Cognitive Biases Flashcards
What does cognitive biases include and why is cognitive bias important
Cognitive bias play a significant role in shaping consumers’s price perceptions and decision-making.By understanding these biases, marketers can develop effective strategies to influence consumer behavior.
What does cognitive biases contains. This essay will discuss six types of cognitive biases.
Anchoring effect
Price relativity
Weber’s law
Decoy effect
Zero price effect
What is anchoring effect
Anchoring effect occurs when people rely too heavily on the first piece of information they encounter when making decisions.
What’s the real world example for anchoring effect
Williams-Sonoma, a home goods retailer, once introduced a bread maker priced at$279. The sales were not as good as expected. Later, they introduced a new, more advanced bread maker priced at$429. Suddenly, the $279 bread maker seemed more affordable and reasonable in comparison to the higher-priced option. This led to an increase in sales for the $279bread maker. In this case, the $429bread maker served as an anchor, making the $279 model seem like a better deal. Businesses can use this bias to their advantage by putting expensive products next to cheaper ones. This can make the cheaper products seem like a better deal in comparison, even if they’re still expensive.
What’s price relativity
Price relativity means that consumers don’t just evaluate the price of a product or service based on its absolute value, but also in comparison to other similar options
What’s the real world example for price relativity
When shopping for a new laptop at an electronics store. There are two models on display: one priced at $800 and another priced at $1200. While both laptops have similar features, the $800 laptop may seem more attractive and affordable in comparison to the $1200 model, even if you originally had a budget of $600. In this context, the price of the $800 laptop appears relatively lower, making it seem like a better deal.Marketers can take advantage of this bias by displaying products with varying price points to ensure that consumers perceive some products as better deals.
What’s Weber’s law
Weber’s law refers to just-noticeable difference in price can change consumer perceptions and purchase decisions.
What’s real world example for Weber’s law
Amazon prime offers a variety of services, such as free shipping. In the U.S., the annual fee is $119, while the monthly fee is $12.99. When looking at the monthly fee, customers may perceive the difference between paying $12.99 per month(155.88 per year) and paying a one-time fee of $119 for an entire year as relatively small. This encourages customers to opt for the annual subscription, which is more cost-effective for the customer and results in a more consistent revenue steam for Amazon.Marketers can use this knowledge to design pricing structures that encourage consumers to opt for more expensive or cost-effective options.
What’s decoy effect
The decoy effect is where the introduction of a third, less attractive option makes one of the original options more appealing.
What’s decoy effect in real world
A movie theater offers two popcorn sizes: small for $3 and large for $7. Many customers may choose the small size because the large size seems expensive in comparison. Now, the theater introduces a medium size for $6.50. The medium size acts as a decoy, making the large size appear as a better deal since it’s only $0.50 more expensive than the medium size. As a result, more customers may opt for the large popcorn instead of the small one, even though they initially perceived the large size as too expensive. Marketers can introduce decoy products to steer consumers toward the desired, more profitable option.
What’s zero price effect
The zero price effect is consumers’ preference for products that are offered for free, even if they come with limitations or require additional purchase.
What’s the real world example for zero price effect
The mobile game “Candy Crush Saga” offers free play with in-app purchases for additional features. Marketers can use this bias to get customers more engaged and interested in the product, making them more likely to pay for additional purchases.
What’s odd-even effect(charm price)
The odd-even effect also known as charm pricing, is the practice of pricing products with odd-ending prices to create the impression a bargain.
Real life example for odd-even effect
Zara, for example, any price clothes at $24.99 or $49.95 to make them seem more affordable. Marketers can implement charm pricing to encourage consumers to make purchases
Ethical concerns and limitations associated with the use of cognitive biases in marketing and pricing strategies.
Utilizing these biases may be perceived as manipulative and undermine consumer trust in the long run. Additionally, When businesses take advantage of people who are already struggling, like those with less money or knowledge about finances, it can be really unfair. Over-reliance on cognitive biases may lead to short-term gains but harm long-term customer relationships and brand reputation.
