Economics in Marketing
Economics is the science that studies money, specifically how money is made, consumed and transferred, while marketing is a profession concerned primarily about promotion and sales of goods or services. The best marketers will often dabble in subjects like psychology, sociology, statistics and, yes, economics, because these subjects all help in creating buyer interest and making sales. In fact, the science of behavioral economics can be profoundly useful in marketing, because it sheds light on the conditions and actions that lead consumers to spend money. Marketing and economics may seem like strange bedfellows, but they’re a perfect match.
Even for marketers who have great natural instincts for messaging and connecting with audiences, studying topics like behavioral economics, psychology and sociology is fantastic for professional development.
While the umbrella topic of economics does have applications in marketing, it’s more of an academic idea than a pragmatic one, because traditional economics has some broad concepts it subscribes to that differ from the behavioral branch. Traditional economics believes that people are always rational, that they make consistent and rational choices depending on the theory of utility (that usefulness and quality relates to worth and value) and that people will allow their worldview to evolve as they gain new information.
Behavioral economics, though, sort of waves these preconceptions off in one broad stroke, because its primary premise is that people are not rational and they make purchasing choices for any number of reasons, some of which are simple errors. Behavioral economics seeks to understand the gap between people’s intentions and their actions. It looks at things like biases and other preconceptions that induce or prevent buying choices, and how these biases and preconceptions can be manipulated or capitalized upon.
When it comes to the notion of marketing and selling ideas, products and services to the public, behavioral economics, not traditional economics, offers the most value to the industry. Understanding “why people buy” is key for any marketer, and authors like environmental psychologist Paco Underhill and economist Richard Thaler have made their careers in understanding how environments and messaging can affect consumer choices.
Today, behavioral science is being used in all kinds of customer experience design, from gadgets through to apps, because industry leaders are seeing such great success in how they frame things to appeal to their end users. (Like FitBit gently encouraging its wearers to “Feed me steps,” a brilliantly positive way to remind people to keep moving, without casting shame or blame.)
Behavioral economics paved that road long ago, with mood-boosting encouragements like “buy now, pay later” or “get three for the price of two!” You might scoff and dismiss these as good examples of behavioral economics, but they are, and that "framing" of expenditure should be every marketer’s first rule in applying behavioral economics to marketing — make the price feel less painful for the consumer.
How consumers make choices varies depending on what’s being sold — services, products, etc. — right down to the item itself. For instance, when consumers are choosing an ice cream, they often look at branding first then flavor then price, whereas consumers buying a thermostat for their home will zero in on the cost and function, with the brand being a distant third. Understanding even these simple decision-making actions by consumers helps marketers reach their target audiences better.
Behavioral economics have inspired marketers to use a variety of ways to influence consumer choices. From packaging through to where and when messaging occurs, behavioral economics means marketers have learned how to impact their ideal consumers because they understand who their audiences are and why they buy. Today, every marketing choice in the life of a product, from design through to sales, is a reflection of all that's been learned from behavioral economists.
- Branding and Identity: By having a strong brand, consumers know what they should expect, and this creates loyalty and word-of-mouth referrals. If you think about the world’s biggest brands like Nike, Disney, McDonald’s and Starbucks, then you instantly know more than just the name, don’t you? You know price points, products, where you can get them, who likes them and you probably even know where the companies stand on some of today’s social issues. That is what branding is today; it's so much more than just a logo and a name.
- Traditional and New Media: Advertising of all kinds still dominates the marketing world — TV commercials, print ads, radio jingles. Despite the advent of new media, these traditional formats are going nowhere. In fact, they are often getting executed in new ways. For instance, affiliate advertising through blogs and even major news sites is common now; the brand doesn't pay up-front for the advertising, but instead compensates the blogger if sales are made. As for commercials, it’s common for brands to create ones that play just once or twice to create a buzz, but then rely on platforms like YouTube for viral, on-demand marketing.
- Social and User-Generated Content Marketing: Twice, Facebook, Pinterest, Snapchat, TikTok, Instagram — all these sites are so widely used now, with over half the world’s population using social media for staying informed, being connected and just killing time. Engaging with audiences has become a huge new avenue in marketing and is absolutely gold for market research. It also allows for sharing content created by users to bolster marketing efforts. “Influencers” are often used to reach target audiences within these platforms.
- Street/Guerilla/Buzz Marketing: Creative marketing designed to catch attention, which might just be one gag art installation somewhere or even a tweet designed to “Rick-roll” the audience, is considered buzz marketing_._ Aspects of it can be guerilla or street — like when the makers of a "King Kong" remake film marketed it in L.A. by having a set of “mystery” giant primate footsteps appear in the sand overnight in Santa Monica, sparking fun news stories and lots of social media shares worldwide.
- Packaging, Point-of-Purchase and Retail: While packaging comes under branding, it also is a sort of stand-alone beast, because it needs to be designed to be noticed on shelves that are increasingly full of competitors. Point-of-purchase marketing, via displays and signage, has a lot to do with a product or brand’s success. In this category, maybe more than any other, behavioral economics can have a dramatic impact on sales, from colors and fonts used right down to price points and product location in shops or cities.
For marketers who grasp the fundamentals of economics and how product, pricing, promotion and place weigh into purchasing choices made daily, they’ll have a leg up in conceiving ways to get their message heard, no matter what platform or media they embrace. With mass production being so much cheaper, usually, than making food or goods at home, consumers make more purchasing choices more frequently than ever before.
With the onslaught of online marketplaces and doorstep delivery, marketers are forced to get creative and use social media, traditional media, street promotion and branding to generate consumer awareness, action and loyalty. By understanding their audiences through behavioral economics, marketers may make better choices in where to put their efforts.