I’m fascinated by the topic of psychology and its implications on business and economics. Often times refereed to in business as consumer behavior and something I specialized my degree in. Understanding your customers and how they think has a direct relation with your bottom line. Market research, human resources, and marketing all have a relation in some way to the study of psychology. Even business owners should understand and learn a bit about psychology and consumer behavior. There are simple things you can implement that will have a great impact on the success of your business.
Among many resources that focus on this topic I would highly recommend the book called Predictably Irrational by Dan Ariely. It focuses on the hidden forces that shape our decisions. Many of these decisions can be applied in a business setting.
In general, there are basic psychology theories and effects that business owners and managers can use to improve their business. Little things can change the perception of your business or increase sales. Here are three common examples of how you can use psychology to improve your business:
1. Ben Franklin was known as an inventor of many things including theories in the field of psychology and one was the Ben Franklin Effect.
“He that has once done you a Kindness will be more ready to do you another, than he whom you yourself have obliged.” – Ben Franklin
This effect suggests that if you ask a favor from someone such as a customer than they are more likely to have positive feeling towards you. This will affect customers perceptions and influence more people to have a more positive view of you than you would otherwise have. This can be as simple as asking customer’s to share your business card. It has two positive implications for you. First, your business card will go to a new potential customer and second the customer you asked the favor from. The long-term benefits, although small, will add up over time and increase sales and positive reputation for your business. The small details such as these have a huge impact over time. The details such as this mean everything to the success of your business. Make sure your employee’s understand this!
2. Retail atmosphere has a huge psychological impact on customer’s perception of products and services. How customer’s perceive the retail store is refereed to as situational influences. If a store smell good, looks colorful, clean, organized, and adequate lighting it can have a positive impact on how customers perceive products. The perception of products, staying even, can change depending on its surroundings. A common example would be a jewelry store in which the atmosphere and displays have a positive impact on the perceived quality of the rings and necklaces. Prices should than reflect that quality. This means that the better the atmosphere is the higher a business can sell its products for. On the opposing side a customer will feel they are getting a better deal for sales products if the racks are a bit messy and disorganized. The most simple things like the spacing of hangers or the cleanliness of a bathroom have huge implications on the perceived quality of products. Details matter!
3. Pricing is truly an art and science. There are many psychology theories and effects when it comes to pricing. Not just the accounting and marketing strategies that need to be considered. Dan Ariely goes into detail on how customers compare products when purchasing a home or looking at a menu. Pricing and comparisons have a direct relationship.Dan goes into detail about how the second most expensive item on a menu has more sales than the most expensive. Because of this extreme aversion and comparison the second item should have a higher margin. This increases revenue over the long run. Psychology plays a big role in pricing and revenue. Considering details in this can impact the success of your business. Consider price more carefully!
Business owners and managers can use psychology to improve their business over time. Details play a huge role in what customers perceive and buy. Understating basic psychology principles and applying them to your business can be the difference between success and failure. Details matter and psychology plays a huge role in understanding the little things that matter.