Understanding Consumer Behavior: Signaling

The way people make purchasing decisions isn’t always logical. Consumer behavior is determined by a great number of factors. One of the challenges of good marketing figuring out the best methods that appeal to how most people think when they’re shopping.

A recent article in the New York Times takes a look at some of the eccentricities in how people choose their favorite brands. The basic argument of the piece suggests that for most consumers, decisions are made via a mix of reasonable research and emotional impulse.

The writer, Davidson, offers the example of his decision to purchase a more expensive baby formula, largely because the company’s been around longer than many of its competitors. This signals to him that they care about their reputation enough to consistently offer a quality product. This is an assumption based on little evidence, yet one many other consumers are likely to understand.

For certain purchases, especially for items that influence the health of your family and more costly purchases, people want to feel confident that they’re choosing an item of the best quality. Whether or not they know that the product’s the best matters less than how they feel.

For many small businesses, it isn’t too complicated to ensure that your company is well represented in the research phase of consumer shopping. Any business that cares about its reputation knows already to only offer quality products and consistently excellent customer service. It’s the more emotional side of consumer behavior that can present a challenge.

Many of the examples the article cites of successful signaling by brands consist of larger companies demonstrating their success by spending lots of money on advertising. If they’re already successful, the thinking goes, clearly they’re already doing something right and consumers should have confidence in their product.

So how can a small business use this knowledge of consumer behavior on a smaller scale?

  • Include customer testimonials on your website, to give people confidence that you’ve provided quality products and services in the past. If one of your customers is known and respected in the community, all the better.
  • Are you a member in a trade organization? Have you earned any awards or received favorable reviews? Show that on your website. It lets visitors know that your business cares about its reputation and as such will strive to offer quality goods and services.
  • Make sure your website looks professional. If it looks sloppy or poorly designed, people are less likely to trust that it’s a legitimate business. It’s worth it to spend a little money on a good graphic designer.
  • Don’t go too low in your pricing. Some people will always take what looks like the better deal (and little by little learn that this often means having to replace the original purchase soon thereafter), but others will choose to look for the higher quality product rather than the cheapest one.
  • Offer a money-back guarantee or warranty. It’s much easier to feel confident in making a purchase if it doesn’t feel like an obligation.

When in doubt, think of your own shopping tendencies and talk to friends and family about their consumer habits. What turns them off to a potential purchase? What helps them decide to go ahead with it? Consumer behavior is varied, but there are enough trends and tendencies to help businesses make effective marketing decisions.

Changing Consumer Behavior: Wish Lists and Movie Queues

Modern consumer patterns are decidedly different than they were just a few years ago, and they are constantly changing as businesses and marketers develop new technology and ideas to apply to the consumer experience. Paying attention to trends in consumer behavior is important for small businesses wanting to stay on top of the best marketing options.

The way people approach watching movies and television has evolved considerably with the advent of Netflix’s mail order DVD service, online streaming and on demand services. Very quickly, the idea of leaving home to travel to a video rental store to access the evening’s entertainment became passe, as evidenced by symbolic recent decline of the former entertainment giant Blockbuster.

In a remarkably similar story, many consumers have ceased their trips to physical bookstores to make their book purchases, and to physical electronics retailers to buy their entertainment and tech items.  While these failures can’t be exclusively attributed to the ease of affordable online shopping from vendors like Amazon, you’d have a hard time making a convincing case that it didn’t play a considerable role.

In addition to the convenience of being able to do your shopping from home and have the items brought directly to you, there are some other clear advantages built into the consumer models of Amazon and Netflix.  Both services allow customers to easily see reviews of products before they buy or view them. They both have a built in recommendation system to encourage more consumption, based on the movies and products they’ve previously tracked each customer’s interest in.

My personal favorite of the innovations they’ve brought to consumer behavior is the wish list option Amazon offers and the queue Netflix allows you to keep.  We live in an age of content overload, where an excess of tantalizing products exist for each consumer. It’s especially easy to learn about an item you want, and then promptly forget about it if you don’t have a good system for keeping track of your interests.

It’s in the interest of a business to make it easier for customers to remember what they want, and the Amazon wish list and Netflix movie queues make this a simple process. If you hear an interview with an author describing a book that sounds compelling, but you’d prefer to wait and buy the paperback, Amazon gives you an easy way to add it to a list for later consideration. When a movie preview gets you excited, but you don’t want to pay the cost of a trip to the theatre, Netflix makes sure you can save it to your queue for future viewing. How many of these movies or future purchases would we be likely to forget about without these options? How often did consumers fail to purchase something they may have wanted before these became available?

So what can a small business do to compete? Pay attention to their model and determine if there’s a way to apply it to your own business.

  • If you haven’t already, consider setting up an online store. Let customers browse your selection and order items from your website.
  • Set up a review section on your website for your inventory. Let the opinions of past customers influence the buying decisions of those currently researching. This has the added benefit of alerting you to items you’re stocking that are of lower quality and replace them with products that are more popular with your customers.
  • Think about the best way to incorporate recommendations into the buying process of your customers. As a small business owner, it’s possible that your knowledge of your industry and products could mean more personal recommendations than the automated methods of the larger retailers.
  • Develop a system that allows regular customers to track items they might want in the future. You could then use this information to offer the right promotions to the right customers to encourage purchases they already know they want, but just need a little nudge to make.

Consumer Behavior and Search Engine Use

“86 percent of consumers say search engines are very important in the buying process.”

Inc.

The way people think about shopping has changed in recent years. More and more consumers turn to the internet first before making a purchasing decision. In the same study referenced in the Inc. article above, almost half of the respondents also turned to social media in the shopping process and another 24% visited company websites. Technology is changing consumer behavior and small businesses should take note and shift their marketing techniques accordingly.

This is likely not a surprise to most people. If you think about the most recent purchases you’ve made, perhaps with the exception of gas and groceries, it’s likely you’ve turned to Google at some point in the process. When it’s so easy to look up user reviews, perform price comparisons and make direct purchases for many items online, why wouldn’t savvy consumers turn to the internet for their shopping?

The best way to make sure that your small business doesn’t miss out on the 92% of people in the United States using search engines is to embrace online marketing. Use search engine optimization, pay per click services and more to increase your internet presence and make your business easy to find for potential customers.