The role of marketers is to inﬂuence consumer behavior, both short- and long-term, in favor of the brands they manage. We need to retain our customer base, increase purchase frequency, and turn non-users into users. Therefore the question of why consumers buy what they buy, and the search for what it is that determines their choices, are at the core of marketing.
In a ground-breaking experiment (see figure 1), neuroscientist Brian Knutson, Professor at Stanford University, and his colleagues (2007) wanted to ﬁnd out if it was possible to predict purchase behavior by analyzing neural activity. His research began with images of products and brands undefined for example a box of chocolates undefined shown for a few seconds. Then, additionally, the price appeared on the screen, and ﬁnally the respondents had to state, by pushing a button, whether they would buy the chocolates or not.
Figure 1 Illustration of the classic neuro-economics study ‘Neural predictors of purchases’ by Knutson and his colleagues from Stanford University
Brain activities were measured the entire time using brain imaging (fMRI). This showed that the picture of the product or brand increases the activation of the so-called ‘reward system’, which is known to be triggered when we value something. It’s as if the brain says, ‘I want to have this.’ This wanting is based upon the value that we expect the product to deliver. In our associative memory we have experiences with the brand undefined from using it directly or indirectly, from processing its advertising or from seeing other people using it. Based on this associative learning we have an expected value delivered by the brand. If this expected value is high, then the reward system shows a high level of activation. If the value is low, then the level of activation will also below.
Now what happened when the price was also shown? When the price was exposed to the respondents, an entirely different area of the brain was activated, namely the insula. This area is normally activated when we experience pain undefined for example, when we cut our ﬁnger (physical pain) or if we are excluded from a group (social pain). In other words, when looking at price, the brain experiences pain undefined so that means that price isn't anything rational. Price is hot! Price is pain. To explain this we have to be aware that there is no ‘shopping’ module in the brain, nor is there a ‘buy button’ or a brand module. Rather, the brain has to ‘decide’ which of its existing neural modules, all developed for reasons totally different than shopping, should deal with products, brands and prices. The result makes intuitive sense. Products and brands reward us because they help us to achieve our goals. Prices imply giving away something we already own, and which is of signiﬁcant value to us: money. That this is coded as a painful experience seems reasonable.
The scientists then uncovered the underlying principle that determines whether the brand or product will be bought or not. The principle they found is strikingly straightforward: if the relation between reward and pain exceeds a certain value, the respondents are willing to purchase this item for this price. Our brain calculates a kind of ‘net value’ and if this is high enough, if the difference between reward and pain is great enough, then we buy. Based on this principle the scientists were able to accurately predict whether the respondents would buy these products or not, hence the title of their paper, ‘Neural predictors of purchases’.
Knutson's results show that purchase decisions are based on a reward-pain relationship. This means that in marketing we have to levers to influence consumer decision making - reward and pain - and that they can be independently addressed. In order to make consumers buy, we can increase reward and at the same time decrease pain. It’s not uncommon, though, for marketers to adopt a dualistic mindset. For us, the question is whether to focus on the brand or, for example, on a special price offer, as if there were a dilemma in doing both. There isn't. The goal is to increase the ‘net value’ the brain calculates based on the expected reward of the product and the price. This enables the same piece of advertising to focus on the value that the brand or service offers but also to include a ‘hard sell’ price message (such as ‘for a limited period 30% off’). The ﬁrst message increases the expected reward, the second reduces the pain, and the unity of both increases the net value.
This simple but fundamental basis of decision making explains why Starbucks can command a premium price for its coffee, or why some people will pay three-ﬁgure sums for designer sunglasses. The reward triggered by the brand increases the perceived value, which makes us less resistant to the higher price. The price is higher but, correspondingly, the reward is too, so that, subjectively, a better value - cost relationship exists than that for cheap sunglasses.
Source: A few pages from Decoded, The Science Behind Why We Buy, by Phil Barden. Phil is Managing Director at Decode marketing Ltd, a proven marketer with over 25 years' experience including senior and international roles at high profile companies such as Unilever, Diageo and T-Mobile.