3 Cognitive Biases for Marketing

Group of happy people

What are Cognitive Biases?


Let us put it simply, cognitive biases are the mistakes made by your brain based on patterns it sees and past experiences in certain areas. In this case, Leveraging the way the human brain works to drive sales.

They are often the result of your brain’s attempt to simplify information processing. This attempt by the brain to use less energy and make processing easier leads to mistakes in decision making that can be used by marketers in order to drive purchasing decisions, increase perceived value, and a whole array of other actions or thoughts in the consumer’s minds that benefit your company positively.

Disclaimer: Exploiting a Customer into an initial purchase isn’t a way to grow a successful company!

Your product HAS to create value. Not only for the obvious ethical reasons but for the simple fact that it is near impossible to get a positive ROI on marketing where there is little to no chance of repeat purchases!

A high churn rate lowers your lifetime customer value and makes it so hard to get a low enough CPA to drive profits from a one-off purchase of your product.

The best businesses build products that are habitual, based on the value they provide to their customers allowing them to aggressively spend on marketing in the short term, with the value of a lifetime customer cash flowing the business for years into the long term.

1. Reward Bias (Pay Pal and DropBox)

This is possibly the strongest of the cognitive bias there is. The reward cognitive bias put simply is our willingness to take action when promised a reward.

We see this used by almost most every company today, saturating the market with free e-books and discounts for joining companies mailing lists. It is implemented by so many companies because it works!

However, because offering a reward for a potential customer to take a certain action is so effective it has been scaled throughout the business world to a point where it has desensitized the population too it and subsequently the effectiveness of targeting the reward bias has dropped significantly.

This doesn’t mean that you can’t get real results for your company! It just means that you have to be a bit more creative with how and what you are offering as rewards for certain behaviors.

What are your company’s highest value actions?

One of the most famous uses of reward bias marketing happened during the early stages of Paypal where they introduced an offer where every customer would receive $10 when they created their first Paypal account.

This did two things; firstly it allowed consumers to get past the hassle of actually signing up for a Paypal account and secondly it incentivized the customer to make there first purchase using Paypal to take advantage of the offer. This allowed the customer to understand the true value that the service provided while reducing the friction of all the points to get to that high-value moment.

Paypal could have offered a reward for customers signing up to there mailing list or for sharing their marketing mission to friends but they realized that the highest value task that their customer could make would be to make their first purchase using Paypal as it would be a real-life demonstration of the value the product was provided to them.

This is why it’s vitally important that you identify the highest value action a consumer can take to understand the value your business offers and base your reward offer around this action. If you fail to do so and use reward-based marketing throughout your business’s marketing message it becomes very easy to come across as scammy or to be drowned out by the millions of companies doing the same thing.

Finding a reward that leverages your companies internal advantages

This strategy of course became very costly for Paypal and lead to an insane bleed rate of capital but it was also was instrumental in shaping the company we see today.

Of course, most companies don’t have the kind of venture-backed capital to implement such a costly reward program for their new customers and this is where leveraging your companies internal advantages come into play.

According to Dropbox, founder/CEO Drew Houston, the Dropbox referral program was inspired by Paypal.

Paypal rewarded referrals with cash, but DropBox decided that their reward would be more storage. They got new users to signup and refer friends with the incentive of more storage being made available to them.

This is where a creative approach to reward-based customer acquisition becomes more attainable. Because DropBox was able to make huge margins on their data storage they were able to give something that at the time was very valuable to their target market while having to spend a fraction of what Paypal had to for a program with similar growth figures.

Ask yourself what is something your business’s unique position in the market allows you to get get more cheaply than most and consider using this as your reward to attract customers into taking your highest value action. In doing this you will be able to see great results for a fraction of the price of other customer acquisition methods.

2. Authority Bias ( Basically The Whole Fitness and Fiance Industries)

Authority bias in the fitness niche

Authority bias is your willingness to believe people who are, or appear to be experts on a particular topic.

We see the exploitation of the authority bias by the fitness and fiance industry almost constantly. If there is a person in amazing shape telling you about a new supplement or someone that appears to be expensively dressed is telling you about his system to make money quickly, we are far more likely to believe them without paying attention to the often quite obvious flaws in there actual message.

The most famous example of the authority bias is the Milgram experiment done in 1961, in the United States.

People were asked by a doctor in a white coat to give patients electric shocks by turning a dial. They were told the goal of the experiment was to see how the shock would impact memory.

But the patients were actors and did not really get a shock, but faked the pain. The people being asked to turn the dial where the real experiment!

Regardless of the pain, 50% of people turned the dial-up, all the way to a lethal 450-volt shock, when they were urged by the “doctor” to do so, even while they could hear the “patients” scream in pain.

This is where building your personal brand and or having an influencer plan for your business becomes so important.

There are a lot of great articles on building your personal brand and I would suggest Gary Vaynerchuk’s content on YouTube as a great place to start with that. Your decision to build a personal brand can also be more of a long play for your business given the time it can take to be considered an expert in a given industry.

That is where influencer marketing comes into play. By partnering with influencers in your given niche you can deliver marketing content through a channel that provides authority and followership to the message. This is especially effective for newer brands as it allows you to explain your product through a trusted source instead of having your brand have to speak for itself. This increases the response you will be able to gain through your marketing and send you customers that are already primed to love your product to your brand.

Influencer marketing is also great because most influencer partnerships are set up to give the influencer a percentage of the revenue generated from their efforts. This is important for startups because it allows you to generate revenue without an upfront cost of marketing which is a huge issue for most cash strapped businesses.

Based on my own experience with this form of marketing it works the best when the influencer really believes in your vision and what you’re trying to achieve as a company.

Buzz Sumo is a great way to find influencers in your business’s industry. We can also help you out with that here at Marketing Trybe.

3. In-group favoritism Bias ( Apple)

Group of happy people

In-group favoritism is the tendency for people to prioritize products or ideas that are popular with a group they’ve aligned themselves with.

Apple was notorious for breeding an “us vs. them” inclusive mentality among its customers with its marketing campaigns, and thanks to social bubbles and echo chambers, this effect is only growing more powerful.

While Apple’s early marketing strategy might be on the extreme side a lot can be learned from the way they built a community. It meant something to own Apple products as they built a lifestyle around what it meant to own their products.

This is important because its something that can be replicated with your business. What does it mean to own or use your product? If you are not building a lifestyle around your brand then you missing out on a huge amount of your most loyal customers and brand advocates!

Successful lifestyle brands earn the loyalty of their customers because they convince them that, with a little help, they can become the person they want to be. Whether you’re telling your customer that they can enjoy more luxurious experiences with you, convincing them that they can become a famous athlete, or assuring them that they can embrace a more adventurous personality, you’re making a promise to improve their world.

Take a brand like Harley Davidson for example, when people buy a Harley Davidson motorbike, they do so for the vibe the Brand gives. The individuality, defiance, culture, and expression. Today’s consumers consider the things they buy to be an extension of their identity and values.

Lifestyle brands get to the bottom of what people want from a certain niche and industry. Then they go-ahead to offer their customers the lifestyle they’ve been craving. The key to success is remembering that your aim should be to associate yourself with what your customers want to become, not what they already are.

Putting it together

This article only scratches the surface with cognitive biases and how they can be leveraged in the business world. Understanding the way the human brain works goes a long way to finding highly effective strategies to engage, attract, and retain more customers for your business.

Remember to be original and authentic with your brand messaging and product creation. The best companies take what already works and take it a step further putting their own spin on it. This ultimately leads to massive growth and more consumers experiencing the value your product provides the world.

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