In the world of marketing, a deep understanding of consumer psychology and behavior is the key to success.The Importance of Understanding Cognitive Bias in Marketing: Consumer Insights Beyond Data" This follow-up article delves deeper into the cognitive biases that marketers especially need to be aware of.

The following is "Loss aversion, risk aversion, regret aversion, and self-centered biasWe will focus on these biases and provide specific examples of how each bias influences consumer behavior and how it can be utilized in marketing.

In addition, in Part 2, we explain mental shortcuts and biases caused by social norms, so be sure to read that article as well.

List of cognitive biases every marketer should know

Psychology and human behavior are very deep fields, and research into them is still active today. As a result, there are many types of cognitive biases, and the following explanations and classifications may vary slightly depending on the source and interpretation, but here are some cognitive biases that marketers should be aware of.

Loss/risk/regret aversion bias

Loss (or risk or regret) aversion bias refers to the human tendency to avoid taking risks in order to avoid losses, based on the fact that losses have a greater psychological impact than gains.

Ambiguity effect – Ambiguity effect

The ambiguity effect occurs when people avoid choices that are highly uncertain, perhaps due to a lack of information, in favor of more certain choices.

For example, if a consumer is buying a new computer and has a choice between two brands, Brand A provides detailed specifications, user reviews, and support information, while Brand B provides very little information. In this case, most consumers will choose Brand A's computer, which has less uncertainty. In this way, marketers can reduce ambiguity and prevent consumers from turning away by providing clear, detailed information about their products.

Sunk cost effect

Sunk costs are expenses that have already been incurred and are not relevant to future decision-making. However, humans tend to unconsciously consider sunk costs and feel reluctant to waste investments. In other words, in order to justify past investments, we may behave irrationally. This is called the sunk cost effect.

For example, subscription services can encourage long-term usage by charging an upfront fee. Once someone has paid for a yearly gym membership, they are more likely to continue going because they don't want to waste their investment.

Pain of paying (cashless effect)

The pain of paying refers to the discomfort we feel when parting with money. The rise of cashless payments has reduced this pain, leading to increased spending.

For example, e-commerce site users who have one-click checkout tend to make more purchases because they feel less pressured to make a purchase. Marketers can take advantage of this effect by making the transaction as smooth as possible for consumers.

Present bias (temporal discounting)

Present bias is the psychological tendency to choose small immediate benefits over large future benefits. Humans should choose large future rewards, but they can't resist choosing small immediate rewards. This phenomenon is also known as time discounting.

For example, a system that allows users to earn virtual coins in a health promotion app encourages small daily rewards that lead to long-term health maintenance. Marketers can take advantage of this present bias by offering consumers small, immediate rewards (discounts, offers, etc.) to encourage long-term behavioral change.

Certainty effect

The certainty effect is the psychological tendency to prefer certain outcomes over uncertain ones, making the sure option more appealing even if it has a lower expected value.

For example, a campaign offering benefits that are less luxurious but guaranteed to be received is more likely to be chosen than a lottery campaign offering luxurious prizes. In addition, offering a satisfaction guarantee system or a guaranteed discount coupon can make it easier to attract consumers' attention. By understanding the certainty effect, marketers can adopt strategies such as offering guaranteed benefits and benefits for their products and services.

Zero-price effect

The zero price effect is a psychological tendency for consumers to value a product or service more than they actually feel it is worth when it is free (zero price). Normally, demand increases when the price goes down, but when the price goes down to zero, demand increases dramatically. In other words, the fact that it is free is attractive in itself, and consumers choose the product.

For example, you could give away free samples of a new product or offer free content as a bonus for signing up as a member. Marketers can take advantage of this effect by offering products or services for free to attract consumers' attention and lead them to make future paid purchases.

Scarcity heuristic

The scarcity heuristic is a psychological tendency to perceive goods and services as more valuable when they are in limited supply. Humans have a stronger desire for things that are rare and hard to obtain, while things that are abundant tend to be perceived as less valuable.

Using this principle, marketers can increase consumer desire to purchase by emphasizing the scarcity and urgency of a product. For example, using phrases such as "only a few left" and "limited time only" can create a sense of urgency. Limited edition or limited quantity products can be released, and online shops can display the number of remaining stock to stimulate purchases.

The Ikea effect

The IKEA effect is a cognitive bias that causes people to attribute more value to products and services that they have made themselves. Humans tend to feel attachment and pride in things that they have made with their own effort. This effect comes from the fact that customers of IKEA, a major furniture manufacturer, assemble their own products.

Marketers can take advantage of this effect to increase product attachment by having consumers make parts of the product. For example, products like cooking kits, which allow consumers to complete the product simply by combining ingredients, give consumers the satisfaction of having "made it themselves." Similar effects can be expected for products that are customizable or require assembly.

Status quo effect

Even when a new product is released, people tend to be reluctant to change the status quo, such as by choosing a product they are familiar with. This is called the status quo bias.

To overcome this cognitive bias and make it easier for consumers to accept it, it is necessary to present the new product or change as the "new status quo = status quo." For example, car manufacturers are marketing electric vehicles (EVs) as an environmentally friendly option, and by promoting them as the "new standard" while also being a transition from conventional gasoline-powered vehicles, they are laying the groundwork for consumer acceptance while emphasizing the superiority of the new product.

Decoy effect

The decoy effect is a method of manipulating consumer choices by providing an irrational third option (a decoy option) in addition to two options. This effect is due to the asymmetric dominance relationship between options. The decoy option is unilaterally inferior to the other options, so consumers are more likely to avoid it.

For example, in the case of popcorn sales at movie theaters, if small size is 450 yen, medium size is 750 yen, and large size is 850 yen, the medium size acts as a decoy and consumers tend to choose the large size due to the slight price difference. Another example is a middle decoy plan for software pricing, which can lead to higher-priced plans. In this way, introducing a "decoy" product within an ethical range can make the options seem more reasonable, making it easier to lead consumers to the intended option.

Default effect (default option)

Humans have a tendency to be influenced by defaults. This effect stems from our human tendency to maintain the status quo and to avoid the hassle of making choices.

Marketers can take advantage of this effect by setting options that are favorable to their company as the default, aiming to increase the likelihood that consumers will select them. For example, if newsletter reception or automatic renewal services are turned on by default, consumers will be more likely to accept them as they are. Even when shopping online, setting default shipping and payment methods can encourage smooth purchases.

Egocentric Bias

Egocentric bias refers to the tendency for people to be more sensitive to information that relates to themselves.

Hindsight bias

Hindsight bias is a cognitive tendency to perceive an event as if it were predictable after it has occurred. When people look back at the past, they tend to believe they could have predicted the outcome from the beginning. This tendency is caused by memory distortions and overestimating the accuracy of their own predictions.

Marketers can use hindsight bias to make consumers realize that using or purchasing their company's products or services was not a mistake. For example, by presenting customer cases and conveying messages such as "I made the right choice by choosing this product or service," it is possible to further increase consumer trust.

Cognitive dissonance

Cognitive dissonance is the psychological discomfort that occurs when you feel that your actions or beliefs are inconsistent. Humans tend to want to have consistent actions and beliefs, but when a contradiction occurs, they feel uncomfortable (dissonance), so they try to make adjustments to resolve the contradiction.

Marketers can reduce cognitive dissonance by messaging their products and services so that they are consistent with consumers' values ​​and goals. For example, if a consumer is trying to live a healthier lifestyle, they will be more likely to buy a health food or fitness product if it appeals to them as a way to help them achieve their goals. On the other hand, if a product contradicts a consumer's beliefs or values, dissonance will arise and they may hesitate to buy it.

Confirmation bias

Confirmation bias is a psychological bias that causes us to accept only information that is consistent with our beliefs or hypotheses and to ignore or reject information that contradicts them.

For example, fans of a brand may only pay attention to the positive reviews of that brand and ignore the negative ones. Marketers can take advantage of this confirmation bias by sending messages that match consumers' thoughts and values, which makes consumers more likely to rate the brand highly, leading to a stronger brand image.

Commitment bias

Consistency bias is the tendency to continue making choices that are consistent with a decision once it has been made. Humans have a psychological desire to be consistent with their words and actions, making it difficult to take actions that contradict their initial choices. This tendency is particularly strong when a decision is made in public or in front of many people.

By encouraging consumers to make their first purchase, marketers can potentially encourage them to make consistent purchases thereafter. For example, consumers who purchase products that contribute to environmental protection will likely maintain consistency by continuing to choose the same brand. For subscription services, encouraging consumers to make an initial contract can lead to long-term continued use.

Barnum-Forer Effect

The Barnum effect is a cognitive bias that causes people to accept vague, generalized things that apply to everyone as if they apply only to them. This effect is sometimes used by fortune tellers and psychological tests to help attract consumers' attention.

For example, a vague message such as "This product will bring out your unique beauty" may make consumers realize that the product is right for them. Marketers can appeal to more consumers by generalizing the effects and features of the product and using broad messaging that many people can relate to.

Gambler's fallacy

The gambler's fallacy is the erroneous belief that past events affect future probabilities. For example, if you keep getting heads when flipping a coin, you tend to think that the next time you flip a coin, the probability of landing on tails is higher. However, flipping a coin is an independent event and is not influenced by past results. This fallacy arises from a cognitive bias that causes humans to seek patterns or rules in random events.

To counter this fallacy, you can emphasize that the next purchase is a great opportunity. For example, a message like, "You didn't win on your last purchase, but next time you might win a big discount" can build expectations.

Empathy gap

The empathy gap is a psychological tendency that current emotions are temporary and have little impact on future emotions and behavior. For example, even if you have had a painful experience in the past, you may remember that you felt painful, but you may not remember the extent to which you actually suffered, and you tend to underestimate how you felt at the time. This phenomenon is caused by the difficulty humans have in viewing their own emotions objectively.

To close this empathy gap, it is effective to use messaging that resonates with consumers' current emotions. For example, a message such as "Cherish your feelings - treat yourself today" may encourage purchases by appealing to consumers' current emotions. By appealing to their immediate needs, consumers are more likely to take purchasing action based on their own emotions.

Restraint bias

Self-control bias is a cognitive bias that causes people to overestimate their own willpower and self-control. Humans tend to overestimate their ability to control themselves and not give in to temptation. However, in reality, even if we set goals such as dieting, quitting smoking, or saving money, we still tend to give in to temptation, and our self-control tends to be weaker than we think.

One example of taking advantage of this self-control bias is when luxury products are promoted as "treats for yourself." For example, messaging like "Enjoy this luxury chocolate as you relax after a long day" can justify luxury. Presenting the product as a "reward" for exercising self-control can increase the desire to purchase.

Projection bias

Projection bias is a cognitive bias in which we make excessive assumptions that other people's beliefs, values, and feelings are the same as our own. In other words, we tend to project and judge others based on the assumption that "others must be thinking the same way as I am."

For example, emphasizing the popularity of a product by saying, "Everyone is choosing it, you'll definitely like it too," gives consumers the reassurance that others are choosing the same product, increasing their desire to purchase.

Affect heuristic

Affect heuristics are psychological tendencies in which emotions and reactions toward an object affect the perception of the benefits and risks of that object. Humans often make decisions based on emotion rather than rational judgment. If we have positive emotions, we tend to judge an object as having many benefits and few risks, and conversely, if we have negative emotions, we tend to judge it as having few benefits and many risks.

For example, by expressing the product's effects in easily visualized terms such as "When you put on this perfume, it brings back the romance of your special day" or "When you drive this car, you will feel free and liberated," positive emotions are evoked and the benefits are more likely to be highly evaluated. Alternatively, by associating a product or brand with positive images and concepts such as "This luxury brand bag will bring out your refined charm" or "These cosmetics are safe products born from the blessings of nature," favorable emotions toward the product are generated and purchasing desire is increased.

In conclusion

In this article, we have taken a detailed look at loss aversion, risk aversion, regret aversion, and self-centeredness biases in marketing. These biases, which have a significant impact on consumer decision-making, are factors that cannot be ignored in marketing activities, but by correctly understanding and using biases appropriately, more effective and ethical marketing activities can be achieved.

In another article,Mental shortcuts and social bias" is a topic we've been working on for a while now, so please take a look at that too. We also have an article on the basics of cognitive biases and their practical applications, "The Importance of Understanding Cognitive Bias in Marketing: Consumer Insights Beyond DataPlease also see ``.

XICA has been providing services in the field of data science in marketing for over 10 years, and has a track record of supporting over 250 companies, mainly domestic enterprise companies. Our analysts and consultants have extensive and deep expertise in a wide range of industries, and they use data science to help clients make better decisions.

If you would like to discuss understanding cognitive biases and complementary data-driven approaches to marketing,Contact us.