Marketers have never been more adept at cleaning out your pockets. Sure, they’re good. But the reason they are so successful is that your brain is hardwired to fall for certain marketing tactics.
“The best minds of my generation are thinking about how to make people click ads”, notoriously said the data scientist, Jeff Hammerbacher, after leaving Facebook to co-found Cloudera, a data management company.
Unfortunately for the consumer, data science is far from the only science helping today’s marketers figure out how to make you spend your hard-earned money. As a matter of fact, tech companies use cues from psychology, neurosciences and behavioural economics to trick your brain into spending more money. And it works.
It’s not a coincidence that most companies selling subscriptions to a digital product, including Netflix, Audible and Spotify, give away the first month, but only if consumers fill out their credit card information. Once attracted by the scheme, the user pays a monthly fee to the service until they decide to opt-out of it or once their credit cards expires.
The thing is, people rarely opt-out of the default state. This phenomenon is called the status quo bias. In their book Nudge, behavioural economists Richard Thaler and Cass Sunstein point out that this bias should be taken into account by policy makers in order to increase things such as organ donations (by opting-in the population by default) and retirement savings (by enrolling employees in a default retirement plan).
While some governments listened, the truth is that the ones who seemed to have been listening are the online marketers. The tech startups are not the first companies that have exploited these biases. However, they have the unique ability to test the theory in real time and tweak it until it translates into revenues.
No wonder startups of all kinds have jumped in the bandwagon, selling anything from shavers (Dollar Shave Club) to UX design (Digital Telepathy). You don’t believe me? The founder of the said design studio even wrote a piece in Entrepreneur arguing that every start-up should consider switching to a subscription business model.
Another example. Did you ever wonder why online subscriptions usually come in three flavours?
Marketers never expect many people, if any, to choose the most expensive option. The role of the third option is to make the middle option look more attractive. This phenomenon is called the compromise effect and it’s so powerful that it’s used by startups as well as cafés and cinemas all over the world.
If you ever downloaded a so-called free game on your iPhone, you might have fallen prey to one of the most impressive features of modern marketing.
After all, do you think convincing adults to pay for virtual crops (FarmVille) or donuts (The Simpsons: Tapped Out) is easy? Well, it turns out that it is! Especially if you design a habit forming product following the recipe outlined by Nir Eyal in his book Hooked. According to Eyal, such a product needs to bring the user through a cycle that involves, among other things, a variable reward (which stimulates the nucleus accumbens) such as a comment on social media or a satisfactory harvest in FarmVille.
I don’t want to go deeper into the tricks marketers use to make you spend money, but the point is, they are as sophisticated as omnipresent. In other words, you probably can’t escape it. As a matter of fact, even investment professionals can be victims of their own brain!
So, what do you think you can do about it?
However hard it is to escape the grip of these talented marketers, there are obvious solutions. One of the most radical, and probably one of the most effective, is to get rid of your credit cards. Credit cards tend to decrease payment pain and transparency (compared to debit cards, checks and cash) and thus facilitate overspending.
Cancelling your credit cards will also prevent you from falling into the online subscription trap. If you have a credit card balance, you should consider getting loans from your bank or from a peer to peer lending platform.
A softer approach would be education. The idea is that if you know the trick, you won’t fall for it. Personally, I really enjoyed taking the edX class Behavioral Economics in Action taught by Dilip Soman of University of Toronto. You can also read books such as Hooked, Nudge, Misbehaving and Predictably Irrational.
Finally, instead of trying to defuse these tricks, you can also use them to trick yourself into saving more money and spending less. John D. Rockefeller, who was so wealthy he is considered one of the richest individual of all time, used a simple method to restrain himself from making foolish expenses. From a young age and throughout his life, he consigned in a notebook, every single expense he incurred. It turns out that measuring consumption, by forcing us to make conscious choices, tends to reduce our spending.
And today, you don’t need to carry a notebook all day long to imitate the oil magnate. An online tool like Mint.com will do most of the heavy lifting for you by connecting to your bank account, while letting you add your cash spending manually. You can also take advantage of the status quo bias by setting up automatic transfers from your checking accounts to a saving account or enrolling into a savings plan through your current employer.
There are even easier ways. Today, you can use one the many saving apps that are popping up all over the world, whether it is Acorns or Qapital in the US, Moneybox in the UK or bankMe in Canada. (Disclosure : I work with bankMe through Ferst Capital Partners.) These apps don’t prevent their users from buying virtual donuts, but they automatically transfer a few cents from their bank account to an investment account every time they do a transaction.
It may sound convoluted, but it’s a powerful way to trick users into saving money… the same way other companies are tricking them to spend. For example, bankMe knows that these few cents will add-up to around 45 $ a month on average, but they would have trouble convincing their prospective customers to save that much.
This phenomenon, called “framing”, has been used for decades by marketers. They usually use it to convince prospective customers to buy expensive items on credit such as a car, for less than the price of a cup of coffee a day. It’s also used by startups such as Soylent, as way to reduce the perceived cost of their subscriptions.
These savings apps also remind users of what they are saving for and display their progress which are two factors that behavioral economists have identified as key to increase motivation.
I’m not saying that there is a good side and a bad side of the force. After all, behavioral economics and data science don’t allow marketers to manipulate you into doing something you don’t want to do. At the end of the day, it’s just very good marketing. However, I thought it might be useful for you to know how marketers, and that includes me, are taking advantage of known behavioral biases to sell people more stuff they don’t need.
If you liked this post, share it with your friends and with anyone who ever got tricked into buying something he or she definitely doesn’t need (aka everybody).
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