Behavioural economics is a method of economic analysis that applies psychological insights into human behaviour to explain economic decision-making. A standard economic theory assumes that consumers make rational, informed decisions that reflect their own self-interest. Assuming this, market forces will result in the best producers (in terms of service and quality) to be the most successful. Behavioural economics does not make this assumption. Instead, the theory aims to develop models that account for the irrationality that occurs within economic decision making. This includes varying habits, instincts and interpretations, as well as the subjectivity of decisions to psychological biases. Behavioural economics is used in an attempt to better understand decisions made and biases exhibited by consumers.
Four concepts of behavioural economics can be particularly applied to digital marketing:
1. The Mere-Exposure Effect: this a mental bias where people tend to develop a preference to things merely because they are familiar with them. This is seen in ecommerce, where familiarity in the store layout and the online purchasing process means people tend to prefer to use online stores that they've used before. The mere-exposure effect can be exploited in ecommerce by encouraging customers to return through email marketing and social media.
2.Habituation and Defaults: Consumers generally prefer to sticking to processes they know over adopting new ones. For example, it is a greater cognitive effort to learn how to use and purchase from an unfamiliar website. Because of this, simple navigation and processes are necessary to limit cognitive obstacles to new customers. It is also useful to prevent any sense of risk with purchasing online, which is often done through safe checkouts and the use of well-known payments methods such as PayPal, used on a vast amount of ecommerce websites.
3. Customer Loyalty: If a consumer has had a positive experience purchasing through a particular online website, they are more likely to purchase from the website again. Special deals, and loyalty rewards are often used in ecommerce in order to develop long-term relationships with consumers.
4. Social Proof and Contagion: It is common for people to follow the trends of behaviours and actions shown by others. Consumers will gain more trust in websites with higher customer reviews and satisfaction by previous customers. This can convince new customers to a business is trustworthy, and may sway their purchasing decisions from a firm with worse or less reviews.
Four concepts of behavioural economics can be particularly applied to digital marketing:
1. The Mere-Exposure Effect: this a mental bias where people tend to develop a preference to things merely because they are familiar with them. This is seen in ecommerce, where familiarity in the store layout and the online purchasing process means people tend to prefer to use online stores that they've used before. The mere-exposure effect can be exploited in ecommerce by encouraging customers to return through email marketing and social media.
2.Habituation and Defaults: Consumers generally prefer to sticking to processes they know over adopting new ones. For example, it is a greater cognitive effort to learn how to use and purchase from an unfamiliar website. Because of this, simple navigation and processes are necessary to limit cognitive obstacles to new customers. It is also useful to prevent any sense of risk with purchasing online, which is often done through safe checkouts and the use of well-known payments methods such as PayPal, used on a vast amount of ecommerce websites.
3. Customer Loyalty: If a consumer has had a positive experience purchasing through a particular online website, they are more likely to purchase from the website again. Special deals, and loyalty rewards are often used in ecommerce in order to develop long-term relationships with consumers.
4. Social Proof and Contagion: It is common for people to follow the trends of behaviours and actions shown by others. Consumers will gain more trust in websites with higher customer reviews and satisfaction by previous customers. This can convince new customers to a business is trustworthy, and may sway their purchasing decisions from a firm with worse or less reviews.
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