require new terms like this one — as modern as they are necessary — and at Boost they are already part of our daily work.
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