It may just be me, but there are times when I look at Google Analytics or look at an A/B test and the page in question does not convert. So I rack my brain looking for ideas, the page loads fast on a mobile device, the call to action is clear and above the fold, the audience is relevant but no one wants to buy. I Google, I look at competitor sites and I even consider changing the colour of the button but nothing seems to works.
Then one bright sunny day (ok it wasn’t that sunny or that bright) something changed. A clever algorithm recommended that I buy a book. Not just any book but a book that The Economist reviewed as:
“Profound . . . As Copernicus removed the Earth from the centre of the universe and Darwin knocked humans off their biological perch, Mr Kahneman has shown that we are not the paragons of reason we assume ourselves to be (The Economist)
The book is called Thinking, Fast and Slow by Daniel Kahneman
Before I explain the link between the book Thinking, Fast and Slow and why visitors may not convert, we should first discuss how classical economics views the rational man.
Homo economicus, or the economic man, is the concept found in economic theories that portray humans as rational and narrowly self-interested/self-focused agents who pursue their subjectively defined ends optimally. If any decision is sub-optimal then over time, the economic man will learn from his mistake and choose better. In other words, humans are intelligent and self-benefit focused.
How to sell to Homo Economicus
If Homo Economicus are rationally motivated, then the following factors will impact conversion:
- Price – the lower the price or the bigger the discount, the higher the demand for a product.
- Quality – if the quality of a product is better then a competitor’s product it will sell more.
- The greater the features or benefits that a product has, the more it will sell.
- Delivery – if delivery is fast and reliable, it will sell more.
Introducing Behavioural Economics
Behavioural economics postulates the idea that man makes ‘irrational’ decisions because they are influenced by psychological, social, cognitive, and emotional factors. Behavioural economics is therefore primarily concerned with the limits of the rationality of economic agents.
There are three prevalent themes in behavioural economics:
- Heuristics (is a mental short cut to problem-solving or learning that not guaranteed to be optimal based on previous experience): Humans make 95% of their decisions using mental shortcuts or rules of thumb.
- Framing: The collection of anecdotes and stereotypes that make up the mental emotional filters individuals rely on to understand and respond to events.
- Market inefficiencies: These include mispricing and non-rational decision making.
Introducing Thinking, Fast and Slow
In 2011 Nobel Memorial Prize Daniel Kahneman published the best seller Thinking, Fast and Slow. It was winner of the 2012 National Academics Communication Award for best creative work that helps the public understand science, engineering or medicine.
A Summary of the principles within the Thinking Fast and Slow
- There are two different systems for thinking. Daniel Kahneman called them System 1 and System 2. Each has their own unique characteristics and each has unique advantages and disadvantages.
- Automatic System – is a fast, automatic response system based on intuition, past experiences and it is commonly impulsive. It’s the decision making and recognition you do every waking moment, even though you may not be aware of it. System 1 drives your car while your thoughts wander. It’s how you recognise a friend’s face from afar in a crowd. System 1 is effortless in its management of these tasks. Other examples include:
- Locate the source of a specific piece of sound.
- Determine which one of two objects is further away.
- Answer questions based upon memory e.g. 8 times 5 is 30 (eight fives are thirty).
- Read a car number plate.
- Understand simple sentences.
- The Effortful System – is slow, calculating, takes energy, factors in restraint over impulse. System 2 is what we call deep thinking or mathematical calculations. System 2, corresponds to our idea of rational reasoning, it is slow, deliberative and effortful.
- Daniel Kahneman has said, “thinking is to humans as swimming is to cats; they can do it but they’d prefer not to.” Humans default to using System 1 over System 2 as it requires less effort and energy.
- A human may believe that they have made a rational decision but often, the conscious mind is merely post-rationalising decisions that have already been made using System 1. This can be a problem if you are trying to understand why your customers took a certain action as they don’t have full introspective insight into their decision making process and what they claim motivated them to take action could be inaccurate.
- Illogical decisions can occur choosing System 1 over System 2 or vice versa.
- Heuristics – are simple, efficient rules which people use to form judgments and make decisions. They are shortcuts that usually involve focusing on one aspect of a complex problem and ignoring other aspects. System 1 thinking associates that aspect to an existing pattern or thought rather than develop a new pattern for a new experience. An example of this would be to consider every tool in a tool box to be a hammer because they all have flat edges. The resulting errors are known as cognitive biases.
- Anchoring – influenced by irrelevant numbers. Most people, when asked if took over 200 litres to fill a bathtub would give a much larger estimate than those who were asked if would take over 35 litres of water.
- Availability – judging the probability of something occurring based on how easy it is to think of examples of it. In other words, the easier it is to recall the consequences of something, the greater we perceive these consequences to be. If someone has read news reports of a recent fire, they are more likely to believe a fire will occur then a flood.
- Substitution – if you were to be asked the question, “how popular will the Fidget Spinners be six months from now?” You may have thought about it, you may have even researched into the topic, but usually, an answer will appear in your mind straight away. Even though there are uncertainties about the future and without considering them at length, you have reached a conclusion. What has happened is you have substituted the question to how popular is the Fidget Spinner today?
- Optimism and Loss Aversion – this bias generates the idea that we have substantial control in our lives. That is, people overestimate their ability to control events and dismiss the chance of loss. System 1 also responds more strongly to losses than to gains. This is called loss aversion. For example, losing a penny/cent is more important than gaining a penny/cent.
- Framing – involves processing the same piece of information in different ways, depending upon the context it was presented in e.g. as a loss or a gain. Amos Tversky and Daniel Kahneman explored how different phrasing affected participants’ responses to a choice in a hypothetical life and death situation.
Participants were asked to choose between two treatments for 600 people affected by a deadly disease. Treatment A was predicted to result in 400 deaths, whereas treatment B had a 33% chance that no one would die but a 66% chance that everyone would die. This choice was then presented to participants either with positive framing, i.e. how many people would live or with negative framing, i.e. how many people would die.
Treatment A was chosen by 72% of participants when it was presented with positive framing (“saves 200 lives”) dropping to only 22% when the same choice was presented with negative framing (“400 people will die”).
- Sunk Cost – throwing good money/time/effort after bad, because of the belief that one is already too committed at this point to change direction.
How to apply the lessons of Thinking Fast and Slow to m-commerce
- Don’t make me think – use simple language and keep things easy to understand. Less mental effort means greater buy in.
- Don’t confuse me – confusion leads to doubt and doubt requires System 2 thinking to resolve. So rather than resolve the confusion, a visitor may visit a competitor site.
- Don’t make me speculate – if I have a question about a product, I know I have to put effort in to find the answer, so it may be easier to go to a competitor site. Ensure all relevant information about the product is available and easily accessible.
- Giving too many options – have multiple options on a product page can lead a drop in revenue, as choice requires System 2 thinking. Reducing the options available can lead to an increase in conversion rate as the decision is easier. Taking this a step further, offering upsells and cross-sells is a way to increase the value of the basket (AOV). Test to see if conversion rate improves by reducing the number of options in the cross and upsell or eliminating it completely.
- Running limited offers can lead to impulse buys. Many people do not like losing out on an opportunity to save money. You can tap into their FOMO (Fear of Missing Out). Voucher codes with expiration dates also tap into user emotions of FOMO. Daniel Kahneman writes about Loss Aversion and how the fear of loss is a much stronger driving force in human behaviour than the evaluation of gain and this can lead to irrational behaviour.
- Consider limiting product availability. Both McDonalds and Nintendo do this.
- Providing solutions to problems that are currently trending – these are more likely to sell than solutions to problems that are less known about.
- If selling a product requires thinking, simplify it. Uber simplified moving from A to B.
- If there is uncertainty buying a product (will it be suitable?), leverage trust. Providing expert advice, independent reviews or being in the field for many years builds trust. Generating trust reduces the need for System 2 thinking. In order to build trust in their products, Zappos use 365-day return to eliminate the fear that the shoes they sell may not fit.
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