How to Use Consumer Psychology to Increase ROI

consumer psychology and ROI

consumer psychology and ROIEver think about how consumer psychology affects buying decisions?

There are really 2 schools of thought when it comes to consumer decision-making. The first, from economics, views consumers as utility optimizers who make rational decisions based on an evaluation of available products to determine which products provide the most utility. The second, from marketing, views consumer decision-making as a complex process influenced by both information and influence from a variety of factors including advertising and personal sources of influence.

Consumer decision-making

The economic view

The economic view of consumer decision-making results in a bunch of mathematical equations that I won’t ever attempt to reproduce here, but check out this link if you want to follow the derivation of the formula, which I don’t recommend unless you really like that kind of stuff.

Based on economic theory, consumers are seen as utility maximizers who weigh the benefits from available products, then choose the one with the highest utility. Inherent in this thinking is that the information necessary for analysis is readily available (which it isn’t) and that consumers choose to spend a significant amount of effort in making decisions (which they don’t).

The marketing view

The marketing view of consumer decision-making assumes consumers view both the tangible and intangible benefits provided by a group of products in making decisions through a sequence of steps called the consumer decision-making process, which moves through:

  1. need recognition
  2. search for information
  3. evaluation
  4. decision
  5. post-purchase evaluation

If you want to learn more about the consumer decision-making process, I’ve built a post that goes through each step in the process in much more detail.

Consumer psychology on decision-making

An important caveat to this process is that consumers go through this process in different ways depending on personal preferences as well as the type of product under consideration. For instance, to reduce cognitive effort, some consumers go through the process using only internal information and breeze through the process quickly or use heuristics to make decisions with limited consideration. Similarly, low-involvement products, like a pack of gum, may not consciously make a decision. We often think of this as impulse buying.

Elaboration likelihood model

An important means for viewing consumer decision-making comes from the elaboration likelihood model or ELM. According to ELM, there are 2 pathways used in making decisions; 1) the purposeful cognitive method using the decision-making model presented above and 2) the emotional pathway where consumers rely more heavily on emotions than logic in making decisions.

Some theorize that, depending on the situation and consumer’s personality, those emotional decisions involve act then think versus think then act as do cognitive decisions.

Influences in decision-making

AIDA

AIDA (awareness, interest, decision, action) represents an advertising model built on theories of rational decision-making. The notion is that messaging should match where the consumer is along the pathway toward making a decision to optimize the results.

Termed AIDA (because marketers love acronyms almost as much as the military), we’ve taught this model to marketing students for decades. It’s simple and easy, but also not very insightful. And, in many cases, dead wrong.

AIDA assumes consumers actively seek information about products to make their lives better. And, that may be true in certain situations, but most of the time we’re simply out to have a good time and don’t want advertisers to bombard us with advertising. That’s why we mostly ignore Google search ads, Facebook’s Newsfeed ads, and zap through commercials on TV with our TIVOs. We simply don’t want to know about your stuff, so our actual involvement with your brand looks more like the infographic’s right side [shown at the end of this post] — we meander aimlessly through our days online and off, not paying much attention to your advertising.

Not surprisingly, new research points to a relatively minor effect of advertising on behaviors.

Consumer psychology and social media

That’s why social media, when done right, works so well, especially content marketing. By creating valuable content, you evade consumer defenses against advertising and put your brand right in their newsfeed, search results, and Twitter feed — where consumers are defenseless against your message.

Social media (both owned and earned and some paid) increases consumer exposure to your brand and also creates a great image for your brand, which increases their interest in your products.

Despite increased awareness of your brand through content marketing, slogging through other aspects of consumer psychology, like the consumer decision-making process, creates challenges. Overcoming these challenges to consumer psychology potentially explode your ROI.

Consumer psychology challenges

Awareness

Take a look at the infographic’s right side [shown at the bottom of this post]. What you see is a consumer who appears on autopilot and that’s pretty close to the truth. Today’s connected consumer is less focused on your advertising and doesn’t dedicate much effort to processing your message. Instead, they’re using multiple screens — likely watching TV (or their computer monitor via Hulu or Netflix) while checking their Facebook or Flickr feed, chatting with their friends on Snapchat or text message, or checking out their friend’s Pinboards.

Capturing any level of awareness of your brand relies on repeat exposure to your message through an integrated effort combining paid, earned, and owned media with traditional advertising.

Elements of successful social media marketing
Elements of successful social media marketing

Look at this integrated marketing infographic embedded within the larger infographic. Not only does it highlight the integration of paid, earned, and owned social media with traditional advertising, it shows how SEO, combines with traditional marketing elements such as market research to understand what consumers want, excellent customer service including product quality, branding, market segmentation, and target marketing, as well as using tools of influence, CTA (call to action), and other motivational tools.

Interest

Interest relies heavily on creating valuable content, especially when it generates engagement from networked users connected to the consumer.

Content that’s novel, entertaining, and eye-catching works best to generate interest in your brand. That’s why the use of video, infographics, memes, and podcasts dramatically increases interest.

A good example of this comes from Talenti, the premium gelato company. They create innovative content, such as their wheel that users can spin to determine which flavor to buy. Combined with guerrilla marketing efforts like delivering samples via bicycle at community events, the company is closing in on big names like Ben and Jerry’s in terms of market share.

Desire

Reaching consumer desire relies heavily on a positive brand image and recommendations from a consumer’s social network. Surprisingly, younger consumers consider the tacit endorsements of mere social media acquaintances more than the recommendations of friends and family according to a study. These younger consumers seek user-generated content and are more likely to follow a brand on social networks than family and friends.

Hence, the role of influencer marketing as well as programs designed to generate user content, such as Lay’s program to get their marketing to suggest new flavors of their products. Check out these stats supporting the use of influencer marketing in generating higher sales.

That’s some weird consumer psychology — so brands need to up their game to reach these millennials.

Action

Taking action relies more on logistics than consumer psychology. Factors such as pricing (and financing), availability, and the effort necessary to acquire the product precedence at this stage. Simple improvements across these factors reduce the nearly 68% of abandoned online shopping carts.

Online shopping, especially new Facebook shopping options, makes it easier for consumers to take action — buy your brand. Reducing the # of clicks required to make a purchase (ie. Amazon’s one-click shopping), reducing registration requirements, using easy payment options like PayPal, and offering in-store pickup and exchange all enhance your close rate.

Consumer psychology and analytics

Making improvements in your marketing and communication based on knowing how consumer psychology affects ROI can have a huge impact on your success.

But, what gets measured, gets improved. Making the right improvements requires collecting metrics on the right factors.

Consumer psychology tells us there are a wide number of factors impacting conversion (not to mention repeat purchases and average order size) that affect ROI. That means your analytics must focus on the process — the entire consumer journey, not just the end game (conversion). Enhancing metrics related to sentiment, share of voice, and audience growth, as well as your success in reaching influencers and your target market all contribute to your ROI.

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consumer psychology