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Episode 129

What Behavioral Economics Misses About Real-World Marketing

Real buying decisions are habitual. They're often emotional. Nudges assume people carefully weigh options, but in reality, they just grab what's familiar or easy.

This week, Elena and Angela explore the gap between behavioral theory and marketing reality. They discuss why popular psychological insights like loss aversion, anchoring, and choice architecture often fall short when applied to actual campaigns. Plus, they share which behavioral principles still work in real-world marketing and why mental availability beats nudges for driving sustainable growth.

Topics Covered

• [01:00] Why behavioral economics experiments don't always translate to real marketing

• [04:00] The most powerful behavioral principle that works repeatedly

• [06:00] How Apple masters anchoring and framing to shape perception of value

• [09:00] Why real buying behavior is habitual and emotional, not deliberate

• [11:00] The behavioral economics principle that's been overhyped

• [13:00] How mental availability compares to behavioral tactics like nudging

• [15:00] The one behavioral insight to keep in your marketing toolbox

Resources:

2024 Behavioral Economics in Consumer Decision-Making Study

Today's Hosts

Elena Jasper

Chief Marketing Officer

Angela Voss

Chief Executive Officer

Transcript

Angela: So real buying decisions are habitual. They're emotional, sometimes they're not rational. They're not deliberate. Nudges assume people are carefully weighing options when in practice they're just grabbing what's familiar or easy or frictionless.

Elena: I'm Elena Jasper on the marketing team here at Marketing Architects, and I'm joined by my co-host Angela Voss, the CEO of Marketing Architects.

Angela: Hello.

Elena: We're back with our thoughts on some recent marketing news, always trying to root our opinions in data research and what drives business results. Today we're talking about behavioral economics.

It has captivated marketers with clever experiments and psychological insights, things like nudges, choice architecture and loss aversion. But when it comes to real world marketing, where the stakes are high and the results have to scale, those theories sometimes fall short.

So this episode, we're gonna dig into the gap between behavioral theory and marketing reality. Why don't nudges consistently drive business growth? Why do so many behavioral interventions fade over time? And what should marketers focus on instead? I chose a paper published earlier this year to feature today. It's titled "Behavioral Economics and Consumer Decision Making: Insights from Experimental Studies."

This is by Ibrahim Elmadub and Abu Altabbal. I hope I pronounced that somewhat correctly. They dive into cognitive biases like loss aversion, anchoring and framing, and talk about how those shape consumer behavior in experimental settings. Here are just a few fun call-outs that they found.

These probably sound familiar to people. We're more likely to buy something when it's labeled as 90% fat free instead of 10% fat, even though obviously those products are identical. If we're given a high initial price anchor, we tend to be willing to pay more, even if that final price is lower. And when enrolled by default in a retirement savings plan, we tend to stay in it, demonstrating the power of status quo bias and things like nudges. These findings suggest that small tweaks in how options are presented can have big effects on decision making. But here's the catch. All these studies took place in clean, controlled environments, and this paper actually acknowledges that's a limitation.

Real world marketing is anything but controlled. We're bombarded with messages, distracted by content and context, and we're often making snap decisions with little attention or involvement. The lab strips away variables like media clutter, longer buying cycles, and emotional or social dynamics, and what works on a survey or in a staged shopping test doesn't always scale when you're marketing to millions of people.

In fact, one of the key critiques raised in this paper is what they call ecological validity, which is the idea that while these experiments are useful for isolating behavior, they often fail to capture the complexity of real life environments. So marketers, if we're hoping to nudge consumers into action with clever copy tweaks or default settings, we might be overestimating the power of psychology and underestimating the chaos of real buying behavior. All right, we're talking about behavioral economics today, which spoiler alert, I know you're a bit of a fan of, Ang, but let's start with the basics. What's your take on behavioral economics in general, and do you find them helpful as a marketer?

Angela: This is my favorite topic. I could do every podcast on behavioral psychology. I just find it fascinating how our brains take shortcuts, or you know, how framing or loss aversion can shift decisions. I will happily read those studies all day 'cause they just give you these little aha moments about why people do what they do. But as a marketer, as yummy as it is, it's not the meal.

It's the seasoning to marketing. Nudges and biases can add flavor, but they really don't feed the business on their own. And we've found that in our journey in marketing as an agency, to your point, these experiments usually live in very clean, controlled environments and real world marketing isn't like that, right? It's messy. It's full of clutter. There are distractions, and the big drivers of growth still come back to what we talk about every week. It's back to the basics of strong, memorable creative, wide reach, building mental availability as the main course.

Elena: So a behavioral economic trick can't be your whole marketing strategy basically. It's not gonna save your marketing, but it could be a good addition to it.

Angela: Absolutely.

Elena: Do you have a favorite principle or maybe one that you find generally useful?

Angela: I feel like the most powerful one that I see repeatedly work is scarcity. There's just something about the human response to limited supply that works again and again. When we feel like an offer might run out or that access is somehow exclusive, people pay attention. And we've seen it work in real campaigns, not in a gimmicky way, but where there truly was some type of exclusive product launch. We even feel it with our own prospects at times where sometimes we can't work with a brand 'cause we have a competitor in the space and it's hard for them not to lean in. So that sense of scarcity really sharpens focus. I think it pushes people to act sooner and just cuts through some of that initial inertia.

Elena: Yeah, I definitely fall prey to scarcity every single day. Definitely makes me want something more.

Angela: Yeah. What about yours?

Elena: I love social proof.

Angela: Oh, yeah.

Elena: I remember reading Cialdini's Influence when I first started at Marketing Architects and reading about social proof. And I know we see that all the time. You have a B2B website, they have a bunch of logos of who they've worked with, but it really helps. I think about how Amazon really changed the game for online selling. And a big part of that was their reviews. And I don't know about you, but when I'm looking for products on Amazon, if there's no reviews, it really affects how I feel about the product. But great reviews can drive me to buy something. So I think that has just a huge effect on how we buy products and services. Seeing that other people like you are endorsing a product just makes a huge difference.

Angela: Yep.

Elena: When have you seen behavioral economics have larger business outcomes in marketing? I know that we don't wanna depend on them, but are there times when you've seen them work really well?

Angela: I think we have our own examples. I also think, just in terms of being a consumer and my own purchase behavior, I know it impacts, right? Apple's a master at using anchoring and framing to shape perception of value. They launch a new iPhone at a very high price point. Suddenly that lower priced model feels much more reasonable. They even use a decoy effect, introducing mid-tier options that nudge consumers towards the product that they wanna sell. But in our own history, we were really committed to behavioral psychology in our early days of being a hardcore DR radio agency. Things like countdown clocks on offers and limited time framing. We had approaches where we would message, you know, if your last name begins with A through N, call today. And it works.

We would come up with a new control creative that would be almost impossible to beat leveraging these tactics. But it would burn out. And I think that's the piece where we didn't have marketing effectiveness principles in play in the way that created sustainable growth for the brand. You could get people to act, which was great, but again, seasoning versus the meal.

Elena: Yeah, that's where we hear people talking about the discount doom loop, right? If your business gets trapped in discounts, it's great short term fuel, but then you have to keep continuing to discount. It's really hard to get out of that once you've started it.

One thing I was wondering when I was looking into this topic, I was thinking, we've obviously used these insights before, like in our radio days. I know we've used them on TV, although we try to be careful about how we use them, but do you think that they work better at scale for something like user experience, like a point of sale promotion? Do you think that's where maybe they can be more effective than through something like a TV campaign?

Angela: I think they can be effective at UX, but I also think they can be effective in TV. I just think the role is different. They add that flavor, that clever framing or strong guarantee. Urgency can heighten attention. If you think about Domino's 30 minutes or it's free, it's this risk reversal nudge that reduces the fear of either wasting money or having to wait too long if the pizza's late, or like a Snickers "You're not you when you're hungry" is sort of social proof and identity framing. So maybe they show up differently, but I definitely think they can be used in TV.

Elena: Yeah, maybe they're just seen more on shelves or when people are really trying to make a sale in the moment.

So one thing that the study talked about that I thought was interesting to help frame up this episode is that we have all of these examples of behavioral insights, behavioral economic principles, and they're easy to see in a lab, but sometimes they fall flat when we start using them in marketing. Why do you think that can be?

Angela: How much of your buying behavior as a consumer do you think you could strongly justify why you made that decision? Our real world decision making is so cluttered and muddy, versus that controlled environment. So real buying decisions are habitual. They're emotional. Sometimes they're not rational. They're not deliberate. Nudges assume people are carefully weighing options when in practice they're just grabbing what's familiar or easy or frictionless. We talk about mental availability, physical availability, distinctive assets - all of those things play into a consumer making a decision in a way that is maybe not controlled for in a controlled environment. It's a little system one versus system two type decision making, and it just muddies it up.

Elena: Yeah, I think you're right. I think we assume sometimes that they're gonna go and be comparing me to this option and that option and going down the line, and then these principles will probably make a difference. But a lot of times we're picking the brand that's first to mind. I know when I'm buying something, I'm not doing a comparison for every single product I'm buying. So that's why what you said in the beginning about how this is a bit of a garnish, but reach and mental availability matter more, because if someone's just going straight to you or if you're having improved pricing power, then they're not having to do things like comparison shop, and you don't have to rely on discounts or some of these tricks to get somebody to buy.

Angela: It feels like if you've got the foundation right in terms of your marketing effectiveness principles, then you're afforded the opportunity to maybe get better value out of your behavioral psychology tactics. But if you're leaving those major foundational principles at the door, you're not operating in a sustained way that's gonna long-term drive growth for the organization.

Elena: I wanted to ask, is there a behavioral economic principle that you think we're over-hyping right now? I'm thinking of social proof is big in B2B, so everyone has the same logo line on the website. We actually have it, hate to say, but it just feels like something you have to have now. Everybody has it. Is there one that you think's a bit overhyped?

Angela: I would say that choice overload has gotten overplayed. You know, this idea that if you give people too many options, they freeze, they don't buy anything. In reality, I mean, just look at - walk into a grocery store, look at the toothpaste. We see dozens of options and yet we still buy. If you're running an A/B test and you find that your landing pages with more options are converting lower than those with less options, then there might be something there. But sometimes I think we can take these marketing cliches and spread them a little too broadly to prohibit good strategy.

Elena: Yeah, that's true. If I'm going to buy toothpaste and there's a lot of different types of Crest, I'm not gonna not buy if I become overwhelmed. I'm just gonna go through and pick the one that seems the best for me.

That's great. I was thinking about this and I think that this idea of meeting people where they are is a bit of a behavioral economics principle. Like how can we speak exactly to a certain type of person to influence them? And I think that's been overhyped in marketing for a while, which gets me to one of my favorite topics, which is over targeting or hyper targeting. And we think that's leading to better results. And really, if you could put a perfectly customized message in front of someone at the exact right time for them at the exact right moment, that would probably do better. But typically you're raising your cost to a point where it's just not worth it. So I think that's a principle that's gotten really popular. And it's hard because it does work in a lab.

I could see that if you're running an experiment, you could tailor something to me versus you, it's gonna work better. But then we translate that to real world marketing. If I'm running a TV campaign, the more targeting parameters I add, the more expensive it's going to get. And so it just sort of breaks down in the real world.

I don't know if that will ever go away or if we'll just find a way to do it, to be honest. Maybe eventually AI will get good enough that we are gonna be able to be that customized, unless there's a huge pushback with data privacy. I know we've had that back and forth, but that's an interesting thing to think about. Will marketers shift back, or will some marketers just continue on until that becomes a better way?

I'd like to think more marketers are understanding the trade-offs of hyper targeting.

Angela: Yeah. I mean the cost conundrum there is a massive one, but to your point, if there's a way to break through that, I know we have some of our own ways either on the CTV side being more regional, looking at zip-based targeting, first party data, etc. And then, yeah, to your point on the creative side, leveraging AI, we're already doing a little bit of that, and as that grows, performance marketers are afforded the ability to understand whether or not that's worth it or not, even at the higher costs. And some of them might say it is, but in most cases we've seen it not return a high enough response rate to overcome that cost conundrum. But it might change.

Elena: Yeah. Always worth testing too, probably. How do you think marketers should think about mental availability as a concept versus behavioral tactics like nudging? I guess one's more reliable. I think sometimes we've got a lot of different terms here.

Angela: Yeah.

Elena: How do you think we should think about it?

Angela: Yeah, I think we touched on this a little bit already, but I would say mental availability is the more reliable lever, hands down for sure. Nudges give you a bump here or there, change a button color, tweak the framing, add urgency, but they're situational. So I think about it as nudges versus multipliers. You can potentially make a good message sharper or reduce friction in a purchase journey, but mental availability is the asset. It's the thing that keeps paying off long after the campaign's done. If you have to choose where to put your weight, build memory first, then layer these nudges on top.

Elena: If we had to pick just one behavioral insight to use as a marketer, you can only have one in your toolbox, which one would you choose?

Angela: I guess to me, friction is a really bad thing for a marketer, and that could be not having enough physical availability friction. That could be your web funnel. So much of marketing isn't about convincing people with a perfect message. It's about making the easiest path also the path to you. So if you can reduce the steps in sign up, pre-select the best option, make staying in a program a more natural choice, I think you win.

I think we all probably are contributing a lot of dollars to subscriptions that we don't need today. I know I need to go through that at least twice a year. Is that the right way to revenue? I don't know. We can debate that, but friction, and reducing it, is probably a big lever that I would advise. But it's a really hard question. There's so many good ones. What would you do?

Elena: It's hard to just pick one. I just love social proof. I think that it'd be really hard as a marketer to not be able to use that in some way. You think about customer testimonials, reviews. We're just such social creatures. We wanna be with the pack. And I think if you weren't able to signal that, or if every brand could only have one, I would definitely want that one.

If I had a bunch of social proof, I think that could fuel your marketing probably forever if you wanted it to. Even think about those little plush toys that everybody loves right now - Jellycat. You see people with things all of a sudden you're like, do I need a Jellycat? Maybe I do because everybody has one. So I wouldn't wanna lose that one personally.

Angela: That's a good one.

Elena: Before we wrap up, I just, this is not one of our planned questions, but I was curious, you love this topic. Is there anything that you feel like we didn't cover or anything you think marketers should be aware of that we didn't talk about?

Angela: I think this topic, like a lot of others, I feel like sometimes can be really polarizing for marketers. If you live on the marketing effectiveness side, like if we had Byron Sharp on here, I think we'd be having a different conversation.

Elena: I don't think he'd wanna have this conversation.

Angela: Yeah.

Elena: Yeah.

Angela: But like, who was it that said "A flower is just a weed with a marketing budget?" Was it Rory?

Elena: Oh, I haven't heard that, but it's amazing.

Angela: Yeah. It's an art and a science, and to be in a place where you're laying foundational principles that you know are going to result in growth for the organization because they're backed by billions of dollars of research is definitely the area to focus in. But I also feel like sometimes we talk with brand marketers that look at something like behavioral economics and some of these tactics that we're talking about today, and they shy away from it. I don't know if it feels too DR, too salesy, and so it's a polarizing topic and to me, why can't we all be friends?

I feel like there's a case for both to be made. I don't know. Maybe I'll be stoned by Byron Sharp on LinkedIn when this goes out. Who knows?

Elena: Yeah, no, I think it's a good point that you don't wanna probably be on too far of either extreme. This stuff does work. When Robert Cialdini published Influence, he had to make statements like, be careful about how you use this stuff 'cause it's so powerful. I think that's either part of his book or part of his second book. He was saying that this can be used for evil because we fall for this stuff all the time. So it can definitely be used in a cruel way. I know one of the examples he gives is someone comes to your door and they'll ask you something like, do you care about children? You're probably gonna say, yeah, of course. What only a monster wouldn't care about children? And then they're gonna say, would you like to donate to the local children's hospital? And that bit of commitment makes it so difficult to do something different.

You don't wanna go overboard with things like discounts or always relying on some sort of a countdown or limited time offer. But if you're not using this stuff at all, it feels like there must be a spot for it where you can get people to tip in, get people to try your brand for the first time, just testing out when it's worth it. It seems like ignoring it entirely or only relying on it, neither are good. We probably wanna be somewhere in the middle.

Angela: Pick up Influence by Cialdini and Pre-Suasion.

Elena: Yeah, they're really good.

Angela: Both. They're just fun.

Elena: Yeah. All right, to wrap us up here, what's a bias you fall for every time, even though by now you know better?

Angela: It's scarcity. I already mentioned it, but there are only five airline tickets left at the price I'm looking at and I'm a family of five. I'm like, oh my God, I gotta go.

Elena: Yeah, and sometimes you'll even know, like your brain will actually stop and say, this is a scarcity tactic, and I still have to fall for it.

Angela: I do. I'm like, I need to just buy 'em today. Just be sure. Just in case. What about you?

Elena: Yeah. I was thinking about this and one recently that I've been falling for, and I think it is a pattern for me is loss aversion. So this feeling that a fear of a loss is worse than the gain. I think about my triathlon right now, and I've had a bit of an injury and it's gotten better. But whenever this happens to me, every single time, whenever I'm injured, my fear of losing fitness just overrides any sort of a gain from rest. It's like, all right, Elena, if you rest a day, you would have the next 12 weeks. Or you could run today and be out for six weeks. And I will choose to run every single time 'cause that fear of losing out on something, like losing fitness, missing out, I tend to fall for that every time.

Angela: I have loss aversion in other areas of life than fitness. I would say we probably don't need to go into that. I would love for that to be my example. Next year at this time, I'm like, I can't stop running. It's just such a...

Elena: I know. I could use other examples, but they feel too personal for a podcast, so we're gonna go with the...

Angela: That's a great example.