The Irrationality of Consumer Behaviour
Definition: Consumer Behaviour is the study of why people buy things and how they choose what to buy.
Experts in consumer behaviour analyse the way in which we buy things. To do this, they take ideas from psychology and economics. For example, Nobel Prize-winning scientists like Richard Thaler and Daniel Kahneman have shown how our decisions are both irrational and predictable.
What is Consumer Behaviour?
Marketers would love to be able to see exactly what makes a customer buy. If they could install a recording device in their customers’ minds, like the Black-box in an aeroplane’s cockpit, what would they find?
Unlike the cockpit, there is no way to really know what happens inside a customer’s head. Instead, marketing experts build models and theories to explain and predict consumer behaviour.
In the first half of the 20th-century, marketing theory was dominated by the study of Economics and Agents. In this “Classical” approach, the consumer was a simple decision-making unit. These imaginary agents made perfectly rational choices and behaved in consistent ways.
By the mid-century, expert opinion began to diverge. Some marketing professionals conducted consumer surveys and began to analyse their customers scientifically. Publications like the Journal of Marketing Research were founded to share this research. Early studies focused on the Purchase Decision, identifying the factors that affected consumer choices.
The first decades of consumer studies established new ideas like Brand Theory and Opinion-Leadership. They also introduced new techniques like Segmentation.
In the second half of the 20th-century, the field of consumer behaviour expanded to include other aspects of the customer relationship. Marketing professionals began to think about how individual identities shaped buying behaviours. They also analysed user experiences and they way people used their purchases.
In 1967, Philip Kotler published a comprehensive textbook on marketing practices. It described, among other aspects of consumer behaviour, the stages involved in making a purchase. Since the publication of Marketing Management, a five-stage model of the buying process has been adopted.
- Problem/Need – Finding out what triggers a customer to look for a product is an important part of modern marketing. For necessities (food, medicine, practical items) the first stage of the buying process is difficult to influence. For luxury items, it is important to think about what makes a customer want to buy something.
- Search – During this stage, a customer becomes receptive to information about a product. They may actively seek different options, or simply respond to promotions.
- Evaluation – The customer explores their options and considers alternatives. They will usually establish a preferred brand and reduce their selection to 2-3 competing products.
- Purchase Decision – After the customer has identified the product they want, they still have to buy it. A number of obstacles and interventions can prevent a customer from actually making a purchase.
- Post-purchase – The customer continues to think about the product after they have purchased it. For a repeat purchase, they will reconsider their choice when they next come to buy the item. They may also be willing to participate in feedback surveys or marketing activities.
An alternative way of thinking about Consumer Behaviour is to profile the different ways people buy things. In 1986, a pair of consumer psychologists developed a universal consumer style inventory. George Sprotles and Elizabeth Kendall proposed eight characteristics that describe any given customer.
- Perfectionist: The customer looks for the best quality of product.
- Brand-aware: The customer prefers brands and designer labels.
- Hedonist: The customer treats shopping as a form of enjoyment.
- Price-aware: The customer seeks low prices, sales, or discounts.
- Fashion-aware: The customer likes to be up-to-date and seeks variety.
- Impulsive: The customer is prone to spontaneous purchases.
- Confused: The customer experiences too much information or choice.
- Habitual: The customer is loyal to brands and follows a routine.
Both the Consumer-style and Five-stage model of Consumer Behaviour are subject to cultural variation and interpretation. In both cases, the framework must be used alongside real-time data to give the models predictive value. Within modern marketing campaigns, these models are primarily used for Market Segmentation.
Marketing a newly developed product involves a specific type of consumer behaviour. In his, The Diffusion of Innovations, the American sociologist Everett Rogers grouped consumers into five types of consumer:
- Innovators 2.5%
- Early Adopters 13.5%
- Early Majority 34%
- Late Majority 34%
- Laggards 16%
These five groups respond in very different ways to new products. The majority of people will only accept a new idea or product once it has gained mainstream popularity. Because of this snowball effect, the adoption behaviour of large groups of people tends to take the shape of a bell curve (where most people occupy the middle-ground).
The impact of the diffusion bell curve can be seen in the way that a product’s market share increased rapidly during the middle phase of its growth. Once each group has adopted a new innovation, the market is considered “saturated”.
In his Thinking, Fast And Slow, the psychologist Daniel Kahneman identified a number of mental shortcuts that most people use when they aren’t paying much attention to a problem. This System 1 style of thinking is the type we use when we make most of our decisions.
Because this is an automatic and low-effort form of problem-solving, it often relies on approximate guesses and estimations. These shortcuts, also known as “heuristics” or “cognitive biases“, lead consumers to behave in irrational yet predictable ways.
Dan Ariely’s Predictably Irrational takes this insight even further, isolating a number of common biases that occur in everyday life. Turning conventional economics on its head, Ariely argues that most behaviour does not reflect the true costs and benefits faced by a consumer. Instead, he demonstrates that the decisions we make are almost always based on intuition and guesswork. Some common examples of these flawed judgements include:
By identifying common cognitive effects, marketers are able to make the most of their customers’ attention. They can also avoid falling victim to consumer biases.
Consumer Behaviour theories describe broad trends that don’t always apply to real businesses. Because of this, you have to pay close attention to a very specific group of customers: yours
However, by incorporating some of the ideas described in these more general theories, you can think about your customers from a variety of angles. When you are developing a product, designing a webpage, or delivering a marketing campaign, you should consider all of the following aspects of consumer behaviour:
- Buying stage
- Consumer style they
- Adoption characteristics
- Cognitive biases