CX Insights

Optimize Your Conversion With Insights From Behavioural Economics

10 min read

This is a guest post by our friend Neal Cole.

As Dan Ariely explains in his popular books people are often irrational in their decision making as they are heavily influenced by unconscious biases. Conversion professionals can utilise knowledge of these ‘rules of thumb’ to nudge website visitors towards a particular behaviour. However, because people may not be fully aware of these influences customer research cannot predict how they will respond to the use of such persuasive designs.

Online experiments (A/B and multivariate tests) are the only true way of evaluating how visitors will respond to a new web page or online journey. Organisations that use such experimental testing can potentially save millions of pounds by avoiding lost sales and benefit from an uplift in conversion.

I would like to share some insights I have identified from behavioural economics and the potential implications for conversion optimisation. Because context is so important in human behaviour some of these ideas may be relevant to your site, while others may not. This depends upon the nature of your site, but also how your business model works and how you generate income. From my experience working in a Conversion team it is clear that behavioural economics is a valuable source of ideas for optimising web pages.

1. Ownership focuses our attention on what we might lose!

Even partial ownership (e.g. a trial subscription) tends to make people more attached to what they have and make them focus on what they may lose rather than what they may gain. Ownership changes our perception of things and our aversion to loss makes it difficult for us to give it up.

A fantastic example of this is how Amazon promotes a free trial of its express delivery service Amazon Prime. This combines the power of FREE, that we cover later, with a limited trial that makes customers focus on what they will lose if they cancel their subscription. Try testing different trial promotions, or give more prominence to money-back guarantees, cooling-off periods (for financial services) and ease of returns for large or expensive items.

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2. Everything is relative – Irrational Pricing strategies!

Because consumers are not totally rational and don’t have perfect information as assumed by traditional economics, we can experiment with contextual, decoy and anchor pricing strategies.

Contextual pricing: People find it difficult to make decisions in isolation, they like to compare things that are similar (e.g. one LED TV against another LED TV). Until a person has made such a comparison they often don’t understand their own preferences or know what they want. It is important to give people choice, but not options that are very different as this will make it difficult for people to choose. Further, avoid presenting a single offer with just one price as people will have nothing to compare it against.

Decoy pricing: This is where you offer three choices. The product you would prefer the customer to buy with a suitable price, an inferior product at a slightly lower price (the decoy), and a similar, but different product to what the customer is looking for. Customers will tend to focus on the first two products as they are easily comparable, but will steer clear of the third option as it is different. This strategy will tend to lead customers towards purchasing the first option as the second (decoy) is clearly inferior in some way to your preferred option.

Try testing different alternatives on a given page to see if you can nudge visitors towards your preferred option. This could be different subscription options or alternative product offers .

Anchor pricing: The first time we go to purchase an item is critical for the price we are willing to pay. Once a price has been established in our minds it will largely determine our perception of current and future prices. Sensitivity to price changes is also heavily influenced by our memory of the prices we have previously paid or seen.

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This means that it is important not to set your initial price too low as this will become the anchor price and consumers will naturally not want to pay significantly more than this price. When launching a new product if you can associate it with a premium category you are more likely to be able to charge a higher price. Test different ways of presenting prices, change the location of the price, and see if by offering a premium alternative you can boost sales without having to make large price reductions.

3. The power of FREE!

The impact of offering something for FREE is often underestimated. People get such an emotional boost when they get something for FREE they tend to forget about the downside of a transaction (e.g. the commitment to sign-up for a free trial). As a result consumers tend to perceive a FREE offer as substantially more valuable than it really is. Dan Ariely believes this happens because humans are by their nature afraid of loss. When we choose a FREE offer there is no visible sign of loss. However, if we select the item without a FREE component we perceive there is a risk that we have made a poor decision, and hence the potential for a loss.

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This can result in the cost of offering something for FREE being easily outweighed by the benefit from an uplift in conversion. Alternatively, if you offer a free benefit as part of your proposition that perhaps your competitors don’t, then try testing the impact of promoting this as a FREE benefit of your service.

4. Scarcity makes us value things more!

People value things that are scarce partly because they are loss averse. We are particularly motivated if we believe that we are in competition with other people to purchase a scare item. This is why eBay auctions can get out of hand and we end up paying far more than we originally planned for an item.

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Stock level indicators (e.g. low stock, number of items left, bids etc) are powerful drivers of conversion. Scarcity is used everywhere online, including flash sales, exclusive pre-sale registration, offer ending soon, and limited edition item. Test, test and test!

5. The power reciprocation!

We feel obliged to the future repayment of favours, gifts, good deeds and the like. Organisations can use this social norm to their advantage provided they offer help, advice or samples without obligation.

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Online video guides are becoming the norm, but other ways to benefit from this rule include online tools and planners, free smart phone Apps, money off coupons and how to guides. The skill here is to find something that really catches the imagination of your customers so that they value it so much that they almost feel obliged to maintain their relationship with you.

6. Sex sells!

Great images of beautiful people grab attention and can help to sell products. Sex sells and will always sell because we respond to material differently when we are in a state of arousal. Neuroscience indicates that this is because it engages the pleasurable reward center of our brain. People also automatically assign positive traits to attractive looking people.

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Try testing models of different age, gender or family groups on high converting pages to see if aligning the images more closely with your target audience improves conversion. People are naturally drawn to looking at eyes so this could also be incorporated in your tests.

7. Customers will procrastinate if you give them a chance!

People like to put decisions off until the last minute and avoid doing things that they don’t enjoy. To avoid visitors procrastinating use different strategies to motivate them to convert now!

Online only discount can be used to encourage visitors to sign up. Also have you considered using gamification techniques to make a recruitment email or registration process more interesting and enjoyable. You can also test different incentives (e.g. money off vouchers or prize draw entry) to see what attracts new customers the most.

8. If uncertainty exists people look to the actions of others to guide them!

People are prone to following the crowd as they assume that the crowd know something they don’t. When a person is uncertain about a situation they have a tendency to observe what other people are doing to determine what is normal behaviour. Similarly, loss aversion drives people to look for signs of social proof as we don’t like to make poor decisions and eat at an empty restaurant.

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If your site has built up a sizable number of subscribers ensure this is clearly sign posted on your landing pages. Inform visitors about what is most popular on your site and include testimonials from existing customers. Test your default settings as visitors often assume that these settings are a form of recommendation.

9. People don’t like closing doors!

People like to keep their options open as it gives them a sense of control over their own destiny. Even when people are at the last stage of a transaction having a get out option (e.g. back to shopping) may be more motivating than than if you make it difficult to abandon or change items in the basket. Otherwise customers can feel trapped and out of control.

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Test different sign-posting at each stage of checkout as it is important to communicate to customers where they are in the process and give them clear options. Try testing more prominent ‘Return to shopping’ or ‘Back’ buttons in checkout to see if it actually improves rather than decreases conversion.

10. The power of the written word!

People like to be perceived to be consistent and it is an important motivator of our behaviour. Inconsistency is perceived to be an undesirable personal trait. Commitment is the key to consistency and is the reason why Amway Corporation ask their members to record sales goals on paper. Similarly, just writing something positive about a subject can cause a shift in a person’s attitude and behaviour towards the views they express.

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Reviews and testimonials are great for putting on your site but also they help reinforce attitudes and behaviour of those who write them. Have you analysed the value of customers after they have written a review? Test different ways of promoting testimonials and reviews and see if you can obtain permission to use them on landing pages.

11. Obedience to authority!

People have an almost extreme tendency to comply with the commands of someone in authority. Even the appearance of authority can be enough to influence our behaviour. Some brands also are so well respected in their market that they have a certain authority that their competitors lack.

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For many years in the US an actor who played a doctor in a popular TV series successfully promoted caffeine-free coffee. It’s success was partly explained by his association with being an MD on TV. Personalities associated with your category or service can be powerful symbols of authority. Other sources of authority include independent surveys that benchmark your service. John Lewis (above) is well known for high service standards in the UK. Awards, and testimonials from recognized experts can also add to your credibility. Try testing different ways of indicating your authority to see what works best on your site.

12. We put greater value on things that we have helped create!

The ability to personalise a product by investing our own time and effort often leads us to value it more than something we buy off the shelf. Converse allows visitors to customize casual shoes and enables customers to create their own greetings cards.

Where people value the ability to personalise a product this can be a great way of improving the perceived value of your product or service. Try testing in different categories or the level of personalisation to see what catches your customer’s imagination.

Thank you for reading and I hope I have generated some ideas for new online tests.

Further reading

  • Influence by Robert B. Cialdini, PHD
  • Predictably Irrational by Dan Ariely (@danariely)
  • The Upside of irrationality by Dan Ariely
  • The Wisdom of Crowds by James Surowiecki
  • Consumer.ology by Philip Graves (@philipgraves)
  • Nudge by Richard Thaler (@R_Thaler)
  • Thinking, fast and slow by Daniel Kahneman
Neal Cole
Neal Cole has over 20 years' experience of working in market research and website optimization for some of the UK's largest financial services providers and online retailers. Neal is currently a conversion specialist for a major online gaming company in Gibraltar. He is also a regular contributor to the GreenBook Blog market research website and has his own blog: Myth Buster. Neal is a full member of the Market Research Society and an Associate of the Chartered Institute of Marketing. You can follow Neal on Twitter @northresearch and view his LinkedIn profile.