Three themes have dominated much of the conversation about marketing over the past few years - technology, data, and content. The explosive proliferation of marketing technologies has been frequently documented. For example, Scott Brinker's latest graphic of the marketing technology landscape includes almost 1,000 solution providers. "Big data" has become one of the hottest buzzwords in marketing circles, and many companies are investing heavily in analytics technologies to gain the benefits that big data appears to offer.
Meanwhile, the popularity of content marketing continues to grow According to the latest content marketing survey by the Content Marketing Institute and MarketingProfs, over 75% of companies are now using content marketing, and about 70% of marketers say they are producing more content now than they were a year ago.
Technology, data, and content are all critical components of successful marketing in a world of abundant information and empowered buyers. However, it's equally important to remember that buying decisions are still made by human beings, and therefore it's never been more important for marketers to understand how people make economic decisions and to incorporate psychological principles of human decision-making into marketing strategy and marketing content.
For decades, most economists have assumed that humans make economic decisions rationally. According to standard economic theory, they weigh the economic costs and benefits of their decisions, have relatively stable preferences, and they usually act to maximize their economic self interest. In the late 1970's, psychologists Daniel Kahneman (who later won the Nobel Prize for economics) and Amos Tversky began publishing a number of scientific papers that contradicted the rational view of human nature held by mainstream economists.
Kahneman and Tversky's work pioneered a new discipline that later came to be called behavioral economics. In 2008, two books - Predictably Irrational by Dan Ariely and Nudge by Richard Thaler and Cass Sunstein - raised popular awareness of behavioral economics and put it on the radar screens of business and marketing leaders.
The truth is, marketers have been using some principles of behavioral economics for years, albeit largely unwittingly. A 2010 article in McKinsey Quarterly put it this way: "Long before behavioral economics had a name, marketers were using it. 'Three for the price of two' offers and extended-payment layaway plans became widespread because they worked - not because marketers had run scientific studies showing that people prefer a supposedly free incentive to an equivalent price discount or that people often behave irrationally when thinking about future consequences. Yet despite marketing's inadvertent leadership in using principles of behavioral economics, few companies use them in a systematic way."
If behavioral economics were nothing more than an interesting academic topic, marketers might be justified in giving it only passing attention. In reality, however, behavioral economics is important for virtually all aspects of marketing. For example, in all five of the annual content marketing surveys by CMI/MarketingProfs, producing engaging content has been one of the top three challenges identified by survey respondents. Behavioral economics provides many insights that can help marketers make their content more engaging and effective.
My main objective of this post is to introduce the topic of behavioral economics to those who may not have heard of it. I also want to make the point that, despite the growing importance of technology and data in marketing, an understanding of human decision-making remains critical to marketing success. In coming weeks, I'll be publishing several posts that will describe some of the major principles of behavioral economics and explain how marketers can apply those principles to improve the effectiveness of marketing content.