Behavioral economics expert Melina Palmer on unlocking the science of consumer behavior
The majority of our purchasing decisions are made by the subconscious brain. Do you know how to communicate with it?
For many years, economics followed the tenet of the economic man – a theory that assumes individuals are rational in their decision-making and make logical choices based on cost-benefit analyses. That, of course, turned out not to be the case. People aren’t always rational when making economic decisions. And that’s where behavioral economics comes in: by drawing insights from psychology, it recognizes that human behavior is often influenced by emotions, cognitive biases, social norms, and many other factors, shedding light on the inner workings of our decision-making.
Behavioral economist Melina Palmer believes that this insight is crucial to consider when creating marketing and sales strategies – don’t appeal to the rational man, target the subconscious mind. And the best part is that a few tweaks here and there can make all the difference. Melina is an applied behavioral economist, consultant, teacher at Texas A&M Human Behavior Lab, and host of The Brainy Business podcast. She’s also the author of the book What Your Customer Wants and Can’t Tell You: Unlocking Consumer Decisions with the Science of Behavioral Economics, which explains the neuroscience of consumer behavior. And that’s precisely what we’re going to be talking about today. What messaging works best? Why do people buy the things they buy? Why do customers pick certain brands over others?
In today’s episode, we’ve caught up with Melina to talk about the secrets of consumer decisions and how to use behavioral economics to communicate more effectively and boost your bottom line.
Short on time? Here are a few key takeaways:
- Framing things differently can have a big impact on consumer behavior and decision-making, and businesses can use it to attract customers and differentiate themselves from competitors.
- In business, it’s important to learn how to understand what motivates the subconscious part of the brain that is involved in the buying process and learn how to communicate with it.
- Applying behavioral economics is like baking: when you understand concepts such as framing and anchoring, you can combine them and tweak the recipes to drive business results.
- As a herding species, we seek safety in numbers – that’s why testimonials and star ratings are effective in influencing behavior. Numbers are also really powerful in swaying our decisions.
- Be more thoughtful and question habitual decisions. By applying this mindset and constantly testing and tweaking things, you can open new opportunities for business growth.
If you enjoy the discussion, check out more episodes of our podcast. You can follow on Apple Podcasts, Spotify, YouTube or grab the RSS feed in your player of choice. What follows is a lightly edited transcript of the episode.
From broadway dreams to behavioral economics
Liam Geraghty: Melina, thank you so much for joining us. You’re very welcome to the show.
Melina Palmer: Excited to be here.
Liam: To kick things off, could you tell us a little bit about your journey up until this point in your career?
Melina: Sure. I had actually always planned to go to school for musical theater. That was the plan forever and ever. And then, in high school, I decided I didn’t want to be a high-school choir teacher. I loved my own, but that was not the path that I wanted for myself. I ended up in business administration and marketing. While I was doing my undergrad, there was one class where there was one section in one book about buying psychology and why people do the things they do, and I thought it was just the most amazing thing I had ever seen in my whole life. I had never really thought about getting an advanced degree, but then I said, “I’m going to get a master’s in this.”
“I knew I was early because I had been looking for it, but I didn’t realize just how early”
I spent the better part of 10 years calling universities that all said, “That’s not a thing. That doesn’t exist,” as I was trying to find something. Then, I was working in brand strategy and marketing, and I ended up coming across some people from what’s called the Center for Advanced Hindsight at Duke University, which is their behavioral economics wing led under Dan Ariely. And when they were talking about their research, I realized this was the thing I had been looking for. And so, I cornered them and made them talk to me for much longer than I’m sure they wanted to. They said it was called behavioral economics, and I found myself a master’s program.
I knew I was early because I had been looking for it, but I didn’t realize just how early, especially on the applied side. There was quite a bit of academic research, but even then, it was a few decades worth of research versus some other fields. All this stuff that was really clear to me about how this applies to communication, change management, and brand strategy – nobody was talking about it anywhere. And so, I had that “why not me” moment, started The Brainy Business Podcast, and it really took off because it was the first of its kind. And that’s led to books and teaching and keynote speaking and all sorts of fun stuff.
Liam: Brilliant. And I presume you’re still a musical theater fan?
Melina: Yes, for sure. That was the thing. I can always sing without a degree, but it’s harder to do something else with a musical theater degree. I’ve sung the national anthem for the Seattle Mariners, the Seattle Storm, and some others as well. So yeah, I still get out and sing sometimes. But doing the keynotes and podcasting has the being-on-the-stage vibe that I like.
Understanding consumer decisions
Liam: Brilliant. You’ve written this fantastic book that we’re going to chat about today called, What Your Customer Wants: Unlocking Consumer Decisions with the Science of Behavioral Economics. The first thing I wanted to ask you; what are behavioral economics?
Melina: If traditional economics and psychology had a baby, we would have behavioral economics and behavioral science. It’s all about the psychology of why people buy. I also build change management into that. Even if money’s not exchanging hands, you still need someone to buy in on whatever idea you’re selling them. And so, understanding the rules that the brain actually uses to make decisions instead of what we think it should do is where we get into behavioral economics.
Traditional economics assumes logical people make rational choices in everything they do. As we’re all human, we know that’s not the world we live in. And behavioral economics has found these common threads within the brain to be able to predictably understand what people will really do.
“What’s really cool about behavioral economics is you can make small tweaks to things that don’t have to cost money and have a huge impact”
Liam: In a business context, why does this matter?
Melina: Well, even though we’ve got some real tech out there, you are still likely doing business with human people. You’re probably always going to be selling to humans, even when they’re within organizations for large B2B-type contracts. And you’re working with other humans. Being able to communicate with them more effectively and understanding how to work with the rules of the brain instead of making it much harder is incredibly important.
What’s really cool about behavioral economics is you can make small tweaks to things that don’t have to cost money and have a huge impact. And the swings go both ways. You may be messaging something and it’s being a total flop, and it’s not that the pricing is wrong, and it’s not that the product is wrong – you just framed it wrong. Something might be off, you can make a tiny tweak, and everything can then work.
Liam: I’ve seen you talk about a great example of the previews for Netflix movies. This is one I’d noticed myself using streaming services – a film that I might not necessarily have been interested in but suddenly, the image is now of a particular actor in that film, and they know through the algorithm that I like this actor. And that’s what sells it to me.
Melina: For sure. And they might have a super obscure part. That’s the one second they’re in the movie, but you’re like, “Tom Felton is in this?” And that research was just on simple A/B testing. If we try to look way back in the day, they would just take whatever imagery came from the studio. That’s what you would use, and you assume it shouldn’t matter. The description’s good enough. And whatever, we should like the movie and go watch it. But what Netflix found was that changing the image would increase the click-through rate and likelihood of staying within Netflix by as much as 30%. And again, they were able to do that with simple A/B testing. Being able to know what you’re testing for and making those simple changes can make a really big difference.
“Within business, looking for all those points where you are communicating in 10% fat terms, how might you change it to be 90% fat-free?”
There’s another example that I think helps with this concept of framing. If you’re going to the grocery store to buy some hamburgers and there are two stacks, almost identical, but one is labeled as 90% fat-free, and the other is 10% fat-
Liam: I’m going for that 90% fat-free. It’s so weird when you say it like that because you’re just imagining that 10% fat.
Melina: It feels gross. I haven’t been to the gym in three years. I don’t want that at all. 90% fat-free feels like this amazing choice you’re making for yourself and your family. We know it’s the same thing, but it feels completely different. Within business, looking for all those points where you are communicating in 10% fat terms, how might you change it to be 90% fat-free? And even better, is there a spot where your entire industry is talking 10% fat, and you can be 90% fat-free? Even if you’re saying the same thing, saying it slightly differently can make it so that people naturally choose you. That’s the power of behavioral economics.
Liam: The Amazon buy now button is also kind of a fascinating one.
“People will ask for a gargantuan amount of things that are not relevant to the one thing they’re trying to get done”
Melina: We’ve all used the buy now button many times. But we probably don’t realize that Amazon patented one-click buying back in, I think, 1999. They made it so no one else could have one-click buying. We keep saying, “It’s just one more form, one more click, one more link, one more this, one more that, no big deal.” But that is a really big deal. It’s this little moment of friction. Steve Jobs paid $1 million to have one-click buying in iTunes. He bought that from Amazon to have the rights to that. And he paid $1 million to reduce a single click. If all those extra tidbits were to add up and be that million-dollar, do you actually need them?
I see this all the time with my clients, when I interview for books and things, and just as a person trying to buy stuff. People will ask for a gargantuan amount of things that are not relevant to the one thing they’re trying to get done. And if you ask, “If we only get one thing out of it, what’s the most important thing?” Maybe you just want to have the email address of someone potentially interested so you can follow up with them. So asking about their job title, how many years they’ve been at their job, what their household income is, their gender, and all these things that might be relevant down the line, are actually making a lot of people leave before you had a chance. You pushed them away with stuff you didn’t need right now. And so, being more thoughtful about that can make a big difference in conversions.
Becoming an elephant whisperer
Liam: How would you describe the way the brain works?
Melina: In behavioral sciences, the brain has two systems of processing. I like to use the terms conscious and subconscious because it’s stuff people are familiar with, and as far as getting what it means, that’s the easiest way to think about it. We know we have a subconscious that’s doing some stuff, but we really underestimate what’s happening there.
My favorite analogy for thinking about the brain is from a psychologist from NYU. He says to think about the brain like a person riding an elephant. You have your logical, conscious riding – you know where you want to go, and you have a plan for the best way to get there. But you’re at the mercy of that subconscious elephant. If it wants to go in a different direction or if it wants to sit down, you’re stuck. You can’t push or pull or logic it into going where you want it to go.
“How you say something matters more than what, and that matters to that subconscious elephant”
And those two systems of the brain don’t speak the same language, so they don’t connect and talk to each other. In business, in all communication, we like to think we’re a writer communicating with other writers. But the buying brain is that elephant. I joke about becoming more like an elephant whisperer – being able to understand and communicate with the elephant and what motivates it. The writer is going to be able to explain why they knew it all along, and that was the best way, but drawing in the attention of the elephant is where you want to focus that subconscious processing.
And we think about that framing piece where we’re talking about buying the hamburger and the 90% fat-free. This is a rule of framing and understanding the way we present information. How you say something matters more than what, and that matters to that subconscious elephant. The writer can say, “Oh no, it doesn’t matter. That wouldn’t sway me.” And yet, it does.
We’re a herding species. And this is why testimonials, star ratings, and other social proof are very important. Understanding why we need that to feel safe – when we’re uncertain, we look to what other people like us are doing. And knowing that numbers are really powerful in swaying the way we look and think about things.
Those rules that the subconscious is using to make decisions are those concepts of behavioral economics. What I do in my books and the podcast and consulting is help people understand those rules and how to start applying them. So in what your customer wants and can’t tell you, I’ve picked 16 concepts of the hundreds that exist that I think are the most important for people in business, and there’s a chapter for each. And then, you can start looking at how you might bring them together.
Liam: As you said, there are 16 in the book. Just as an example, could we pick one now and have a quick chat about it?
“With 18, you might go, ‘I’m way better than everybody else. I don’t need 18. I’ll just get six.’ Whereas, coming up from zero, maybe we get two or something”
Melina: Of course. I already talked about framing, which is the first one. Another I think is really fun is anchoring. There was a study, another of my favorites, that was also in a grocery store, and they had two end cap displays. One was, “Snickers’ bars: buy them for your freezer,” and the other said, “Snickers bars: buy 18 for your freezer.” Most people can agree that 18 is probably more Snickers than we are buying. It’s an arbitrary number. But that writer would say, “But them is unlimited. And people could get 100 Snickers if they wanted to.” And it probably feels like it doesn’t make that big of a difference, but there was a 38% increase in sales when the number 18 was used instead of the word them. And that’s the only difference that there was.
Here’s a little bit of what’s happening. Them is kind of a fancy word for zero if you’re not already planning to buy. With 18, you might go, “I’m way better than everybody else. I don’t need 18. I’ll just get six.” Whereas, coming up from zero, maybe we get two or something. The other thing is there’s a subtle shift in the question behind the statements. In the case of them, you’re asking, “Hey, would you like some Snickers?” Whereas when you have a number, it has that implied sale. You’re reframing it to ask, “How many do you want to buy?” It’s a slightly different question. And that can impact and change the behavior of the person looking to buy.
Behavioral baking: tips and tricks
Liam: I love the way you described this behavioral bakery, as you call it, for people thinking about using all this and taking in all the ingredients. How does that work?
Melina: As you think about applying behavioral economics, I have this concept of behavioral baking. If you decide to open a bakery, you probably need to know what all the ingredients do on a basic level because flour, sugar, butter, and eggs can be combined in all sorts of different ways to make all sorts of different things. You want to know each one on its own, so you don’t end up putting three cups of sugar and a tablespoon of flour, hoping it’s going to be a cake. That’s not going to be great for you.
“You can’t say, ‘I tried to replicate one thing one time, and it didn’t work, so that’s not a real thing.’ It’s more of a lifestyle of these little tweaks, testing things out, and asking thoughtful questions”
And then, you have to know what you want to make. Are we making cupcakes, brownies, cookies, or pizza? And then, you’re probably going to follow some recipe – probably something super simple from the beginning, like a box cake mix. So, in the book, I have a couple of “recipes” for you to start playing around with as you bring in the concepts.
And if you were baking, you would never try to bake something, and if your cake came out dense or soupy, you wouldn’t say, “I tried baking once.” That’s a ridiculous thing to say, but we do that in business all the time: “I went on TikTok once, and I didn’t go viral.” That’s not a thing. And with behavioral economics, it would be the same. You can’t say, “I tried to replicate one thing one time, and it didn’t work, so that’s not a real thing.” It’s more of a lifestyle of these little tweaks, testing things out, and asking thoughtful questions. Concepts like framing and anchoring are our ingredients, which is why I introduced them one at a time, so you get to understand them on their own. And then, you have some tried and true recipes to start putting them together before you start experimenting and throwing in cinnamon, chop nuts, or something like that.
Liam: What are some simple things that people could start thinking about in terms of implementing this?
“What if we are a little bit more thoughtful, become that curious questioner, start to look for different opportunities, and say, what if?”
Melina: The first thing I always tell everybody is to be thoughtful. That’s what I always say. And that’s mixed in with being more thoughtful about the things you do. The subconscious makes decisions on habit. The majority of what we’re doing is habitual, and we don’t realize it. And it’s the same with our customers.
When you are making a decision, open one email versus another, delete a LinkedIn request and accept another, or notice there’s a box of cereal on the top shelf in the grocery store, “I wonder why that is. Why did I open this one? Did they put it there on purpose, or was that just happenstance? And what if it was on the bottom?” What if we are a little bit more thoughtful, become that curious questioner, start to look for different opportunities, and say, what if? What if we change the subject line? What if the email was a different structure? What if we didn’t do our meetings this way? There are so many different ways you could apply this.
A couple of easy things you can apply from the concept of framing are three little tweaks I always recommend. Instead of saying if, look for opportunities to say when. It’s a simple shift, but if you say, “Hey, if you have questions, let me know,” or, “If you’re interested in buying, here’s the link.” And that just sort of hangs out for everyone. But if you say, “When you’re ready, here’s the link,” that has an implied sale.
“Our brains are really wired to want to answer questions. And so, when you end with a question, it’s going to prompt them to say something”
The other one is to go from anyone to everyone. Being a herding species, we like to feel safe and that everyone is doing something. And so, when I have a guest on the podcast, I don’t say, “If anyone wants to get so-and-so’s book, there’s a link for you.” I say, “For everyone who is ready to go and get this book, the link is waiting for you in the show notes.” The safety in the herd is a really simple shift we can make versus feeling super isolated as the anyones of the world.
And lastly, go from ending a sentence to ending on a question, especially in an email, if you want people to respond. Our brains are really wired to want to answer questions. And so, when you end with a question, it’s going to prompt them to say something, which is often all you need in that first little bit to not get ghosted. Instead of saying, “Hey, here are the dates. Let me know if these work for you.” You can say, “Here are some options. Which of these is best for you?” Ending on that question will typically help get that conversation rolling.
The issue with hallucinations
Liam: Before we wrap up, particularly because we’re talking about the conscious, the subconscious, and the brain, I’d love to get your thoughts on artificial intelligence. ChatGPT is everywhere.
Melina: Yeah. I think there is a lot of crossover in understanding human behavior. The data is only as good as the way we’re able to interpret and understand it, and so, being able to have this alignment of knowing what you’re looking for and why you’re looking for that is important both from a programming side and from an interpretation side. In the case of things like ChatGPT, I think there are a lot of really great opportunities, and I’m excited to see what happens. The biggest concern I have in this is seeing and hearing reports of lots of citing sources that don’t exist. That’s something that apparently ChatGPT does.
“Then, you share that thing, and more and more people believe it. There’s a problem with misinformation and you can’t un-ring those bells”
Liam: The infamous hallucinations.
Melina: Right. And you’re often using it as a tool because you don’t know the answer to something. If I was using it and I go to pull a source or something and say, “They didn’t write that paper.” I know that’s not what that means. I know that pretty quickly. But people that aren’t experts in the field would say, “That’s the truth. It’s cited as a source. It’s real.” And then, you share that thing, and more and more people believe it. There’s a problem with misinformation and you can’t un-ring those bells. That’s something that needs to be fixed. Then, it can make things much more likely to have great value.
In the interviews and conversations I’ve been having with people, it’s really about looking at training people to be better questioners, to be able to use it as a tool to help you understand. I think it has really great potential, and I just want to make sure it’s providing factual information.
Liam: Yeah, absolutely. Melina, it’s been so lovely to chat with you today.
Melina: Yeah, thanks so much for having me.
If you’d like to get a free chapter from both of Melina’s books just go to www.thebrainybusiness.com/intercom
