Why Daily Deals Scare Us? – The Role Cognitive Biases Play In Ecommerce

VCCP's Nathan Levi on Digital Media.I recently attended a client meeting where the subject turned to customer loyalty. We were all asked a very simple question – what would make you come back to buy from a website again? There were some very clear winners, delivery options and trust faired high on the list. In my capacity as a media director, I’m often asked to provide conversion strategy as much as I am acquisition tactics. This has less to do with advertising, and much more to do with customer experience and engagement. Understanding the psychology of the purchase decision making is a critical part of ecommerce.

I have also recently enjoyed another great read on the subject of ‘cognitive biases’ called ‘The Art of Thinking Clearly’ (by Rolf Dobelli). Its main subject is human failings at making decisions. I have used some of Dobelli’s text as a framework for examples where our cognitive biases are taken advantage of by ecommerce players. I have complemented them with some of the studies I’ve undertaken with my clients to bring these theories to life.

The paradox of choice

In Dobelli’s book he discusses our inability to make decisions when given too much choice. He notes that ‘a surfeit of choices destroys the quality of life’. This is what he calls the paradox of choice. What I want to discuss is the role choice can play in ecommerce and how experimenting with choice can lead to some interesting discoveries. I recently conducted a test for a B2B client where one page had a call-back function (page A) and the other didn’t (page B). We offered the choice to make a purchase on the phone to one segment, and no choice to the other. We wanted to see if we could drive incremental telephone sales from page A. The results proved otherwise. We actually saw an increase in online sales from page A, and few telephone sales. Our diagnostic showed that customers felt more secure to make the online purchase when they were given a phone number. In this case more choice had a positive effect on overall volumes. Too much choice on the other hand is proven to deliver poor conversion rates. Too many links on a landing page without a clear route or call to action will confuse an online shopper. Finding the right balance of choice is a fundamental tactic employed by ecommerce managers.

Our desire is immediacy

‘Immediacy magnetises us’ according to Dobelli, ‘animals will never turn down an instant reward in order to attain more in the future’. Immediacy is also a great converter in ecommerce, be it Amazon’s one click purchase, WalMart’s (and Amazon’s) evening delivery service, or Wonga’s instant loans. Many online retailers charge big premiums for fast delivery; we are more than happy to pay more to get something quick. Lack of immediacy is also a massive deterrent to online shoppers, especially when a desired product is unavailable. Inventory control can be a big headache for ecommerce managers. Nothing injures a conversion rate more than an ‘out of stock’ message, especially when a shopper knows they can get the product elsewhere at the click of a button. A client I have worked with has seen massive gains by redirecting ‘out of stock’ traffic to more generic pages with similar items that are in stock. Not presenting the customer with an out of stock message actually improved overall sale volumes in this case. The challenge for ecommerce players is to provide as many options for the online shopper to get what they want when and where they need it, and at the same time reduce the opportunities for them to get it quicker elsewhere.

The loss aversion

‘We fear loss more than we value gain’ (Dobelli), this is what social scientists call the loss aversion. Making a customer feel like they will lose out is a tactic employed by many ecommerce brands. All the daily deal voucher sites like Groupon play on our fear of missing out. The loss aversion is nowhere better played out than in travel. Booking.com tells you when the last booking of your chosen hotel was made, how many people are currently looking at your room and when there is only one room left. They are playing on our loss aversion, I myself have fallen prey to this tactic many times. Free delivery is often used as a tactic to improve sale volumes by many online stores. With another of my clients, I recommended testing a ‘free delivery’ message against ‘free delivery for a limited time’ message. No prizes for guessing which drove the higher conversion rate. Limited time periods make us feel we will lose out if we don’t take advantage of an offer now. This is where we see loss aversion at play.

Understanding our cognitive biases is a sure fire way to improve conversion rates for ecommerce brands. Some brands have built their entire business model around these biases with great success. The key is to implement a stringent test and learn methodology across your website as finding the right balance can deliver huge rewards.

Nathan is a contributor to The Makegood and the Head of Media at VCCP