How Cognitive Psychology is used in Marketing. My most popular talk so far.

1. The Psychology of Marketing
How to Exploit Cognitive Biases for
Fun and Profit, or Defend Yourself
From the Same

2. Why is Marketing a Great Way to
Learn Psychology?
• Direct feedback: make money when you’re right,
lose money when you’re wrong.
• Well researched: billions of dollars go into
Marketing each year
• Plenty of data. Businesses routinely conduct
experiments with sample sizes in the tens of
thousands, compared to Academic experiments
with sample sizes in the hundreds

3. Three Key Biases
• Cognitive Ease
• Anchoring
• Distinction Bias

4. Three Key Biases
• Cognitive Ease
• Anchoring
• Distinction Bias

5. How do we judge truth?
• “The moon is made of green cheese”
• “The earth revolves around the sun”
• “The body temperature of a chicken is 144
degrees”

6. Cognitive Ease
• On a 5-second level, humans are more likely
to judge a statement as true if it’s easy to
process
• Unsurprising example: if you repeatedly hear
the phrase “the body temperature of a
chicken is 144 degrees”, you are more likely to
judge it as true

7. Cognitive Ease Part 2
• Surprising example: even if you only hear the
phrase “the body temperature of a chicken”
several times, you are more likely to judge
“the body temperature of a chicken is 144
degrees” as true. This applies for any arbitrary
number.

8. Marketing Applications
• Ads work by making a brand more familiar
• E-mail campaigns and blogs aim for regular
contact over a period of weeks
• “Write how your audience talks” is the cardinal
rule of copy writing
• AdSense links that are the same color as the
referring page have 20% higher conversion

9. Three Key Biases
• Cognitive Ease
• Anchoring
• Distinction Bias

10. Anchoring
• Experiment 1: participants were asked to
write down the last 2 digits of their social
security number, then bid on different items.
Participants with high social security numbers
bid on average 60%-120% more
• Experiment 2: experienced judges proposed
longer sentences if they’d just rolled a pair of
dice loaded to give a high number

11. Anchoring 2
• When we hear a number and then estimate
another, the first number influences our
estimates of the second-even when we know
the two are completely unrelated

12. Marketing Applications
• Pricing a product at $500 and offering a 50%
discount is much more effective than pricing it
at $250 from the beginning
• When offering multiple options, show the
most expensive one first

13. Three Key Biases
• Cognitive Ease
• Anchoring
• Distinction Bias

14. Distinction Bias
• “Which dessert do you want?” vs. “Would you
like dessert?”
• When presented with multiple choices, people
tend to significantly overvalue the differences
between the choices. Two high-quality TVs
may offer a nearly identical experience, but
some people will pay twice as much for the
slightly better TV

15. Ignoring Alternatives
• In particular, distinction bias causes people
only to focus on the choices explicitly
presented to them

16. Marketing Application
• Offer 2-4 options!

17. Case Study: Server Density
• Old pricing page:
http://web.archive.org/web/20120211140714
/http://www.serverdensity.com/pricing/
• New pricing page:
http://www.serverdensity.com/pricing/
• Compare on all 3 points: Cognitive
Ease, Anchoring, Distinction Bias

18. Results
• >109% increase in revenue

19. Defense Against the Dark Arts
• Willpower isn’t enough-even professionals
who are aware of anchoring and trying to
account for it have almost no resistance
• To succeed, add at least one alternative
beyond what’s presented to you, and compare
the alternatives

20. References
• Thinking, Fast and Slow by Daniel Kahneman
• Influence by Robert Cialdini
• The Copywriter’s Handbook by Bob Bly
• Google AdSense Secrets by Joel Comm
• Decisive by Chip Heath and Dan Heath
• McGlone, M. S.; J. Tofighbakhsh (2000). "Birds of
a feather flock conjointly: rhyme as reason in
aphorisms.". Psychological Science 11 (5): 424–
428