Australians’ love affair with online retail therapy thrived during the pandemic and since then has continued on an upward trajectory. With the biggest online shopping period looming, consumers are inundated with offers and a wide selection from retailers. This year, Australia Post anticipates a 3 per cent increase in online purchases in the fiveweeks before Christmas. With a myriad of choices, consumers don’t have enough time, energy or desire to weigh up all their decisions in a fully
ully thought-through manner before making their purchases. Instead, they rely on shortcuts, but these shortcuts are often prone to biases. When designing e-commerce sites, by being aware of these biases, we can work with humannature rather than against it. Behavioural science is a powerful way to optimise the customer experience and optimise the e-commerce journey. Below are three applications that can assist online retailers to build a more robust e-commerce platform: 1. Reducing price sensitivity How can we make customers, when they’re on a website, be prepared to pay more? A landmark experiment in consumer choice run by Amos Tversky and Itamar Simonson showed a large group of participants two different cameras: priced at $169 and $239. Another group was shown a third camera, priced at $469. The middle-priced camera ended up being much more popular than the cheaper camera among the second group. By including a more expensive option people were willing to spend more. This phenomenon is called the compromise effect. For a vendor, creating other higher-priced options can make a consumer more willing to shift to a higher subscription plan. This makes a middle option look less expensive than the top option, not simply more expensive than the cheapest option. This is why we frequently see three-tiered approaches for online services, with “super-premium” and “ultra” plans often added as well. In 2012 Simonson repeated the experiment, first showing participants other cameras and user reviews on Amazon. In this case, the compromise effect disappeared, with decisions being far more dependent on the camera’s features and reviews relative to the other cameras. While the compromise effect is a powerful phenomenon, other factors can apply in the e-commerce world. It’s worth testing on a small scale to ensure that the strategy works for a particular product in a particular situation. Also, for a website, instead of placing options left to right – Basic, Premium, Super Premium – position them from right to left, so the first option is the Super Premium one. 2. Maximising promotions A big conundrum for online retailers is how to best convey discounts and display offers. This can be tricky as consumers tend to assume that higher-priced items are better quality. If retailers have too many promotions, they run the risk of degrading their brand image. So there’s a need to be discerning. An experiment was run by marketing professor Baba Shiv at Stanford University where participants were wired up to rMRI scans and offered different wines with different price labels. However, two of the wines were actually the same – just with different price tags. When tasting, people’s brain activity registered higher pleasurewhen drinking a wine they believed to be more expensive. Related studies were conducted by Priya Raghubir of NYU, where undergraduates were shown pearl jewellery as special offers and as standalone. These experiments identified that when products are bundled (“Buy X and Y for $66”) vs Buy One Get One Free (“Buy X for $66, get Y free”), consumers are willing to pay less for the product offered “free”. There is a perception that bundled products may be of higher value than free products. So, to some degree, people end up experiencing what they expect to experience. And the price is one of these determinants. These experiments demonstrate that consumers rely on “price cues” to evaluate how good current prices are and how the story around a promotion can be more compelling than the actual discount. 3. Reducing dropouts Nobel Prize-winning economist Daniel Kahneman states there are two ways to change behaviour. You can push down on the accelerator and change motivation levels, or you can remove the small barriers that are stopping people from behaving the way that you want. Kahneman believes that the latter option is much moreeffective. But most marketers are labouring under a misapprehension that motivation is more important than removing barriers. Too much time, money and effort is spent on motivation rather than making the journey feel as easy as possible.The “illusion of progress” concept which refers to a tendency for people to complete a goal when they feel they’ve been given a head start relates to “goal gradient”, a phenomenon where people work harder to achieve a goal as they get closer to it. Ran Kivetz of Columbia University ran an experiment with coffee loyalty cards, where people earn a stamp for each purchase and get a free coffee for every 10 stamps. As anticipated, customers filled up the final stamps on their cards much more quickly than the first stamps, due to “goal gradient”. Next, researchers added the “illusion of progress” to the goal, by giving out 12-stamp cards with two “bonus stamps” pre-filled. In each case, customers still needed to get 10 stamps. The 12-stamp cards ended up being filled more quickly than the 10-stamp cards. Consumers who felt they were given a “head start” purchased coffee at a 16 per centfaster rate. If consumers feel they have already started their journey, they will progress faster and be less likely to drop out. Another aspect of buyer behaviour is the perception of fairness. This was demonstrated by Sally Blount of Northwestern University. One group of participants was offered $7 to complete a task. The second group was offered $8 to complete the same task but were told that people had previously been paid $10, but there was nolonger enough money to pay this much. This resulted in the participation rate falling from 72 per cent for the $7 cohort to 54 per cent for the $8 cohort. Despite more money being offered, fewer people agreed to take part. Blount argues that fairness is a huge driver of behaviour. People aren’t just interested in getting a good deal for themselves, they want to know that other people aren’t getting a better deal. To apply this to a web journey, consider the “Promotional Code Voucher” box at the point of purchase. If people don’t have a code, you’re telling them that some people are getting a better deal. It adds a small psychologic barrier by transgressing their sense of fairness. They may go and look for a code, get frustrated if they can’t find one, and never return. A better approach is to either make the discount box look less noticeable, or to split the pages so the box only appears when people come from a link offering a discount. Behavioural science isn’t about what people should do: it’s about what they actually do. And being aware of how your customers will act, versus how you may want them to act, will lead to a more successful e-commerce strategy.