10 Factors That Influence Your Purchase Decisions

Behavioral economics teaches us lessons on how consumers make decisions.

Posted Dec 09, 2017

//creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons
Source: By Fiona ellis-chadwick (Own work) [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons

The basic message of behavioral economics is that consumers often act against their own economic best interests when making decisions, due to a variety of biases. Consumers are powerfully influenced by their emotions and environmental cues, as well as by how options are presented to them. By becoming aware of these biases, we could develop a better pattern of thinking and deciding.

1. Of two minds

An important idea in behavioral economics is that our behavior seems to be controlled by a narrow-minded “doer” who cares about immediate gratification, and a farsighted “planner” who is concerned with the long-term satisfaction. The interests of these two selves do not always coincide (e.g., we buy things that we don't need). For example, a browser is in a planner (deliberative) mindset, weighing costs versus benefits. In contrast, a buyer is a doer, ready to purchase. The challenge for a salesperson, then, is to shift the customer's mindset from browser to buyer.

2. Situational cues 

Our mind is very susceptible to subtle or subconscious cues. It is estimated that up to 40 percent of consumers change their minds at the point of purchase because of something they see, learn, or do (Dhar, 2012). For example, if a person is vulnerable (e.g., has a sweet tooth) and close to a box of chocolates or a bottle of whisky, she will value these options differently than when she is far away from them. A study (North, et al., 1999) exposed customers in a supermarket drinks section to either French music or German music. The results showed that French wine outsold German wine when French music was played, whereas German wine outsold French wine when German music was played. However, the majority of customers denied that the type of music playing influenced their choice of wine.

3. Social norm

We tend to look at our friends and those around us (such as on Facebook, Yelp, or Amazon) to reassure ourselves that we are making the right decisions. This principle has been used by ad agencies for decades — “nine out of 10 dentists prefer Miracle mouthwash.” In most neighborhoods, dog owners carry plastic bags when they walk their dogs. This has happened in the absence of any law against not doing so. The negative emotional experience of embarrassment, shame, and guilt arises from social misdeeds (Tangney and Dearing, 2003).

4. Mental fatigue

Making a series of decisions that involve conflict leads to ego depletion. Ego depletion leads to loss of motivation, leading to a greater willingness to succumb to temptation and indulgence. Thus, at the end of a long day, people have fewer resources to overcome the urge to consume a tempting snack than at the beginning of the day.

5. Choice overload

When consumers are presented with too many options, they can become overwhelmed, leading to unrealistic expectations, decision-making paralysis, and unhappiness. For example, Trader Joe’s stores are smaller than typical grocery stores, and the choices are fewer, but consumers are happier.

6. Loss aversion

Our aversion to loss is a strong emotion. Roughly speaking, losses hurt about twice as much as gains make you feel good (losing $10 feels twice as bad as winning $10 feels good). Loss aversion is the reason we see phrases like “last chance” or “hurry” or “Stop losing $100 every year in car insurance premium by buying our plan” in marketing campaigns so often.

7. Anchoring

People unknowingly anchor or focus on the number they first see and let that bias them. Consider the price tags in a car dealership. The sticker price is merely an anchor that allows the car salesperson to make the real price of the car seem like a better deal. Supermarkets and convenience stores use promotions like “2 for $2” vs. “1 for $1” that lead us to buy more than we normally would.

8. Buy now, pay much later

We put more weight on here-and-now in buying decisions than in the long term. Retailers know that allowing consumers to delay payment can dramatically increase their readiness to buy. One reason delayed payments work is perfectly logical: the time value of money makes future payments less costly than immediate ones. This explains why people have an easier time spending money on credit cards as opposed to spending real money. This also explains why individuals are willing to buy a cheaper car with less fuel efficiency instead of a more expensive one that has lower fuel costs over their lifetime.

9. Sunk-cost fallacy  

Sunk costs are those costs that are beyond recovery at the moment a decision is made. Consider this. You paid $14 for a movie ticket. You realize after a half an hour of watching that the movie is uninteresting and tedious. Should you stay at the theater or leave? The sunk-cost principle says, “Don’t cry over spilt milk.” However, people tend to do the opposite; we stay. We have all experienced the influence of sunk costs or commitment in some form or another, such as an investment of time or money in projects or doomed relationships. It is hard to let go. In part, the act is a way to save face.

10. Self-justification

Decision makers are concerned with justifying their choices to themselves and to others. Making sense is a deep human motivation, but making sense is not the same as being correct (Wilson, 2011). For example, the person who has bought a luxury item but feels guilty about it may try to alleviate his guilt by coming up with additional reasons to justify his behavior, such as, “It was on sale, I had to buy it."

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Dhar, R(2012). The Irrational Consumer: Four Secrets to Engaging Shoppers Huffpost Apr 17, 2012.

North, A., Hargreaves, D., McKendrick, J., 1999. The influence of in-store music on wine selections. Journal of Applied Psychology 84, 271–276.

Tangney JP, Dearing RL. (2003). Shame and Guilt. NY: The Guilford Press;

Wilson, TD (2011) Redirect: The Surprising New Science of Psychological Change. Little, Brown and Company.