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Chisom Chikelu
As human beings, we generally assume that we reside in a position of personal autonomy, having complete control over our choices and actions, and with our desires arising from conscious cognitions. However, our economic decision-making is in fact governed by innumerable transient variables, some seemingly trivial and inconsequential, and many of which are controlled by corporations and businesses themselves. Consumers are systemically irrational; most of our decisions are sub-optimal at best and we often make choices which cause more harm than good. However, this irrational behaviour does not make it arbitrary, conversely the limitations of our rationality create behaviour which is predictable, and provides business with an opportunity to profit maximise.
There are many tactics and tricks businesses employ in order to nudge consumers towards particular conclusions and decisions. One such tactic is known as The Decoy Effect. When making decisions, our minds use comparative thinking; weighing up different options in order to come to the ‘best’ conclusion. The Decoy Effect can be used to stimulate sales for a product by juxtaposing its price with the disproportionately higher price of a slightly larger/better product which businesses do not expect to sell, instead using this to make the comparatively cheaper product more attractive. This effect can work in the opposite way, making a higher priced product appear more appealing by having a slightly lower priced but far smaller/worse product placed next to it. An example would be a pizzaria having a fifteen inch pizza priced at £15 and a ten inch pizza priced at £13. This creates a clear ‘optimal price’ to make the choice of the consumer much easier.
In Business Economics, there is a similar effect termed arbitrary coherence, where variables which shouldn’t influence our decision making actually alter our considerations of price. This effect is similar to anchor pricing. For example, a randomly chosen price will affect how we view present and future prices, although the selection was arbitrary, creating coherence in our minds where there logically shouldn’t be.
In an article for Harvard Business Review titled ‘Why nudging your customer’s can backfire’, Uptal M. Dholakia covers the use of nudges in businesses following the release of ‘Nudge’ by Richard Thaler and Cass Sunstein. ‘Nudge marketing refers to deliberately manipulating how choices are presented to consumers. Its goal is to influence what consumers choose, either to steer them towards options that the market believes are good for them or simply to stimulate purchases and increase sales.’ Nudges have been shown, via years and years of research, to be highly effective, but ones that have not been thoroughly planned and prepared for may end up having adverse effects, opposite to the initial intention.
A poor nudge could significantly hamper a business’ reputation and integrity, deterring prospective customers and annoying loyal ones. An issue with nudges is that they can come across as condescending. When implementing a nudge which pulls more of the decision-making process out of the consumers’ hands, pushing them towards a specific choice without their cognitive comprehension, the business presents an implicit implication of superiority as they give themselves the authority to choose on behalf of customers. This may cause customers to actively defy the effect of the nudge, causing sales to fall instead of rise. The importance of a reliable and credible relationship between business and consumer is highlighted by this issue, making it clear that our vision of the businesses to which the products we purchase belong to, is a highly instrumental variable which heavily influences our decision to or not to buy.
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