Daniel Kahneman, PhD, a professor of psychology at Princeton University, won the Nobel Prize for Economics in 2002. The interesting thing is that he wasn’t an economist. In fact, he said he’d never even taken a class in economics. Dr. Kahneman is a psychologist.
What he did with his research, beginning back in the late 1970s, was usher in a new way of thinking about why customers buy and how purchase decisions are made. His conclusion: companies that can better understand and accommodate consumer decision-making processes, and can help fulfill the emotional promise, will create more loyalty and realize increased revenue over an extended period of time — simple behavioral economics.
This dispelled the traditionally held notion of a “rational agent model,” which assumed purchase decisions are made rationally and logically through cost/benefit analysis. Kahneman’s findings showed the customer decision process to be far more complex, based on perception, context and emotion that often lead to faulty reasoning.
At times we buy things strictly for utility and those decisions tend to be rationally driven and emotionally reinforced. More often, he found, purchase decisions are emotionally driven. When we buy on emotion, the expectation most often exceeds the actual utility value and the product under-delivers, in which case we rationalize and adjust our expectations accordingly. The reason for this is that we want to feel good about our purchases; it’s all about the pursuit of happiness with a credit card or whatever. But his point was that within the context of any given purchase decision is a situational distortion, a sense of inflated importance at the time we are making a purchase decision, that exceeds utility value and skews rational thought to more emotional purchase criteria.
“Nothing in life is as important as what people are thinking about while they are thinking about it,” Kahneman wrote.
Thinking about it today, this was some pretty forward customer-centric thinking in a very product-centric time. But what does all this mean to us now?
Well, if we’re consumers, it could mean we might want to get out the EmoBracelets and start doing our cost/benefit analysis. If we’re business, it could mean we want to try to create some kind of emotional attachment with our brands, by engaging customers in a more meaningful way, with a higher purpose: not just to sell and make a profit, but to help customers buy and feel good about their purchases.
Dr. Kahneman was a little ahead of his time with this kind of insight into the consumer mind. Since then he has continued his work in decision sciences with Gallup, but now, more than 30 years later in a post-recessionary, customer-controlled market environment, it has suddenly become very relevant.
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