THE VALUE OF BEHAVIOURAL ECONOMICS IN MARKET RESEARCH
Market research is no longer just about what people say – they often don’t even realise what truly influences their decisions. This is where behavioural economics steps in, bridging the gap between rational intent and actual behaviour. By integrating insights from psychology and economics, behavioural economics helps organisations understand the hidden forces driving choices, leading to more effective marketing strategies and product positioning.
Understanding Real-World Decision-Making
Traditional economic theories assume that people make logical, well-informed choices. In reality, people rely on mental shortcuts (heuristics) and are influenced by biases. The anchoring effect, for instance, shows that peoples’ decisions are shaped by the first piece of information they see – whether it’s a high initial price that makes a discount seem more attractive or a reference point that influences perceived value.
The Power of Framing and Perception
How information is presented – known as the framing effect – can significantly impact behaviour. A product marketed as “95% fat-free” often performs better than one labelled “5% fat.” Similarly, people tend to avoid risks when a decision is framed positively but are more willing to take risks when faced with potential losses. This insight (from ‘Prospect Theory’, Kahneman & Tversky) allows brands to craft compelling messaging that subtly guides choice.
Creating Effective Pricing and Promotions
Behavioural economics helps businesses optimise pricing strategies through concepts like loss aversion – the idea that people feel the pain of loss more strongly than the pleasure of gain. Limited-time discounts, free trials, and offers leverage this principle to nudge people toward action. The decoy effect, where an intentionally less attractive option makes another choice seem superior, is another powerful tool in pricing psychology.
Enhancing Engagement and Loyalty
Loyalty programs, gamification, and commitment-based marketing strategies are built on behavioural principles. The endowment effect, which makes people value something more once they own it, is why free trials and personalised experiences are so effective in converting customers. Meanwhile, the default effect – where people tend to stick with pre-set choices – explains why opt-in subscriptions and auto-renewals are so successful.
More Accurate Market Research Insights
Behavioural economics-based techniques – such as A/B testing, implicit bias testing, and real-world observation – help uncover actual decision-making patterns, leading to data-driven insights that more accurately predict market trends.
The Competitive Edge
By incorporating behavioural economics into market research, organisations can improve their pricing strategies, craft persuasive messaging, and enhance customer experiences. Rather than just asking people what they think, using this approach helps organisations understand why they act the way they do – unlocking deeper insights that drive better decision-making and long-term success.
You may also be interested in reading Trilogy Insight’s blog ‘Using Psychology in Marketing – an ethical approach’.