Articles about 'loewenstein'
Fri 26 Sep 2008
As the current financial chaos moves toward some kind of resolution, there will no doubt be plenty of Monday morning quarterbacking to explain what went wrong. One group that one wouldn’t expect to have explanations are neuroscientists. As it turns out, neuroscience researchers actually can shed some light on why things went so wrong.
One of the first questions that everyone asks is how so many seemingly intelligent people could make so many errors in judgment. One simple answer, of course, is greed - at least some individuals saw a way to profit personally by making poor business decisions (loaning money to people unlikely to be able to pay it back, insuring such loans, rating securities based on these shaky loans, and so on). While there’s little doubt in my mind that personal interest was the biggest underlying factor, systemic factors and even biology likely played a role. By systemic factors I mean the way many of these markets were structured. Writing a shaky loan sounds like a bad business decision, but if there are buyers for loans of this type perhaps it really isn’t a bad decision for the originator. But, on to the brain science… (more…)
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Fri 18 Jul 2008
Here’s a scenario… You decide to venture into a cell phone store despite your reluctance to deal with a bewildering number of phones, options, plans, along with a confusing price structure. As usual, you find you’ll have to wait a bit for a salesperson. The greeter hands you a card with a big “97″ printed on it, and says, “It should only be a few minutes. We’ll call your number, 97, when a salesperson can help you.” You notice that a large digital display on the wall is showing “94.” You see it click to 95, then 96, and finally 97. The receptionist says, “Number 97, please,” and a salesperson appears to assist you. You thought nothing of the numeric ordering of customers, but it’s possible that the store had an ulterior motive: they could have been attempting to manipulate the price you would pay. Sound bizarre? Read on…
When a consumer is presented with an offer, a key element in the decision to accept or reject it is whether it appears to be a “fair deal” or not. We know that buying pain - the activation of our brain’s pain center when paying for a purchase - increases when the price seems too high. But how does that value equation work? The answer is anchoring - typically, we store an anchor price for different products that we then use to judge relative value. That sounds simple enough… but it’s actually not. Some anchor prices are stickier than others, and at times totally unrelated factors can affect these anchor points. The better marketers can understand how anchoring works, the more creative and effective pricing strategies they will be able to develop. (more…)
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Tue 24 Jun 2008
Scantily clad women have been used to sell products to men for decades, and likely for millennia in one form or another. There’s little doubt that the typical male brain is wired to respond to attractive females in revealing attire. But is this a cheap attention-getting trick that has no real impact on sales, or does it actually work? Researchers shed new light on this topic by exposing subjects to either videos of women in bikinis or more neutral videos, and evaluating their decision making ability. (more…)
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Mon 7 Jan 2008
Most scientists have dismissed the idea of reading minds using technology as pure science fiction, but Carnegie Mellon University researchers have moved a step closer to doing so. Not only have they been able to identify which of several images a subject is looking at using fMRI scans of their brains. The most startling result is that the CMU researchers were able to take the data from the initial batch of subjects and repeat the identification feat with new subjects. (more…)
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Mon 17 Dec 2007
I’ve often said that the most exciting application of neuromarketing techniques isn’t that of choosing or developing advertisements, but rather designing better products. While some may feel that enhancing ad effectiveness with brain scans (for example) is somehow manipulative, who can argue against products that have more consumer appeal? After all, the objective of every product designer is to come up with a product that best satisfies the intended customer group, so why not look at what’s really happening in these customers’ brains rather than relying on dubious paper surveys or focus groups? Caltech’s Steve Quartz seems to be on of the few academic neuromarketing researchers focused on product design and improvement. (more…)
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Mon 5 Nov 2007
Neuromarketing readers are by now familiar with the idea of “buying pain” or “pain of paying” - when we buy something, the pain center in our brain can be activated. Work by Carnegie Mellon’s George Loewenstein and others shows that this effect is greatest when the price is perceived to be high or unfair. Buying a pack of gum for $10 would be a lot more “painful” than spending 50 cents for the same item. One wonders how painful paying multiple $40 bounced check fees would be, particularly if you knew your bank processed the largest checks first to ensure the maximum number of bounces. (more…)
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Fri 5 Oct 2007
Posted by Roger Dooley under
NeuromarketingNo Comments
If there’s one persistent theme here at Neuromarketing, it’s that good offers reduce buying pain for consumers, and bad offers increase it. My fellow Web marketer and occasional PubCon co-panelist Andy Beal has identified an ad that he terms “the most enticing banner ad ever,” and he might be right. Endless.com has moved beyond “Free Shipping,” and even “Free Overnight Shipping,” to offer “Negative $5 Shipping.” (more…)
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Wed 3 Oct 2007
One out of four potential customers for your product may not buy it, even if the purchase makes economic sense or is otherwise a good decision. A couple of days ago, in Tightwads, Spendthrifts, and Everyone Else, I wrote about research that found people could be categorized by their spending behavior into three major groups. While the largest group, described as “unconflicted,” comprised 60% of the large sample of survey subjects, a quarter of the group were identified as “tightwads.” The latter group presents a unique marketing challenge because they will resist spending money even when the expense is reasonable and perhaps justified. How does a marketer not only make the case for her product, but get a tightwad to part with his money? Here are five tactics: (more…)
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Mon 1 Oct 2007
Marketers love to segment their potential customers, and now there’s a new way to do it: spendthrifts, tightwads, and everyone else. Research at Carnegie Mellon University shows that 40% of consumers can be classified as either spendthrifts or tightwads, while 60% fall into a middle category without strong tendencies in either direction. Furthermore, this behavior is related to one of our favorite neuromarketing topics, buying pain. (more…)
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Fri 7 Sep 2007
In This is Your Brain on Money, I mentioned that I’d visit some of the other neuromarketing-related topics raised in Jason Zweig’s interesting article in Money, Your money and your brain. One of these is that our brains are programmed for “reward anticipation” but aren’t very good at calculating odds. Big potential rewards produce big responses, even if they are unlikely outcomes:
Brian Knutson [of Stanford University] has found that while your reflexive brain is highly responsive to variations in the amount of reward at stake, it is much less sensitive to changes in the probability of receiving a reward.
If a lottery jackpot was $100 million and the posted odds of winning fell from one in 10 million to one in 100 million, would you be 10 times less likely to buy a ticket? If you’re like most people, you probably would shrug, say “A long shot’s a long shot” and be just as happy buying a ticket as before.
That’s because, as economist George Loewenstein of Carnegie Mellon University explains, the “mental image” of $100 million sets off a burst of anticipation in the reflexive regions of your brain. Only later will the analytical, or reflective, areas calculate that you’re less likely to win than Ozzy Osbourne is to be elected Pope.
This human inclination has implications for marketers who use contests, sweepstakes, or other prize offerings. These findings suggest that it’s the magnitude of the grand prize that is the most important in a giveaway. If you have a budget for total prize money or merchandise, it’s probably better to load it into the top-level prize than to try to spread it among a larger number of prizes that would increase the odds of winning for all contestants.
Want Insurance on That Bet?
Conventional wisdom at the blackjack table is to decline the insurance offered by the dealer, but for marketers insurance might make sense if it allows a bigger prize. An example that comes to mind is the common “million dollar hole-in-one” fundraiser. Golfers (and perhaps some non-golfers) make a donation to enter the contest for a chance at winning a million dollars by shooting a hole-in-one. There are various rules to reduce the probability of the million dollars actually being paid out, notably that the winning shot doesn’t take place in the qualifying round when hundreds of golfers may be whacking multiple balls at the cup; it takes place in a final session, when just one or a few golfers (who placed closest to the hole in the first round) get a shot. The other technique that minimizes the risk to the charity (a good thing, since a lucky shot might turn a fundraiser into a financial disaster) is that they buy insurance. By paying a tiny fixed sum to a firm that offers such coverage (and who ensures the rules of the game limit the probability of a payout), the charity can offer the million-dollar challenge with no fear of catastrophic loss.
The reason those fundraisers attract entrants is the magnitude of the potential payout. The cost of hole in one insurance for a million dollars might be as little as a few hundred dollars depending on the method of payout (multi-year annuity vs. cash) and the number of shots that will qualify (giving one finalist one shot vs. multiple finalists with multiple attempts). From the standpoint of an individual competitor, awarding a few $1,000 prizes to those closest to the hole would have a higher expected payout than the opportunity to qualify for a million dollar shot, but would it generate any excitement? Probably very little. In short, awarding five $1,000 prizes would cost the charity a lot more than hole-in-one insurance for a million dollar prize, and would almost certainly result in fewer entrants and less excitement.
Business contests have different motivation than charity fundraisers, but the same principles apply - a spectacular prize is better, even if the odds are greatly reduced. (One exception may be high-frequency awards, like those in some fast-food restaurant contests; in these, there is a high concentration of winning game pieces with small awards, like free french fries. The promise of an immediate, high probability food reward brings other factors into play that are beyond the scope of this topic.) But, when choosing a top-line prize, think BIG - even if the odds are lower, people will respond better if there are more zeros at the end of the number. Possible approaches could be to concentrate prize money in one prize, to use a playoff system with the possibility that no prize will be awarded (in essence the hole in one strategy), or to participate in a joint promotion with other companies to increase the prize budget. (Note that in most jurisdictions contests are subject to government rules and regulations, so be sure to jump through the appropriate legal hoops in any such promotion.)
For a neuromarketing perspective on another game of chance, see Deal or No Deal.
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