Understanding your audience and their spending habits goes a long way to improving the relationship you have with them. Making the connection between how you existing customers think, and their relationship with your product is a vital part of the customer-centric approach to marketing.
In this article, Alex Chahin considers:
- What consumer psychology is,
- What most companies get wrong about consumer psychology, and
- Why you should care about consumer psychology.
What is consumer psychology?
Think back to the last purchase you made. Maybe you bought a new shirt or shoes, maybe you bought a new gadget, maybe it was the lodging for your next vacation, or maybe you just ordered dinner from a food delivery app. Now, tell me: Why did you make that purchase?
I’m willing to bet most of your first answers sound like this: “Oh, I picked what was the most affordable.” “I landed on it after doing a lot of research.” “I picked what would give me the most value.” I can all but guarantee that, while these reasons may have played a role, they’re nowhere near the entire story.
See, these reasons are entirely rational, but…they’re too rational. And the reality is, that’s just not how humans behave. There are so many more factors that go into our purchases. And there are decades of research to back it up.
Think about it through some examples:
- Why do people stand in long lines for restaurants when the one down the street is just as good?
- Why is it more painful when the shipping cost comes at the end of checkout, even if the final price ends up being the same?
- Why are people more likely to finish punch cards with 10 punches instead of 8?
At the heart of all of this is consumer psychology. So, what is consumer psychology?
Simply put, it’s the field of understanding why we buy and consume. Included in it are things like the choices we make, how we make them, what influences us, whether we purchase something or not, how social dynamics play a role, and much more.
And it doesn’t stop at just purchases or parting with money. It also helps us understand how we spend our time, attention, and other resources. Any kind of consumption is covered.
I like to think of consumer psychology as the umbrella field that unites several different related fields. Together, we’ll look at lessons from behavioral economics and behavioral science, neuromarketing, branding, pricing, and beyond.
If you work in marketing, your job is to get people to buy more of something or do more of something. And without consumer psychology expertise, a piece of the puzzle will always be missing. So welcome, you’re in the right place!
What most companies get wrong
95% of new products fail. I’ll say that again so it really sinks in: 95% of products don’t make it in the market. Framed another way, whatever you’re working on right now has a 1-in-20 shot of making it.
Now, most companies have a variety of tools at their disposal to attempt to find that product market fit and accelerate growth. They may use consumer or market research to understand how much demand is out there and the unmet needs they’re trying to solve.
They may use UX research to understand pain points in their current customer journey and to get reactions to new ways of doing it. They might also use competitive intelligence to understand what other players in their industry are doing well in order to update their own offerings.
Don’t get me wrong, these are great tools. They can tell us a lot of what we need to know. But, inevitably, it’s really easy to miss an underlying “why.”
In research, it can be hard to get people to accurately articulate what’s motivating them because we’re bad at recognizing these hidden forces that shape our behavior. Competitive intelligence is only as good as the strategy of the next company over, but it doesn't help if the competitor also can’t see the full picture.
The punchline here: People tend to forget to start with, well, people!
They don’t understand the underlying motivations for why we do things and that can be the underpinning of a product’s success. You can have a product that looks great on paper, is jam-packed with interesting features, and is priced fairly, but if you don’t understand how to influence behavior you could still be doomed for stagnation.
I’ve also seen a lot of different companies do what I would call aimless optimization. It’s where you just start trying different micro tactics to see if you can move the needle without understanding what’s actually motivating customers. “Let’s try another above-the-fold image on this landing page.” “Maybe a new headline.” “What if we change the color of the CTA button to something more noticeable?”
While these kinds of experiments might happen to score a couple of nominal wins, they tend to plateau quickly. In order to have the most impact, you’ll need to understand why people buy and optimize around that, not just pull different levers to see what might work.
Why you should care
There are a lot of different marketing courses and books out there, on all sorts of topics. In my view, though, learning about this field is one of the best investments you can make for your career. Here are the three main reasons I think you should care about consumer psychology.
These are some of the most high-value but underutilized tactics that exist for marketing and product development. I’ve seen this firsthand in a number of organizations. People just aren’t using these lessons all that frequently, whether it’s in campaign development, new features, or experiments that they’re running.
And it always shocks me!
I think this is probably because it can take some convincing for cross-functional partners, they’re worried about being wrong, or it’s just not as easy as something like slapping a discount on your pricing.
But I’ve seen their impact firsthand. For instance, using progress can be a huge motivator to get your customers to do more of a behavior.
When I was at Lyft, I worked on the product marketing for our shared rides product, where people could save money by sharing the car with other people heading the same way. I crafted an email campaign that showed how much money people were saving over the course of a month and — boom! — product usage and monthly active users shot up stat sig. And there are many more examples just like that.
Here’s the good news for you: Because these tactics are underutilized, that represents a huge opportunity for you to come in and make big wins quickly.
By learning consumer psychology, you can grow faster than your competition and faster than you otherwise would with bread and butter — okay maybe even stale — approaches. Like we just talked about, since these tactics are underutilized, there’s a pretty good chance you can find wins your competition won’t.
On top of that, what’s great about these tactics is that they generally don’t require more money to run them because they’re about the customer experience, presentation of information and choices, and persuasion. That means you should be able to iterate faster rather than convincing your leadership team you need lots of money to try new things.
Taking that one step further, using these lessons can help you better preserve your brand. As companies seek to grow as quickly as possible, they often turn to running discounts and promotions as a quick fix. While these certainly boost revenue in the short term, over the long run, they can have a deleterious effect.
This is because rather than training people to value the product or the brand most, they condition people to wait until free money is thrown their way. We’ve seen this in industries where there is high switching behavior and price elasticity, like rideshare and food delivery.
You’ll differentiate yourself within your organization, which can help accelerate career advancement. This is perhaps my favorite reason to go deep into consumer psychology because there is a clear and direct benefit to you.
Since most marketers and product managers aren’t regularly using these tactics, this is a great opportunity for you to stand out with high-value subject matter expertise. This has happened for me personally at every job I’ve had so far.
People start coming to you more for guidance on how to apply these lessons themselves, you get invited to participate in more interesting projects, and you start to make a name for yourself internally. When you’re seen this way, it helps you seem more indispensable and can help in propelling your career forward.
And this is exactly the right time for you to invest in this skill set. I predict that we’re still ahead of a watershed moment where these skills will become very prevalent in companies across the world, but we’re building toward that moment.
For one, more and more companies are hiring for behavioral science departments and roles. And it’s even starting to enter pop culture! NBC just ordered the pilot episode for The Irrational, an adaptation based on Dan Ariely’s best-selling behavioral economics book Predictably Irrational.
That means now is a great time to learn this. You’ll be ahead of the curve and be able to stand out until it’s popping up everywhere we look, and when it does happen you’ll already have years of experience under your belt.
The next steps
This was just a sneak peek into our Consumer Psychology Masters Course. Get invaluable instruction from Alex Chahin, and walk away with the ability to:
🧠 Better understand how to group pain and gain.
🧠 Understand how personal factors and individual differences affect people's buying choices.
🧠 Be able to identify what your customer’s default action is.
🧠 Understand how environmental variables such as friends, family, media, culture, and competitors influence buying decisions.
🧠 Understand what motivates people to choose one product over another.
🧠 Know how to identify what’s going to get your customers fired up and talking.