Why We Buy: 4 Shocking Truths

Imagine you found five dollars on the street. How would you feel?

Now imagine you’re the person who lost those five dollars. How would you feel?

Which would have a greater emotional impact on you – being the person who lost five dollars, or unexpectedly found five dollars?

If you’re like most people, chances are losing five dollars would ruin your day more than finding five dollars would make your day. Losses hurt more than gains make us happy, also known as loss aversion.

It’s thought that the pain of losing is psychologically about twice as powerful as the pleasure of gaining. People are more willing to take risks (or behave dishonestly) to avoid a loss than to make a gain.

It explains why losing ten dollars in a casino hurts more than winning ten dollars. It explains why we’re more likely to buy insurance than invest in stocks and bonds. It explains why homeowners are unwilling to sell their houses for less money than they paid for them.

But what if we have other cognitive biases that can be decoded and what can we learn from them? How do they impact business decisions? What trends can they reveal in consumer behavior? What do they tell us about society as a whole?

Complexity makes us want things more.

Behavioral economists have found that the conclusions we come to are often influenced by a few cognitive biases that can lead us to irrational perceptions and choices, especially when it comes to purchasing decisions.

In a study by the University of Chicago’s George Lowenstein and David Schkade, people were

given a choice between two hypothetical products, though they would receive the same product regardless of their choice:

· A camera with ten options, or settings (i.e., zoom level, macro mode, etc.)

· A camera with only two options/settings (i.e., wide angle lens or telephoto lens)

Participants were asked to rate their satisfaction after making their choice, and then again six months later. In general, those who chose the 10-setting product were happier than those who had skipped it all together — even though both groups ultimately chose the same model.

This study shows that just the perception of a more complex product makes us feel good about our decision. Why? We rationalize the outcome to make up for any lack of actual benefit by feeling like we’re getting a better deal on something we perceived as being available elsewhere… but not here (i.e., “I got that same thing for less”).

We’ll pay a lot more for a little bit better customer service.

According to a recent study by New York Times, Wall Street Journal, and USA Today bestselling author, Shep Hyken, 70% of customers would pay more if they knew they would receive a convenient experience.

The study also found that age makes a difference. Younger generations (Millennials and Gen Z) are more willing to pay more than older generations.

Is customer service more important than price?

Amazon is the perfect case study. It has excellent communication (email confirmations related to placing the order, shipping the order, and delivering the order) and great customer service. If there is a problem, the customer knows Amazon will take care of it. And while Amazon used to play hard at being the lowest price, that’s not the case anymore.

Amazon today shows its customers certain products can be purchased for lower prices through third-party sellers on the Amazon platform. As Shep explains, these independent retailers are just using the Amazon website to market and sell their products, even if they are identical to what Amazon sells. Yet even with customers being given the choice to buy outside of the Amazon Prime program, they still generally prefer to purchase through Amazon.

“A good percentage of your customers are more interested in how they are treated and the overall customer experience than they are about price.” – Shep Hyken.

People use products to posture.

People increasingly buy products not out of practicality, but to express who they are and what they value.

When you think about it, buying things is actually very similar to dating: it’s all about showing others who you are and what you value by displaying your interests through what you choose to carry around with yourself every day. In each case — in both dating and shopping — the goal isn’t necessarily to get something specific but rather to provide information about your identity so other people will know how best they can relate themselves (or not) with you.

If a pair of Nike’s didn’t have the logo on it, would you still buy them for the same price? Of course not. Consumers don’t buy products. They buy branding.

We assume more expensive is generally better.

We’re more likely to buy products that cost more, but we can’t say why. Consider the following excerpt:

In one experiment conducted at an upscale wine store in Berkeley California Daniel Kahneman found that salespeople had to explicitly point out which wines were best deals before customers bought those bottles instead of ones with higher prices. In another experiment done at an upscale restaurant called Le Cirque in New York City researchers asked patrons what factors influenced their decision making process when ordering food (Schwartz, 2006). They found that price was not always important; sometimes people chose items based on menu descriptions and other times they went for whatever looked best without regard for cost — but there was one thing that did matter: if given a choice between two similar-looking entrées priced at $20 versus $30 dollars respectively most diners ordered the more expensive dish because they believed it would taste better than its cheaper counterpart (Schwartz, 2006).

While it may be hard to understand why people make the decisions they do, with some understanding of the forces that influence them, you can use the information to your advantage. By using that info when creating marketing campaigns and advertising materials for your business, you’ll be able to create better messages that will resonate with your audience.

Understanding marketing is about understanding society. Next time you pitch a product or advertise a service, ask yourself: which would have a greater emotional impact on my customer – being the person who lost five dollars, or unexpectedly found five dollars?