On Shopping Carts.

Want to spend less money at the store? Don’t take a cart.

I had a very annoying experience at the grocery store this weekend. There was not one basket for me to use in the entire store. As it was busy, there weren’t many carts left either, and with all the carts on the go, the pace of the store ground to a halt. A clerk told me that all the baskets had been stolen (hmm, likely story, buddy!). So, for punishment for not thinking of my convenience, I decided I’d shop for only as many products as I could carry around the store, thereby spending a lot less money.

I used to do this all the time when living in the UK for my PhD. Without a car, I was limited to what I could carry home, so I’d make more frequent trips for less items at the store. But back in Toronto I almost always drive to the grocery store, and so it’s not really as big of a concern if I decide to throw a spontaneous purchase – or 3 – into my basket.  

Shopping carts were invited by Sylvan Goldman in 1937, originally consisting of a folding frame around a wire basket that was three times smaller than current standard grocery carts. They allowed for shoppers to pick up and purchase many more items at a time. And grocery stores absolutely know this – the bigger the cart, the more profit.

Martin Lindstrom, a marketing consultant and author of Brandwashed, described an experiment where they found that doubling the size of a shopping cart lead to a 40% increase in purchases.  Why? Quite simply because the shopping will stop once a basket has become full or too heavy.

With margins around only 1.5-2%, to make more money grocery stores need to get you to buy more stuff. Did we really need that extra stuff? Why are we falling for it?

Why do we fill our cart?

Context cues. Just like we tend to eat more when food is served on a bigger plate (because the big portion is taken as a cue for the appropriate amount to eat), so too might shopping carts act as cues on how much to buy.

Social norms. In a concise history of the shopping cart, the tale of Sylvan Goldman’s invention illustrates the power of social norms. Customers at his store were originally too proud to use the shopping cart. Only after hiring attractive men and women to push around his new invention did his customers adopt the practice. Seeing others use and fill up a cart has an impact on our behaviour because it indicates to us what’s acceptable practice in the grocery store.

Averaging bias. It might be hard for us to calculate the grand total spend of our entire cart. We might be averaging instead of summing – the good deals and the splurges. And, especially with a big cart, it might be hard to see all the items we tossed in there. Have you ever got to the checkout and been totally blown away with the total after adding everything up, even after you consciously picked out a number of sales items? Averaging bias might be at play.

So you’re saying I should always go for the basket, right? Oh no, but wait! Beware, carrying a basket might lead to making poorer decisions about what you buy. Research by Van den Bergh, Schmitt, and Warlop (2011) found that consumers carrying baskets were more likely to buy wasteful or unhealthy items simply because the sensation that comes from flexing when holding a basket is related to a sensation of instant gratification, in turn leading consumers to buy more items that offer the same sensation – like a candy bar.

A candy bar is okay once in a while (I like ice cream), I would still recommend a healthy, balanced diet. And not falling prey to spending more just because of pushing a cart around a store.

So, unless you are buying bulk – which, as a personal finance nerd, I think is very valid to get the most economical price of non-perishable products – stray from the cart. Benefit from the arm work out.

Not only will you be saving on your grocery bill by not buying things you don’t need or want, you will be reducing the amount of food waste. Not to pick on the States, but roughly 50% of produce is thrown away. That’s around 60 billion tons of waste, or $1,600 per year per family, just because shoppers did not accurately buy in line with their consumption needs. You could be saving $1,600 per year by shopping a bit more carefully and working on those biceps!

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On How I’m Pretty Sure You Have Too Many Friends.

Facebook, Twitter, Instagram: we are more connected than ever. Yet, one quarter of Canadians describe themselves as lonely. Loneliness is not just a social crisis – it’s linked to a suite of mental and public health issues too; depression, anxiety, depressed immunity, and even suicide. How is this pervasive loneliness possible if we are more connected than ever before?

A complex and healthy debate exists on whether social media improves or reduces well being in mental health. Some research has shown that people feel lonelier after using social media platforms such as Facebook or Instagram. Facebook use has also been linked to decreased happiness and life satisfaction with increased usage. Other research has found that the more time spent on social media sites, the more individuals perceive themselves to be isolated. On the flip side, other studies have shown that social media use can boost feelings of social connection, with researchers arguing that fulfillment through online social media platforms depends on how it is being utilized.

What this vein of research is suggesting is that even though the average Facebook user might have hundreds of friends (the average for an adult is 338), more friends might not mean more support, connection, or closeness. Is it possible that you have too many friends?

Dunbar’s number.

Proposed by anthropologist Robin Dunbar in 1992, Dunbar’s number represents the number of relationships we are cognitively able to manage and to which we can legitimately feel connected at a given time. That number is 150. Dunbar came to this number by looking at the correlation between primate brain size and average social group size. Originally born from an extension of the Machiavellian Intelligence Hypothesis in anthropology which holds that primates have bigger brains due to living in socially complex societies, Dunbar sought to apply this same principal to humans. Although 150 was the number he popped out based on calculations relative to the size of the average human neo-cortex, it’s actually a range between 100 and 200  of casual social connections that you’d, say, be inclined to invite to a party.

Exploring what this means to human social relationship, Dunbar’s research continued to look into a hierarchical structure of social ties – that is, how the number of people in groups that vary in closeness to you grows or shrinks in line with the Rule of Three. If you were going to invite your 150 causal friends to a party, only 50 (give or take!) is the number of friends you’d invite to a slightly more intimate dinner. The next layer is around 15 people you feel comfortable turning to and feel you can talk to in confidence. The existence of this circle is supported by the data: according to Facebook’s in-house sociologist Cameron Marlow, the average woman on Facebook posts on the walls of 26 friends and communicates directly with 16 (and for men its 17 and 10 respectively). 5 is the number in your closest support group, the besties that you trust. Dunbar argues that these closest ‘friends’ are often family members. In contrast, Dunbar also argues that you can have around 500 acquaintances and around 1500 people to which you can put a name to a face.

Even though there are people with Facebook friends in the thousands, Dunbar claims that the data shows most people maintaining a similar inner circle closer to 150 that parallels the social relationships in the real world. Though social media might seem like it’s an easier medium on which to cultivate friendships, research is increasingly showing that this does not translate into the real world. In line with Dunbar’s claims, for all of us primates, having numerically more friends on social media does not necessarily mean more connection thanks to the way we are wired and the size of our brains.

Too much of a good thing?

Even external perceptions about how many friends someone has can make an impact. A 2008 study found that when asked to evaluate a person’s social attractiveness of Facebook users that differed only in the number of listed Facebook friends (listed as either 102, 302, 502, 702, or 902), social appeal peaked at 302 and dropped off before and after that. Why? Too few friends – maybe you aren’t an active user on the platform, or maybe you lack in social skills. Too many? Those with too many friends might be signalling they are interested in boosting that number only in the online environment, where perhaps they feel more comfortable, rather than nurturing genuine connections in face-to-face social interactions.

Antisocial Social Media

Social media networks are changing the way we interact, no question. They are opportunities to connect within networks strategically and work towards better business outcomes and collaboration.  They allow people to catch up or keep track of each other when they might not have been able to in the past. But it is not a substitute for face-to-face social connectivity of the shared experience. You might be able to tag a friend so that they see the same meme, but it won’t replace laughing about it in person, foregoing a chance for real connectivity.

Researchers Daniel Perlman and Letitia Anne Peplau define loneliness as “a mismatch between the quantity and quality of the social relationships that we have, and those we want.” This suggests that in order to stave off the loneliness we risk by being social media users, we must more actively manage to match the quality and quantity of our relationships. Knowing this, we might have more freedom to acknowledge that larger numbers of Facebook friends does not lead to more fulfillment and to focus on those ones that matter to us the most. I’ve just unfriended around 175 people from my Facebook and it felt pretty great.

On Graduation Goggles (i.e., Peak-End Rule).

Today I am graduating from my doctoral program at Imperial College London. A happy and exciting occasion! This happy feeling is certain due in part to sheer relief that my PhD journey is over, as the reality was that not a moment of my experience was without struggle.

But in my reflection of the past five years I am noticing that I am starting to feel differently about that struggle, my mind more quickly returning to the thrilling feeling of passing my thesis defense rather than the meltdowns that inevitably came when the results from yet another study were non-significant (and therefore non-usable). The institution that I once approached with hearty skepticism, and the city that I was desperate to leave, I now feel nostalgic for. What’s the deal, brain? Perhaps science can help to explain this somewhat sudden turnaround.

Graduation Goggles

Specifically,  it might be explained by the foolproof science of How I Met Your Mother. Ever harbor negative feelings towards something but when faced with the prospect of it ending, suddenly it doesn’t seem so bad? Robin calls these feelings Graduation Goggles:

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Yep. This is a real thing. Case 1: me, right now.

Peak-End Rule

Peak-end rule is one of a long list of biased processes for memory formation in which there is a difference between the experiences we have and the way we remember them. Nobel-prize winning psychologist Daniel Kahneman explains that the way an experience ends, or the peak of the experience, determines the happiness we ascribe to it. Take Kahneman’s classic example: Kahneman and team experimentally found that subjects preferred 60 seconds of 14ºC ice water followed by 30 sec of 15ºC ice water over 60 sec of 14ºC ice water alone. This seems irrational since water at both 14ºC and 15ºC are uncomfortable, but participants preferred more pain over less pain, so long as it ended more pleasantly.  This is because they were impacted more by the last level of pain they experienced.

Accordingly, our memories of an event or period of time are more likely to be based on the most pleasurable point or it’s end, rather than an average of the experience overall. This is probably due to imperfect recall, as our memories of the thoughts and feelings had at each moment get smoothed out over time into an overall impression.

Take another classic example: riding a roller coaster at a theme park. Often you wait a very long and boring time before experiencing a thrilling ride, over in mere seconds. Our recollection of the experience tends to be biased towards the thrilling peak – the short ride itself – rather than an average of the whole experience that includes the boring wait.

If you polled me at many points in the PhD process, my feelings then would certainly not match my feelings now. Having the thrill of passing my defense as the peak, and the celebratory nature of the graduation last, has made me question, was it really all that bad?

Endowment Effect

I’m sure you’ve noticed the unpleasant feeling that comes when we can’t have something anymore. We hate loss. The endowment effect is a bias in which we overvalue something just because we own it. This is a symptom of loss aversion – where we feel losses differently than gains. Ever wonder why you can’t part with a possession you probably never use even though you’d never buy it now? The same might apply for experiences. Not totally convinced I wanted to keep up my work while in the thick of my PhD, now leaving the program feels like a loss because at least before it was MY program and MY degree. This is also connected to the familiarity effect, in which we prefer things just by virtue of being more familiar with them.

Basically… the more something feels like it’s yours, the more likely you are to overvalue it and feel the pain of loss when you don’t have it anymore. And after 5 years of identifying as a PhD student, the ownership of that identity is strong enough to feel a loss. Cue graduation goggles and Sarah’s McLachlan’s I Will Remember You.

Thankfully, I have recently resumed work on a paper for publication, so the realities of the daily life in the doctoral program have conveniently flooded back. Problem solved.

On Porsches, Showy Spending, and Dating.

What does romance have to do with consumer psychology? More than you think.

One of the most fun and novel areas of consumer behaviour research comes from an intersection with evolutionary biology.

Conspicuous consumption is the idea that people spend money on luxury goods and costly items as a display of economic power. Introduced by Veblen (1899), his original observations circled around the deliberate use of charitable donations to elicit or enhance social prestige of the donor.

Conspicuous consumption is interesting because it flies in the face of traditional perspectives in economics that tend to assume that consumption behaviour is driven by bargain prices. In the case of conspicuous consumption, consumer choice is instead driven by self-presentational concerns leading to the purchase of showy goods. Think: fancy cars, yachts, watches, wines, and art.

More recently, research in conspicuous consumption has been crossed with evolutionary biology and costly purchases have been associated with mate attraction. Displays of showy consumption are seen as costly signals that can display ‘desirable’ mate qualities. The logic is that in search of an ideal mate, individuals use luxury products to signal status or other attributes, and also to observe signals other people are sending out to get an accurate assessment of potential romantic partners’ unobservable qualities.

This research has even been linked back to charitable donations. Big showy donations might seem altruistic and selfless because they are at the donor’s expense, but they can also be tools used to signal value to potential mates. The costly signal of public philanthropy might be like the peacock’s tail, the classic example of conspicuous animal displays, showing off the individual’s ability to garner scarce resources and the possession of desirable traits that could be passed on to descendants.

Beyond public donations, there is a whole world of luxury goods that might play a part in modern mate attraction. Take the example of a ridiculously expensive sports car. Its uses are low and its costs are high. Researcher Jill Sundie of The University of Texas at San Antonio and her team use the following example:

“The Porsche Carrera GT does not qualify for the Consumer Reports list of “best buys.” The vehicle has very little cargo capacity, has only two seats, gets terrible gas mileage, and is frightfully expensive to repair. Yet for the people who spend over $440,000 to buy one, these considerations are likely irrelevant… conspicuous consumption is anything but a frivolous behavior; in fact, it appears to be linked to theoretically important individual differences in reproductive life history.” (p. 664)

This perspective builds on Darwin’s (1871) sexual selection to address this seemingly paradoxical question: if natural selection favours traits that aid survival, why do some animals have traits that appear to confer no functional advantages and may even impede survival? In the case of a peacock’s beautiful but cumbersome tail, it might make the peacock more vulnerable to predators. Darwin proposed that these qualities made the animal more attractive to the opposite sex by acting as costly signals of mate value. Instead of being a signal of deliciousness to a predator, the vibrant and symmetrical, but burdensome, tail actually signals speed, strength, and immunity to potential mates.

These showy and costly qualities are found more often in males of different species. Trivers (1972) explains this with parental investment theory. Parental investment is the minimum contribution required of each parent to produce offspring in a species. The minimum investment can be asymmetrical between males and females in a species: in the case of many mammals, the male’s minimum time to reproduce is basically as long as it takes to have intercourse but a female mammals’ minimum investment is internal gestation and nursing. Overall, Trivers argues that this has caused females to be choosier about selecting partners – more observant and receptive to signals that hint at unobservable underlying mate quality. In contrast, males are more competitive in getting sexual access to the choosier females.

Conspicuous consumption is then just like the peacock’s tail. It is the costly spending of resources to signal sexual desirability to prospective mates. Griskevicius et al. (2007) found that contextual activations of mating motives led men, but not women, to want to conspicuously spend and perform public acts of heroism. To illicit mating motives, the researchers did the following: “we displayed the photographs of three attractive opposite sex individuals on the participants’ computer screen. Participants were asked to select the person whom they thought was the most desirable romantic partner, and, after making their selection, to imagine that they were preparing to go on a first date with this individual. They were to spend up to 3 min writing on the computer about their idea of the perfect first date with the person they selected.” (p. 88).

Sundie and team took the line of research further by looking at the relationship between conspicuous consumption behaviour and mating strategies. They found that showy spending behaviour differed between men who followed a low-investment short-term strategy versus high-investment long-term strategy.

Why? Turning back to evolutionary biology, Sundie suspected that like how the peahens evaluate the peacocks’ beautiful yet handicapping tails, women might use conspicuous consumption displays to evaluate men for short-term partnerships differently than for long-term partnerships. These cues are important in short-term partnerships because they provide clues about the underlying qualities that cannot be surmised in the short-term. By spending money inefficiently, these men demonstrate they can absorb the cost of resources with negligible negative impact to their survival – presumably providing clues about his underlying intelligence or skill. These traits are linked with qualities valued by women in short-term mates, including social dominance and financial riskiness. Sundie and team also argue that non-mating benefits are provided to women in these contexts, including the provision of economic benefits (i.e., expensive gifts, fancy dinners). In contrast, the narcissistic and irresponsible spending on frivolous luxuries today, rather than saving for tomorrow, is not desirable in a responsible long-term partner.

Through experimentation, Sundie and team found that when they elicited mating motives (having participants think about an ideal university dating service), it increased conspicuous consumption in flashy products in men who followed a low-investment strategy but not in men who followed a high-investment strategy. The signals were read loud and clear by women: men who purchase luxury goods are perceived as more attractive, specifically as short-term but not long-term partners, making it an effective sexual signal.

Different types of products have different sexual signals. For example, the purchase of eco-friendly products are seen as having greater warmth, competence, and good traits as a partner, but less physical appeal, and are associated as desirable with long-term partners rather than short-term partners.

What’s the Valentine’s Day take-away? Here is it:

Trying to find a short-term love for Valentine’s day? Maybe take the Porsche 911 GT2-RS rather than the BMW i8. Looking for long-term love? Ditch the gold chains and crocodile-skin pants. Even better, start some kind of a collection – research has found that the substantial costs and effort of creating a collection is related to signals of unobserved resource acquisition capacity and desirability as a long-term partner. Fossil-collectors rejoice!

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Got love on the brain? Watch this TED talk.

How about math and dating? Watch my favourite TED talk here.

 

On the Face.

Don’t kid yourself; it’s hard not to judge the book by its cover. It turns out that the way we evaluate products is likely a remnant of evolutionary biology. Indeed, recent research claims the way we evaluate products has similarities to how we evaluate other’s faces.

The face of a product is often the first thing we see and thus the first thing we evaluate in determining our impressions. Having products that reflect one’s self-image is essential to consumers, whether they realize it or not. People tend to believe the way that a product looks or what the brand represents says something about them. The way we form an impression of a product also takes into account if that product represents us.

Recent research has found that the way we form impressions about a product’s face – that is the front and the imagery we often initially exposed to – is similar to the ways in which we evaluate and form impressions about human faces. Recent research by Ahreum Maeng from the University of Kansas and Pankaj Aggarwal from the University of Toronto found that just as evolutionary accounts of human face perception suggesting that the face width-to-height ratio – what they describe as f WHR: bizygomatic width divided by upper-face height – can signal dominance and affect its overall evaluation, so too can this principle be applied to consumer evaluation of product face.

Through their studies, they show that product faces with high (vs low) f WHR are perceived as more dominant – just like human faces. In contrast, based on measures of consumer preference and willingness to pay, they also uncovered that although human faces with high f WHR are liked less, products with faces that show high f WHR are more preferred. They argue that this is due to a motivation to signal dominance to others or enhance one’s own status. They use a compelling example:

“Imagine that you are driving on a highway and an automobile is tailgating you. When you glance in the mirror, the car behind you looks menacing, as if it has an angry face. Would you feel intimidated and change lanes to let this car pass you? Would you feel and act differently if the car behind you had a friendly “smile” and was pleasant-looking? Alternatively, if you were the person driving the mean-looking car, would you feel more empowered and be inclined to act like a bully on the road?” (p. 1).

Why are first impressions and specifically the first point-of-contact with a product’s face important? Pleasing design has been shown to improve the strength of a brand and perceptions about the brand’s quality. Product qualities have also been shown to impact consumers’ emotions and purchase intentions. Impressions matter. This leads to a number of things that managers should consider regarding product design and packaging.

For example, have you considered the impact of how a product looks when it is shipped? Although the goals of shipping might be more functional that flair, its’ still an important consideration as the impressions consumers initially make can stick moving forwards.

It is also critically important for designers to consider what the qualities of their product and packaging could say about a consumer who purchases it. Self-image motives can be very powerful and play a role in the formation of brand loyalty. Thinking about the signal potential of your product and product face, in particular characteristics of dominance akin to those evaluated on a human face, could have a substantial impact on how the product fairs in the marketplace.

For consumers, this proposes a time to be self-reflective. What’s the message you are trying to send with your mean-looking car? It’s up to you to decide if what’s on the inside counts more than the cover.

On Being Colourful.

More than ever, marketers appeal to customer emotion rather than logic. Why? Because it works.

One overlooked tool for marketers is the use of colour. Colour colours how we buy. Colour also plays a role in how we recognize brands. Let’s take a closer look at how colours play with our emotions.

Warm colours, like red, orange, and yellow, are associated with energy and happiness. Orange and yellow can aggravate the eye, however, and is also associated with hunger. McDonald’s, anyone? Red is a complex colour because it is also used to evoke feelings of power, of love or lust, excitement, and affluence.

Cool colours, like blue, green, and purple, are calming. They are also sometimes associated with sadness. Blue has a dual personality of relating to sadness as well as tranquillity. Navy and darker blues evoke a sense of professionalism. Green is associated with environmentalism, health, growth, and balance. Purple is associated with royalty, prosperity, and even creativity.

The meaning and symbolism of colours is important to acknowledge when you’re designing a product or even storefront. We like certain colours because of the way they make us feel when we see them. It impacts how we feel about brands. Many have opted for red to evoke a sense of confidence and energy.

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Here are some hot tips on how to use colour in a more powerful way.

If you are designing a new brand, try this experiment. Design the same logo in multiple colours and ask different participants how one of the options makes them feel. Do the words line up with your mission and brand offering? Adjust accordingly.

Colours on their own evoke a feeling, but combining colours can lead to and create a more complex emotional reaction. Think about your colour story and the way the pallet works together. For example, blue and yellow suggest the seaside and nature, deep reds, purples, and emeralds suggest royalty. Do these stories align with your message? Whatever it is, don’t think of the colours on their own but in combination.

Use bright colours or accent colours to bring special attention to certain elements of your display or offerings. Big sale? Sell it with colour! Neons are often used for this purpose but a word of caution – if you are a high-end jewellery seller, this might not be the colour to use because it also suggests a sense of economy that might deter shoppers from your high-end product altogether.

Emphasize consistency among your advertisements and messaging. Choosing a number of key colours that represent your brand will give you flexibility but also maintain recognition. If you are using red, orange, and yellow, don’t suddenly throw a forest green into the mix, stay consistent from the beginning. This might help to instill a sense of confidence from your customer-base.

Whatever your business, don’t stay in the dark. Use colour to your advantage.

On Trust… Discussed (Part 2).

In my last post, we discussed the ways in which trust, or lack-thereof, could cause some serious issues for your business in the eyes of behavioural economics. This is a pervasive issue facing consumers, 80% of consumers don’t know who to trust because of false advertising, fake news, and contradictory information.

This time we look at how behavioural economics can build brand trust. Although research has found that consumers are more likely to try a new product when it’s launched from an existing brand, showing that there is some level of trust in the marketplace, there’s plenty of room for improvement. Why leave money on the table when behavioural economics can help?

The Power of Free

This is a time-tested way to get someone’s attention – but can it help to build trust too? In the mind of a consumer, trying something that’s FREE has lower risks because there is no money on the line. And it gives you the chance to earn their trust. Here, we encourage you to build trust by offering sample of your product. This can be done effectively in a couple of different ways. Offer a free sample. This not only shows that you are confident in your product but giving something for FREE, it also engages the social norm of reciprocity – where it’s assumed people will return benefits for benefits and repay in kind. Because of this hardwired principle, giving your customer a little gift could prompt them to buy your offering. The act of offering a free sample builds trust in the sense that your customer thinks, “oh hey, they are so confident in the quality of their product they are willing to give me one for free, I guess it must really be good”, and they might trust more in the quality of your product right off the bat. This process might be even more effective when free samples are handed out in person as it mimics the setting of social gift-giving and might tap in to a consumer’s sense of reciprocity. As humans, we have a high need for consistency between our beliefs and our behaviours; having a human distribute a free sample (rather than receiving it in the mail) and gives the product in question the stamp of approve from at least one real life human being, which might help to instill confidence in that product or offering.

Another way to give a freebee is to pair a sample with the purchase of another product. Not only does the word FREE seem to attract more consumers, but by pairing a sample with a brand or product the consumer already trusts, some of the positive associations with that product might rub off onto your new offering. This use of brand extension works both ways – lending trust and credibility to products, or a chance to rebrand if a dark cloud has been cast on your business.

Take Away the Mistrust

Many consumers are weary of the messages disseminated through advertising. With alternative facts and the like, consumers might not know what information to trust. Even if there are online reviews, the same product might not work for everyone and the customer wants to be able to trust their expectations will match their consumption experience. Customers are also all-the-more aware that advertisers appeal to emotions, often foregoing facts. This can lead to customers feeling manipulated and taking a real hit to the trust capital of the brand.

What you can do here is build trust by showing your customer that you understand the sources of mistrust. Do so by giving them the space to form an opinion of their own – risk free. One technique is to offer your customer a no-questions-ask trial period, the way mattress companies Endy and Casper have done with 100 nights for the customer to decide if they want to keep the product. This removes any mistrust harboured against advertising and signals to your customer that you are so confident in the quality of your offering that you are willing to foot the bill for returns on shipping. It suggests that if they don’t want this mattress you better believe another customer out there will. One explanation for why this 100 day risk free returns strategy might be effective is the endowment effect – the idea that people perceive things to be more valuable simply because they own them. An advertisement for a mattress might suggest it’s worth one amount, but the value might go up once it’s in your home simply because it’s yours. Let your customer form an attachment to your product and let that foster your sense of trust.

Appeal to Authority

Often consumers look to their social environment for guidance in making consumer decisions. This appeal to the wisdom of the crowd can be explained by social norms, i.e., the rules of acceptable behaviour in a society. Our social need to look to others when making choices explains why we join in on fads (hipster glasses, anyone?), either reducing the work we put in to really think about our decisions or trying to fit into the group. So, when trying to figure out who to trust, what’s better than looking to see who our like-minded others trust?

Sometimes there are individuals out there – not necessarily tied to the brand – who’s opinion we trust more than just seeing a mother-type driving a Volvo filled with kids. Building trust with your customer can come in the form of engaging these social influencers. Social influencers could be many people: celebrities, scientists, politicians. Endorsement from anyone gives the perception that these people have done the heavy lifting, wading through all the options and consumers could trust them because they are betting their reputation on endorsing a product or service. Say Kim Kardashian endorses a line of athletic-wear, the message implied to consumers is that if it’s good enough for Kim, it’s good enough for us as well. But – be careful, you need to keep your spokespeople accountable. If your endorser has a transgression, even if it’s unrelated (ex. they endorse your cosmetics line but got busted for tax evasion) it could burn the bridges of trust and make your company seem like you have poor judgement. Pick the right endorser and you could end up with a loyal group of customers.

Trust is ever more important in an era where consumers are increasingly dubious. While other firms will lose out, you have the secret weapon: behavioural economics.

 

 

On Trust.

Trust is an important component of a functioning economy… and for your business. It might seem like a loosely-related concept given that in business we talk about transactions rather than favours from friends, but creating a brand and a business that your customers trust is critical to their loyalty.

At the heart of the matter is what we call an information asymmetry. We as customers don’t have time to become experts in being able to spot top quality in all the products we buy. I don’t have time to get a degree in dentistry to make sure my dentist is doing a stellar job, I have to trust that when he or she is rooting around back there that they are doing it right. Your customers need to trust that you are delivering on what you claim to do – and that you’ll do it every time.

This is even more critical now with the rising of the sharing economy. Technically defined as an economy where assets and services (i.e., like, say, a house, or a car) are shared between private individuals, for a fee, usually orchestrated over the internet. Examples include AirBnB and Uber. Think about the level of trust you need to let a stranger stay at your house! Yes, there are reputation systems built in here – one bad review and you might never get an Uber passenger ever again – but that’s a consequence and it might not be severe enough to stop that one super creepy Uber driver from doing something I’d rather not speak about. If your business hovers around the sharing economy, and even if it doesn’t, you need to find some way to deliver on trust.

Why is trust important? Traditional perspectives in Economics have an answer. As consumers we don’t necessarily know the true quality of the good or service we are spending our money on. The famous example is Akerlof’s (1970) Market for Lemons, which explains how markets can breakdown when consumers can’t trust that the product offerings in a market are of a minimum acceptable quality. Akerlof visits the used car world for this seminal paper, where, because most of us are not mechanics, and only the previous car owners truly know the quality of the used car, we see an information asymmetry about the true quality of the car between buyer and seller. Because the sellers want to get top dollar for their cars, there is nothing stopping a seller of a poor-quality car from charging the same price as a top quality used car because buyers don’t know the difference. This creates a disincentive for sellers of top-quality used cars to sell them, because they know their car should really be fetching a higher price than the lemons. Akerlof suggests that sellers of top-quality cars take them out of the market, putting the quality of the cars on the used car market in a downward spin until only the lemons are left. Without trust we see market breakdown. Thank goodness for warranties! (Warranties are trust mechanisms, they show the seller is so confident in the quality of their product, they are willing to foot the bill for repairs should anything fail).

Here’s a further complication related to trust from behaviour economics: trust can decline over time. Specifically, if a transaction with a company showed them to be trustworthy in January, by November, your customer might not necessarily be able to say for certain you’ll be able to deliver again. A study by Gneezy and List (2006) on gift exchange showed the warm glow and good feeling of a generous and trustworthy act begins to disappear after even a few hours. If your business involves interaction with customers over long intervals, this might be an issue for you. Address this by keeping in contact in the meantime, sharing success stories from other customers, and working towards creating a sense of community among your client base. Even though you might not be working with a certain client right now, they can see you are doing a great job with others in the community.

Trust has also been shown to decrease with declined social proximity. People are more likely to trust and cooperate when they share ties with the person on the other side of the counter. If you are operating an e-business, this might be a challenge. But here’s the thing, if you have lots of face-to-face interaction with your customer and break trust it might sting them even more than anonymous interactions with an e-business. In the case of broken trust in a face-to-face business transaction, be quick to acknowledge the transgression, apologize, and offer some kind of compensation to signal you appreciate their business and will work to rebuild trust. If you were thinking of streamlining a business to reduce costs (i.e., switching to uniquely electronic checkouts), maybe think again. That interaction with the smiley cashier might be paying you dividends in terms of building trust with your customer base.

The last thing about trust is that it can be very hard to get back. This is very true if you are operating in a market that has lots of equally competent competitors. Putting in the time and investment into delivering in a trustworthy way now might actually get ahead of your competitors in the future. One thing you are up against is the availability bias. The ease at which things come to mind make us assume that they are more common in occurrence – and we tend to remember the beginning, end, and peak experiences the most. The cute example of this is when we think about going to the amusement park we don’t remember the annoying hours waiting in line, but we think of the rollercoaster. Don’t let the memory your consumers associate with your brand be the time you really ruined their day by breaking your trust. Work hard to maintain, or improve, the status quo. Don’t give your customers a reason to leave. This is an important point to consider not just for your customers but employees as well. Make sure every change you make signals that you care about your stakeholders and appreciate their involvement – after all, you might not have a business without them.

 

 

RESOURCES

Akerlof, G. A. (1970). The market for” lemons”: Quality uncertainty and the market mechanism. The quarterly journal of economics, 488-500.
Chandrasekhar, A. G., Kinnan, C., & Larreguy, H. (2014). Social networks as contract enforcement: Evidence from a lab experiment in the field (No. w20259). National Bureau of Economic Research.
Coolican, D., and Coffman, L., (14 July 2016). Trust, the Sharing Economy and Behavioral Economics. Behaviouraleconomics.com. https://www.behavioraleconomics.com/trust-the-sharing-economy-and-behavioral-economics/
Gneezy, U., & List, J. A. (2006). Putting behavioral economics to work: Testing for gift exchange in labor markets using field experiments. Econometrica, 74(5), 1365-1384.
Thompson, D., (16 January 2013). The Irrational Consumer: Why Economics Is Dead Wrong About How We Make Choices. The Atlantic. https://www.theatlantic.com/business/archive/2013/01/the-irrational-consumer-why-economics-is-dead-wrong-about-how-we-make-choices/267255/

On my thesis.

What is my PhD thesis about?

My doctoral thesis looks at the phenomenon of self-signalling. A self-signal, simply put, is the self-information we get about ourselves from an action, behaviour, or choice. The cornerstone example of this is an experiment by Quattrone and Tversky (1984). They suggested that an individual is motivated to act in a way that signals his or her underlying characteristics to him or herself, even when the behaviour has no, or very little, impact on the actual characteristic. Quattrone and Tversky’s experiment involved first having participants keep their hand in a container of super cold water, timed until they couldn’t handle the pain anymore. One group of participants were told that high tolerance for cold water was linked to a certain inborn heart condition leading to higher chance of early death, while the other half of participants were told that low tolerance for cold water was linked to the risky heart condition. After learning about the connection with heart health followed by one minute on a treadmill they repeated the cold water test. Surprise, surprise! Most participants “tolerance” for the cold water increased in the direction of the good news; those who were tolerance for cold water was indicative of good heart condition held significantly longer than those told the opposite. This kind of behaviour is evidence of what some scholars term a diagnostic motivation.

Because I research in consumer behaviour, analysis in limited in my research to consumer choice (rather than actions or behaviours outside of consumer contexts). Making a consumer choice not only involves gaining a good or service with value to the customer, but self-signalling suggests the choice also implies characteristics about you (ex., I chose the apple over the chocolate bar, this implies I care about being healthy) and there is a value attached to that information. These self-signals from choice are either positive or negative – and these feelings impact how satisfied you feel about the choice and how much you are willing to pay.

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Lay of the land: A Limited Overview of Key Literature Pertaining to Self-Signalling

That’s cool, but someone else already figured this all out (See Dhar & Wertenbroch, 2012; Prelec & Bodner, 2003a,b; Benabou & Tirole, 2004; 2006, etc.). But what’s missing (among other things) is the answer to the question why. Why do self-signals impact choice satisfaction? When does it happen? How? Does it work the same for each consumer? Does it happen in every choice context?

What did I actually do?

So, we set about to answer this by figuring out the psychological mechanism that can explain self-signalling. We figured out that psychological constructs related to one’s self-concept seemed to explain what was going on. People who knew themselves in a clear and stable way were much less likely to be influenced by either a positive or negative self-signal. It also was related to how aligned the self-information was with one’s self-concept (for all you psychology buffs – the role played by cognitive dissonance when the choice that reflects you doesn’t match how you feel you actually are).

We tested this all out using ethical consumption (including green consumption and organic products). Previous research found that people assume there is a trade-off when you buy an ethical product over a standard one – you usually take a hit on product quality but your choice is better in terms of environmental ethics. We put this perceived trade-off to work: our studies ask participants to choose between different options; the choice of either ethical/organic/green vs standard implied clear positive and negative self-signals respectively. If it sounds wacky, don’t worry –  we tested it a gazillion times in a number of ways: online surveys, field studies in a grocery store, with images, with descriptions… yep, this effect is real!

Okay cool so that’s one paper down. My thesis has three papers. The second paper is a conceptual integration of this new-fangled self-signalling perspective with signalling theory from economics. Long story made short, I created some propositions (research questions) that could fill in the colour and depth of self-signalling by looking at how signalling theory deals with some of its assumptions. I answer some of the questions I derived in my thesis (fancy!).

The third paper is really cool because it had a huge plot twist. I was looking at signal strength – so, I kind of assumed that weak self-signals would impact satisfaction a weak amount, medium self-signals would impact satisfaction a medium amount, and strong self-signals… well, you get the point. BUT NO!! We found that it works differently for positive self-signals and negative self-signals. Positive self-signals at different signal strengths all significantly impacted satisfaction. Negative self-signals were another story. Basically, if the negative self-signal was super weak, people just ignored it. If it was medium strength, people felt bad. BUT if it was really strong, people just ignored it again! What the deal? I dug into the psychology literature to explain why this might happen. Self-deception is one of my favourite themes so this was very exciting.

Why do we care?

There are loads of theoretical contributions for the field of consumer psychology in my little thesis. We proposed and found empirical evidence for a psychological mechanism – so we now understand happens with self-signalling in consumer choice. We found some cool boundary conditions related to signal strength and valence. We also proposed a ton of promising future research avenues thanks to borrowing some wisdom from signalling theory. And we took stalk of the complete existent literature of self-signalling.

We also contributed to the understanding of ethical consumption! Previous research tended to focus on consumers buying ethical or green or organic to signal to other people that they were ethical. We now know that how consumers feel about buying ethical is impacted by self-signalling – their self-reputation. Lots of ethical products are consumed in private (ex., green toiletries, organic food), in the absence of external audiences that one’s self-image motives might normally be concerned with satisfying. This is pretty cool because managers can use this information to formulate their displays. For example, if you want people who buy ethical to feel really good about their choice, put a standard product right nearby. This enhances the positive self-signal and will likely boost their choice satisfaction and willingness to pay. Maybe this will help us encourage consumers to go green and adopt sustainable innovations. Plus with the rise of online shopping, marketers need to know what’s going to drive consumer choice in these increasingly popular contexts. Cool.

 

A little more detail for my fellow nerds.

What is self-signalling? A definition.

Self-signalling is the process through which individuals act or make choices in a way where they can observe, infer, learn, or reconfirm their own traits and self-identity.

The context.

It all started with Homo Economicus. Homo Economicus is the rational being, what the Economist assume a hypothetical person would do in their models and hypotheses. Traditional perspectives in Economics assume that humans have the ability to make rational decisions and maximize utility. More recent perspectives have acknowledged that humans aren’t the perfect creatures Economist paint us to be (don’t feel bad…) and fields such as behavioural economics and consumer psychology have emerged to take a crack at figuring out what really drives and explains the economic actor.

More recent research has uncovered that there is more to it: there is ego-utility in choice. But why would people care what their choices have to say about them? Theorists argue that the contents of one’s self-concept are opaque (we don’t fully know who we are and we are motivated to find out). Based on the assumptions of self-perception theory, people formulate an attitude towards themselves based on observing their own actions and inferring self-meaning from their observation of self. Self-signalling espouses that there is value to this self-information. This self-information can be derived from consumer choice. But how does it work? Without looking deeper at the questions surrounding how, when, and why self-signalling impacts consumer choice, we lack a clear understanding of the reasons why ego-value can make a difference in consumer choice behaviour, as well as how and why people make choices in the absence of external audiences, and overall how this conceptually fits into consumer choice.

 

Thanks for your interest! If you want more detail or have any questions, feel free to contact me. Upon acceptance per the Viva Voce examination, all theses from UK universities are made open access, in case you’d prefer to read the whole thing!