Cognitive Biases in Marketing: the Mindsets of Business Owners and Their Customers

In many ways, the human mind is a marvel. It is able to process vast amounts of information quickly and make decisions based on that information, sometimes while handling multiple tasks simultaneously.

In addition, it is generally flexible and can adapt to new situations quickly. This helps businesses backed by imaginative people stay agile and adapt to changing markets and conditions by coming up with new solutions to problems.

However, our unique perspectives and thought patterns can be just as hindering; when they are, they’re known as cognitive biases. These are deeply-ingrained ways of thinking that our brain takes out of habit to save time and energy. Cognitive biases can sometimes lead to inaccurate judgments called fallacies — risk factors for declining revenue and decreased customer satisfaction.

While it’s impossible to eliminate cognitive biases, we can mitigate their impacts by making conscious efforts to override them with more logical thinking. Let’s discuss a few of the most common roots of human error in marketing as well as how your business can steer clear of them and encourage customers to do the same.

What is anchoring bias?

Anchoring bias occurs when we fixate on a particular piece of information, known as the “anchor,” and use it as a starting point for our deliberations. The problem with this is that we may not be considering all of the available information, so as a result, our decisions may be suboptimal.

There are several ways in which anchoring bias can manifest itself. For example, anchoring bias can cause business owners and marketers to rely too heavily on a single metric when evaluating marketing campaigns. This can lead to them ignoring other significant metrics, such as reach or engagement. Additionally, it can cause them to underestimate the potential of new marketing channels or strategies, as they may be fixated on the success of past campaigns.

Anchoring bias can lead to customers fixating on a particular product feature or price point, and ignoring other options that may be better suited to their needs. This can result in customers paying more for a product than they need to, or choosing a product that doesn’t meet their needs as perfectly as another option.

How can you help customers avoid becoming unfairly anchored?

In addition to informing your leadership team about anchoring bias and remaining aware of its effects, educate your customers on the dangers of fixating on one particular piece of information. Help them understand that there may be other options available that more closely match what they’re looking for. You can also provide tools and resources that help customers compare different products side-by-side, so they can make an informed decision.

What is confirmation bias?

The habit of selecting information that confirms our existing beliefs is called confirmation bias. This can lead us to ignore or forget about evidence that contradicts our beliefs, even if that evidence is true.

Confirmation bias might occur when a marketing professional only looks for market research that confirms their product is doing well. They may ignore studies that show their product is struggling in certain areas. As a result, they will make decisions based on incomplete information.

Likewise, a customer may only look for information about a service that supports their decision to buy it, rather than considering all of the available information. This can lead to poor decision-making and a lack of satisfaction with the service.

How can you guard against confirmation bias?

Business leaders can delve into information from a variety of sources, welcoming but carefully analyzing evidence that contradicts their beliefs and trying to understand why it exists.

Similar to methods they can use to help customers overcome anchoring bias, approaches to reducing confirmation bias involve helping them understand all of their options, too.

What is survivorship bias?

Survivorship bias is the tendency to focus on successful outcomes while ignoring failures, leading to inaccurate conclusions.

For example, survivorship bias often occurs when people look at a successful company and try to reverse-engineer its achievements. They might look at everything the company did right and conclude that those are the things that led to its success. However, they ignore all the companies that failed while doing the same things. As a result, they might adopt strategies that fail due to mistakenly believing that the company’s success factors are more important than they actually are.

Survivorship bias can also occur when customers only provide feedback when they’re very happy about the service they’ve received. In this case, the company and its future customers — if it publishes this information — may only hear from a small portion of its customer base, so this information is skewed toward the positive.

How might your company survive and thrive while resisting survivorship bias?

Look at your businesses’ successes and failures while gathering feedback from all customers — not just those who feel content — to gain insight into how it can improve.

Service-based businesses, such as those in consulting or education, often involve customers putting in their own effort to receive the most benefit. For this reason, it’s also essential to acknowledge the potential pitfalls your customers may face when they purchase services from your company. This might involve making prospective customers aware of the work they’ll need to do ahead of time to achieve similar results to successful customers, as well as providing documentation to resolve any challenges.

What is group attribution error?

Group attribution error is the inclination to attribute positive or negative events to a group as a whole, rather than to the individual responsible.

For example, if a marketing team assumes that all customers behave the same, they may miss out on identifying more unique key segments that could each be targeted for marketing campaigns.

On the other hand, customers may attach certain expectations to a company simply because of the industry or niche in which it operates. Positive or negative, these might contradict what the business is trying to achieve, leading to misunderstandings and missed opportunities.

This is one of many reasons why it’s important to distinguish your brand and make clear, memorable first impressions.

And, to keep your audience’s attention, you’ll need to appreciate their differences — both as smaller groups of consumers with similar needs and on an individual basis. If you speak to their particular needs and preferences, they will be more likely to respond positively.

What is loss aversion?

The tendency to avoid losses more than we seek out gains is known as loss aversion. It can lead us to make risk-averse decisions, even when taking a risk would be the best course of action.

Marketers may use loss aversion tactics such as countdowns or flash sales to create a sense of urgency and encourage customers to buy before they lose the chance. Additionally, loss aversion can be used to highlight the potential losses customers may experience if they don’t take action, such as by visually showing them the consequences of not using a service. 

Loss aversion can lead to customer loyalty, too, since people are likely to stick with a product or service they are comfortable with if they think they might lose it, even if there are other options available that could better meet their needs.

How can your business promote a balanced understanding of gains and losses?

By providing as much matter-of-fact information as possible about the costs and benefits of your services. Being realistic doesn’t mean your marketing has to be boring; you can still appeal to customers’ emotions responsibly.

As you’ve probably concluded by now, all sorts of biases and fallacies have one thing in common: they tend to be prevented through a lengthy, intentional analysis of trustworthy information from a variety of sources. All kinds of people — marketers, the business owners they serve, customers, and everyone in between — can benefit from this process of carefully and continually seeking the truth. 

If you are a service-based business owner looking to both captivate and inform your audience, please explore what Laurelow has to offer, and if you’d like to connect, let us know. We’re all about putting exhilarating knowledge into the hands of anyone influencing or influenced by your business.