Understanding Neuroeconomics to Yield Better Performance
By Justin Jarvinen, Head of Execution — Strategy & Innovation at Salt Flats
Understanding Neuroeconomics will yield better performance results in your marketing and customer onboarding efforts.
Consumers have (tons of) choice.
As consumers, we process dozens of purchase-related decisions a day. Most aren’t conscious decisions, but all of them are impacted by myriad factors such as personal preference or bias, perceived utility, timing, availability, cost, messaging, and offers from a nearly limitless number of brands, in dozens of channels, and, well, you get the point.
For brands, it has become increasingly difficult to stand out — to secure new and profitable, long-term customers. AI, Marketing Automation, CRM and a vast number of tools have become available to marketers to help them identify profitable customer segments and investments. But even with a great product, marketing smarts, and advanced analytics, marketers still build their programs using the same old assumptions about consumer behavior. And most of our marketing investments are made using conversion estimates on outdated thinking about how to drive a desired behavior.
As we begin to understand more about how humans actually make decisions — and develop creative ideas and tools that directly address our learnings, our models will begin to yield far better results. The outcome payoff is what your customer is expecting in return for her activity, or purchase, and it’s going to be our job to make her feel like the payoff was well worth the effort (or, in the brain’s case, the risk).
A neuroeconomic view of your consumer.
Dopamine is a neurotransmitter that plays an important role in reward-motivated behavior. While neuroeconomics and its application to marketing is still deep in its infancy, the field of study has linked the release of dopamine to rewards and has, in turn, unearthed fascinating discussions around decision making, game theory, the theory of social preference, and loyalty, just to name a few. Understanding (and measuring) how an individual consumer perceives a reward — and what it’ll take to get it — neurologically, builds on the predominating behavioral and classical models used by many marketers and finance pros today.
You don’t have to go run out and become an expert at reward systems or neuroeconomics. I think it’s enough for modern digital marketers and strategists to have a baseline understanding of how the human brain makes decisions and how those decisions can be influenced in an authentic sort of way. Understanding the concepts presented by neuroeconomics will more than suffice for now. A good, quick and easy read I recommend is Neuroeconomics: Decision Making And The Brain.
It’s all about Outcome Payoffs.
When you (as a brand) have asked a consumer to go on a journey with you — to travel down your well planned and funded path to purchase — you’re really asking her to do something. You’re asking her brain to determine whether it’s worth her while.
And you’re scoring her along the way.
She’s becoming a better prospect as she moves through your funnel. Let’s call that fitness, where she has a higher likelihood of survival — or making a purchase, the further she progresses. What your customer receives in return for her effort needs to be worth it to her, and so forth; both sides understand there’s an economic arrangement at the heart of the relationship. To get a broad understanding of anything related to the above, grab the Kindle version of Decisions, Uncertainty, and the Brain, The Science of Neuroeconomics by Paul W. Glimcher.
Understanding payoffs is essential to making the right decisions about who your customers are and how they’re individually motivated — not to mention what specific levers you have to influence or motivate your desired behaviors. What’s important to this individual? How can my experience be reflective of their individual value or belief system? How busy are they and how does my product or service fill a utility void?
At Salt Flats, we’ve been developing a model for innovation that helps us harness creative problem solving within the context of driving revenue, profit, and shareholder value. This framework builds on our understanding of neuroeconomics and, specifically, how humans think and make decisions about just about everything. Armed with this understanding, your efforts will yield more predictability, make your forecasting more accurate, and inform more fruitful marketing strategies.