The notion that humans act rationally in day-to-day actions has been an unwillingly accepted conventional wisdom throughout most of the history of schools of economic thought. The recent growth of research into behavioural economics is turning the tide and seeking to produce insights into how our minds work which may then be used as inspiration for new economic models that take into account this irrationality. This research has uncovered many features about how we as consumers react to different stimuli which has inevitable implications on how marketing campaigns are effective in influencing consumer behaviour. As Peter Drucker said “The aim of marketing is to know and understand the customer so well the product or service fits him and sells itself” and I will explore to what extent behavioral economics can give us a deeper insight into the consumer’s mind.

According to Daniel Kahneman’s Thinking Fast and Slow people’s mental capacities can be categorised into two systems; system one thinking and system two thinking. System one is the brain’s “fast, automatic, intuitive approach” whereas system two is the mind’s “slower, analytical mode, where reason dominates”. People generally use system one thinking for most of their day to day activities like grocery shopping or deciding where to eat. People typically reserve the much slower and lazier system 2 for calculating their budgets or balancing their chequebooks. Given that most consumer decisions are made using System 1 thought processes marketers therefore tend to benefit from a deeper understanding of how the system 1 thinking works. However there is also a hypothesised link between system one and two thinking whereby system two thinking can help guide system one thinking. For example when you first purchase a good you may undertake careful research about what brand is the best value for money, which would be classified as system two thinking, but then you will automatically buy that same brand every time and hence undergo system 1 thinking. This lends itself to a self-reinforcing cycle whereby brands with large consumer bases tend to maintain them regardless of the quality or price of their competition.

In order for a firm to begin an increase in their consumer base they must employ marketing strategies to target system two thinking to capture new consumers of that good. They should therefore have advertising campaigns that include rational arguments such as being the cheapest brand whilst ensuring they employ techniques tailored towards system one behaviour like ensuring they have memorable and easily distinguishable branding.

Companies can also exploit the psychological effects of priming, where there is an implicit memory effect in which exposure to a stimulus influences a response to a later stimulus. What this means is that the consumers subconsciously remembers something when they are exposed to a certain stimulus, like seeing or hearing an advert, which will then lead to the influencing of a response when they are in a different environment. This can be seen in marketing since certain adverts push consumers to the point of purchase, for example you could see a billboard for MacDonald’s whilst driving along the motorway which can make you more likely to then eat at MacDonald’s for lunch.

As well as this there is significant research into the impacts of choice architecture. The fashion through which choices are presented to the consumer are credited with actually influencing their behaviour, making them more or less likely to purchase the product. This applies to only some firms like restaurants which sell multiple products. The most obvious way in which it does this is it simplifies the presentation of the options; giving a clear description and an unambiguous price making the consumer more likely to make a purchase. However a more interesting and conniving way it influences people is through the decoy effect. This is where a much more expensive product, the decoy, is placed in the menu which makes the other options look much more reasonable than they would without the decoy. The theory behind this lies on one major assumptions that if someone is overloaded with choice, like in a restaurant, they will make the decision based on the other dishes since choices are much easier to make relative to other offers than on their own.

Therefore while the work of behavioural economics continues to reveal that consumer decisions are more complex than our previous models took into account, it also creates new realms of opportunity for marketers to appeal to their consumers through rational and irrational messages alike.