“How can I spend my money in such a way that I get the most value and satisfaction from my purchase?”
Once heralded as a solution to the utility maximization problem, the Marshallian demand curve specified how the buying decision of every individual varied according to their income or wealth.
If your head is spinning by now, know that common sense economics (if there is such a thing) doesn’t work in today’s scenario, simply because price is not really a controlling factor in the present retail setup. Consumers aren’t price-conscious when it comes to spending on the goods and services that they really want. This is apparent from the way we max out our credit cards or sell our kidneys to buy gadgets or shoes.
So what makes today’s consumers choose and buy? Why does a mother forgo “value for money” when getting an iPhone for herself but look for discounts on diapers for her baby?
The answer is that today’s consumer’s buying decision is based on several psychological, cultural and social factors. The new generation consumer is a unique hybrid individual who is price-sensitive (compares prices), status-conscious(cares what others think about their purchases) and brand-conscious (ready to pay more for perceived brand value) at the same time. Go figure!
Advertising, social media, and brand affinity also play a huge role in influencing consumer’s decisions. Some marketers believe it could be our neurons that might be calling the shots eventually. Let’s examine the factors that influence our buying impulses and how they affect our tendency for utility maximization.
Socio-cultural buying behavior
Why do people buy certain things at any price? This question has its answer more at the subconscious level than at the conscious level. If you buy an ice-cream because you crave for it, it is your personal psychological decision. But if you buy ice-cream for the whole office on your birthday, cultural factor is at play. Likewise, if you buy ice-cream for your child at a place opposite the school because a few other parents are doing so, it a decision influenced by societal factors.
Cultural and social factors influence consumers, especially those who want to be part of the buzz. They want to try out things that their peer group or friends are talking about. It is a social and cultural thing – to share personal experiences of stuff that is new in the market or considered prestigious. Many people define themselves by the brands they choose. Consumers want to show off a little – at gatherings, parties, or on Instagram – to their friends and family.
“With prestige purchases, consumers feel that possessing the products reflect important aspects of themselves, and get more satisfaction from merely owning the product.”
– Cassie Mogilner, Professor of Marketing, Wharton
The act of getting and possessing motivates customers to pay full, or even a higher price, for stuff they want. This is a very normal human trait, but it works very well for marketers who can get brand-conscious consumers to become influencers and advocates.
A BCG study showed that today’s consumers display higher levels of egocentrism than previous generations. They believe beauty, wealth, status, luxury, glamor, convenience, adventure, and excitement are more important than traditional values like spirituality, wellness, and family.
In recent years, we’ve seen startups riding this wave by offering advanced technological solutions that the individual can avail of here and now.
Blaming the neurons
Advertising is guilty of creating iconic images and standards – we compare our lives with these phantasmagorias, and the feeling of disenchantment creeps in if we are not drinking really expensive wine with our group of happy, glamorous friends at expensive locales a la tourism ads.
But is it really the advertising? Or is it our neurons? Does Evian really taste better than tap water? Arguably not. But marketing has convinced us that the pleasure we derive from drinking Evian is more, therein lies its appeal. Publicizing your brand promise reminds people what your brand stands for and strengthens the “emotional connect” they have with your brand.
And that is one of the primary reasons people buy Nike or drive a BMW. Building theperception of product superiority helps. Brands need to build credibility around their premium positioning; only then will their customers be able to easily justify (to themselves) the higher price they pay for that brand.
And there’s a trickle-down effect to this too. Singapore airlines teamed up with BMW to revamp their first class cabins to enforce the perception that they are a luxury airline for the elite traveler. Essentially, they piggybacked on BMW’s age-old, established association with luxury.
The reason this strategy works is that our mirror neurons “watch” The Happy and The Successful enjoy life in the ads to the fullest and instantly influence us to want to be there and do that. We experience the thrill virtually and eventually want the same experience – most of the time, with the same products shown in the ads for real. Mirror neurons thus form the whole premise of advertising.
Nowhere is this more apparent than in Chevrolet’s Focus Group “experiment” for their 2015 Colorado truck. Watch this video and nothing more need be said:
These companies are thought leaders and they create new markets or shape existing ones by influencing and exposing consumers’ hidden wants in ways that the consumers feel a great need for their products. Consequently, they call the shots and decide their own price – and consumers pay happily for the price of their aspirations. Cue, Elon Musk and Steve Jobs.
Workarounds for price-consciousness
In a T. Rowe study cited on Forbes, 75% millennials reported that they track their expenses carefully and 67% stick to a budget.
This means the myth of the price-conscious consumer might not be false after all. Now this study contradicts everything we learned about unconscious buying. So why do we see this duality in consumers? And more importantly, how do companies get clarity on their consumers?
The difference lies in the perceived value of a product or a company.
If your brand doesn’t command the same type of respect that a Tesla or a Hermès does, if you aren’t in this elite group of innovative and disruptive companies (chances are you are not), what you need is better targeting of today’s consumers: the millennials. Why millennials? In addition to being the largest generation since the baby boomers, they are expected to have a spending power of $1.4 trillion by 2020!
And how do you go about appealing to their price sensitivities? Here’s a three-point guide for you:
1. Loyalty programs
Consumers today place great importance on loyalty rewards. 41% of millennialsclaim they would be encouraged to spend money on a brand that has a loyalty program. But any loyalty program won’t do; for millennials, rewards must also be personalized.
By implementing a strong loyalty program, be sure you are speaking their language and making each detail clear as day. Your campaign should touch on a few different areas:
- Be visual. Try using a video to explain exactly how it works and what members can do to accumulate points.
- Encourage them to share their spoils on social media communities.
- Make sure your prices and discounts match your brand personality.
Take a cue from Subway’s loyalty scheme. These kind of exclusive deals spur your price-conscious consumer to stick to your brand and buy more.
2. Ecommerce innovation
If you have an online as well as brick and mortar store, you can revolutionize shopping and make buying a better experience through various offerings like multiple payment points, omni-platform shopping, beacon marketing, virtual reality, etc. You also need to unify your customers’ offline and online shopping experience – a cloud platform such as Shopify offers features like connected POS systems and social media buy buttons to help sell across all digital channels.
Subtle variations in online displays and campaigns can affect price consciousnessand push shoppers towards “conversion.”
3. Influencer marketing
The BCG study quoted earlier also reported that more than half of the millennials surveyed said that people seek them out for their knowledge and opinions of brands. This is why it is important for companies to be active on social media and win over influencers.
Influencers’ voices sway the socio-cultural factors that stir consumers’ wants and impact their subconscious purchase decisions. Marketers can use software like GroupHigh enables you to identify, vet, and nurture influencers, and create relationships that ultimately result in brand reach, recall, and lift.
Over to you
Most, if not all, of our buying decisions are emotional because our brains are always on autopilot – in fact 95% of these aren’t made by conscious thinking. It follows that price doesn’t matter much if you are selling something that appeals to consumers at a subconscious level.
“The use of scientific advances requires the imaginative translation of scientific findings into effective practice in the marketplace.”
– Gerald Zaltman, Professor of Marketing, Harvard
This explains why present-day companies are always seeking and creating opportunities to innovate, repackage, and disrupt. It seems to be the only way to demand steep prices.
As for the remaining five percent (price-conscious consumers), you can always try loyalty rewards, social media influence, and ecommerce innovation.