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Archive for October, 2011

Behavioural economics: The seven principles

Thought I would share something I was reading from the clever chaps at nef (the new economics foundation). They have summarised behavioural economics and contrasted it with neoclassical economics where the assumption is made that humans are rational and maximise their individual self-interest. Cue puff on pipe and re-adjustment of wide-rimmed spectacles.

The pursuit of better B2B marketing models that positively influence buying behaviour often requires pulling ourselves out of our self-contained, safe little bubbles and trying to view the world through a different lens.

The seven principles:

  1. Other people’s behaviour matters: people do many things by observing others and copying; people are encouraged to continue to do things when they feel other people approve of their behaviour.
  2. Habits are important: people do many things without consciously thinking about them. These habits are hard to change – even though people might want to change their behaviour, it’s not easy for them.
  3. People are motivated to ‘do the right thing’: there are cases where money is de-motivating as it undermines people’s intrinsic motivation, for example, you would quickly stop inviting friends to dinner if they insisted on paying you………no really you would!
  4. People’s self-expectations influence how they behave: people want their actions to be in line with their values and their commitments.
  5. People are loss-averse and hang on to what they consider ‘theirs’. This can lead to what could be described as irrational decision making to avoid any perceived loss.
  6. People are bad at computation when making decisions: people put undue weight on recent events and too little on far-off ones; they cannot calculate probabilities well and worry too much about unlikely events; and they are strongly influenced by how the problem/information is presented to them.
  7. People need to feel involved and effective to make change: just giving people the incentives and information is not necessarily enough.

Next time you’re writing a brief or planning next quarter’s activity consider things such as point 5 and how this could support free trials instead of discounts or how point 1 could influence a social media strategy. We should all also constantly remind ourselves of point 2 – it’s crucial to deliver clear strategies that will genuinely effect the greatest change in customers’ buying behaviour – at The Crocodile we never lose sight of this.

Read the full paper – nef Behavioural economics: seven principles for policy-makers.

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