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Behavioral Economics of E-Commerce

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Simon Jones
Simon Jones

Behavioral economics combines psychology and economics to understand why people make irrational decisions and how businesses can use this to their advantage. [1] People do not always make rational choices based solely on costs but are influenced by prestige, immediacy, emotions and sense of ownership. [2] Businesses can emphasize these psychological factors to increase value and sales. For example, trial versions and immersive experiences in games promote a sense of ownership that makes people more likely to continue spending. [3]

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Behavioral Economics & E-Commerce Marketplace Gotchas
Challenge Restaurant A Restaurant B Which restaurant charges more for the same bowl of ice cream?
What Is Behavioral Economics? Combine social, cognitive and emotional factors with economics to solve the simple questions: Why Do We Act ¡®Irrationally¡¯? How Can Business Make This An Advantage?
Or, Put Another Way
Don¡¯t Believe Me? >$60,000 ~$25,000 This isn¡¯t a budget-friendly decision, but it¡¯s one someone makes every day. WHY???
Value Is More Than A Dollar Sign ? Homo Economicus, according to classic economic theory, makes rational decisions ? BUT Rationality Encompasses Factors Beyond Cost: ¨C Prestige ¨C Immediacy ¨C Philanthropy (seriously!) ¨C Emotional Attachment
An Example: Relative Value (Emotional Attachment) ? For Sale on Craigslist: ? Wanted on Craigslist: We Honestly Believe The Things We Own Are Worth More Than The Things We Want To Buy
How Can We Use This To Our Advantage? A Trial Version Will Convert Better Than Good Marketing Copy Every Time
Fitting It To Social Media ? The Key To Successful Social Gaming Is Immersion ? Once the player is in, keep them in ? Now you can ? Display ads ? Sell Virtual Currency ? When Immersed, Players Feel They Own Their Game ? So What Happens When They Go To Buy? ? Now The Player Is Outside What They Own Keep Them Inside And They Will Want More ¨C And Pay More
Fitting It To Social Media How Can I Help You Today?
So What Do We Know 1. Value Is Based On More Than Cost 2. We Think What We Own Is Worth More Than What We Want 3. Actual Value is Relative, Not Absolute
¡­And How Do We Use It 1. Emphasize the Prestige 2. Emphasize Ownership 3. Emphasize the Sizzle, Deliver the Steak
Who Does It Ridiculously Well? Whose Hand Is That Anyway?
THANK YOU

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Behavioral Economics of E-Commerce

  • 1. Behavioral Economics & E-Commerce Marketplace Gotchas
  • 2. Challenge Restaurant A Restaurant B Which restaurant charges more for the same bowl of ice cream?
  • 3. What Is Behavioral Economics? Combine social, cognitive and emotional factors with economics to solve the simple questions: Why Do We Act ¡®Irrationally¡¯? How Can Business Make This An Advantage?
  • 5. Don¡¯t Believe Me? >$60,000 ~$25,000 This isn¡¯t a budget-friendly decision, but it¡¯s one someone makes every day. WHY???
  • 6. Value Is More Than A Dollar Sign ? Homo Economicus, according to classic economic theory, makes rational decisions ? BUT Rationality Encompasses Factors Beyond Cost: ¨C Prestige ¨C Immediacy ¨C Philanthropy (seriously!) ¨C Emotional Attachment
  • 7. An Example: Relative Value (Emotional Attachment) ? For Sale on Craigslist: ? Wanted on Craigslist: We Honestly Believe The Things We Own Are Worth More Than The Things We Want To Buy
  • 8. How Can We Use This To Our Advantage? A Trial Version Will Convert Better Than Good Marketing Copy Every Time
  • 9. Fitting It To Social Media ? The Key To Successful Social Gaming Is Immersion ? Once the player is in, keep them in ? Now you can ? Display ads ? Sell Virtual Currency ? When Immersed, Players Feel They Own Their Game ? So What Happens When They Go To Buy? ? Now The Player Is Outside What They Own Keep Them Inside And They Will Want More ¨C And Pay More
  • 10. Fitting It To Social Media How Can I Help You Today?
  • 11. So What Do We Know 1. Value Is Based On More Than Cost 2. We Think What We Own Is Worth More Than What We Want 3. Actual Value is Relative, Not Absolute
  • 12. ¡­And How Do We Use It 1. Emphasize the Prestige 2. Emphasize Ownership 3. Emphasize the Sizzle, Deliver the Steak
  • 13. Who Does It Ridiculously Well? Whose Hand Is That Anyway?