Neuromarketing: You're Being Manipulated

This video is sponsored by The Daily Upside, a free business and finance newsletter delivered every single weekday. Nowadays, it seems to be a common theme amongst almost everyone to go out and shop our way to happiness. You know, just to take care of ourselves. After all, nothing says mental health like impulse buying that will dig us deeper into debt than we ever thought possible. Don't you feel that you're above this age-old system of enticing customers into buying more stuff? After all, we are in the age of minimalism and all that good stuff, right?

How many times have you found yourself annoyed by an ad in the middle of something you were watching, and promised to yourself that there was no way such an annoying interruption can actually convince you to buy something you don't even want? And then you go and buy it anyway! Well, if these things weren't working, we wouldn't see them be used forever. So clearly, there is a method to the madness, and you might be surprised by just how meticulous this method can be.

Sometimes, of course, you and I know some of the basic stuff, like placing commonly bought items at the end of a store so that customers have to walk through most of it and therefore be exposed to other products to get to the ones they really need. That's why they usually put milk in the back of the store—it's a common item that most people need, and so they're gonna make you see as many items as possible before you get to what you need.

Then there are buy one get one free offers, which clearly boost revenue and make us buy more stuff in exchange for very marginal discounts. Exposure and billboard ads also do some of the marketing heavy lifting, but you already knew that. What you didn't know, however, is just how deeply our psyche is being studied to understand patterns and predict customers' choices well before the customer is aware of them themselves. This is neuromarketing.

Well, it all starts with how humans perceive things. Humans, for whatever reason, perceive relatively and not absolutely. What this means is that our perception is based on stimulus that is already present. You can see this play out every day. For example, if someone near you unlocks their phone in a well-lit environment and lights up the screen, the change in brightness of your surroundings is barely noticeable. If you do the same thing in, say, a movie theater, it can sometimes be startlingly bright, even though the brightness around you changes by the same amount in both cases. Your perception of them is vastly different.

Similarly, we also perceive loudness relatively. If you are already in a loud environment, the addition of another sound—say a glass breaking—may be barely noticeable. But in a quiet environment, even the same sound can feel much, much louder. Known more formally as Weber's Law, this idea of relative perception has been a core principle of astronomy and music theory alike since they both have something to do with how we humans perceive things.

Well, now it has one more application, and that has to do with our perception of price. Firstly, this means that whenever the price of a commodity either goes up or down, how the customer feels about that price change depends on the original price of the commodity. Companies can use this information to marginally keep increasing the price of a product over iterations, provided that they do so in increments that are just below our perception threshold.

This applies more generally to markets around the world, where people also perceive the price of a commodity based on how much disposable income they have. This is the reason why some products that do very well in America, despite increases in price, don't work very well in countries like China. But it goes deeper than that. Disposable income and original prices have fairly obvious relevance in this topic; however, our minds can even be tricked by seemingly irrelevant numbers as well.

Studies were conducted where participants were asked to gauge how much they would pay for a certain product. However, before they were allowed to make their minds up, they were asked to think of the last few digits of their social security number. It turned out that the participants with higher social security numbers were willing to price the item higher, despite being in no way related to the commodity itself. This process, also known as anchoring, caused the participants to be more generous with their bids.

In his book "Brainfluence," author Roger Dooley hypothesizes that this may be the reason why counters now commonly seen in fast food chains are used beyond just letting the customer know when his or her order is ready. These counters, almost always counting large numbers, prime them to be okay with paying just that little bit more. A more common method of anchoring is also to state things like, "Normally, you'd have to pay such and such for a product like this, but not with us."

Sometimes, the anchoring is even more obvious. For example, do you remember how much the iPhone cost when it came out in 2007? It was over $499, and in some places, even higher. That's a tall order, especially if you consider that it was for a product that many people were not really familiar with. Even in today's standards, with hardware that is orders of magnitude better, some phones, including Apple's own iPhones, are cheaper than that. So why did marketing genius Apple do such a thing?

They possibly just used the demand curve to the best of their ability. First, set the price as high as you can since every market has a certain percentage of people that can pay even the inflated prices, assuming they like the product. Once you have exhausted that demographic, drop the prices significantly, which is exactly what Apple did. By the time the iPhone 3G came out, some retailers were selling it for as low as $199. By this point, there were enough people owning iPhones that people started familiarizing themselves with the product.

By dropping the price so much, Apple made it seem like they were giving the phone away on a massive discount. The initial $500-$600 price was seemingly just an anchor that made the eventual price seem like a total steal.

There is one more thing. You know how Apple always prices things a dollar less than the big number, like $499 instead of just $500 and $999 instead of just $1000? Well, I used to think that when we pay $4.99 for something, we feel as though we were paying $400 and something as opposed to just flat out $500. We feel closer to $400 than to $500. However, this is not entirely true.

For things that are priced at whole numbers, our minds like to think that a fair price would also be a whole number increment below it. Meaning something that has a list price of $20 probably registers as deserving $17 or $18. Meanwhile, if something is priced at $19.95, our brains think of deserving price as $19.50 or $19.30. So, despite the fact that $19.95 is lower than the $20 price tag, surprisingly enough, you would have much happier customers if you were to accept just a few less cents.

A University of Florida study tested this idea where participants were asked to estimate the actual price of things put on auction. The three prices were $4988, $5000, and $5012. Realistically speaking, they're all very close to each other. The group that was tasked with estimating the price of the $5000 thing estimated the lowest prices of them all. Even the $5012 group estimated just twelve dollars, or 0.0024 percent more, or were willing to pay more for the same item.

It's all in your head, truly. Companies also sometimes place products that they know won't sell well just to make other products seem more desirable. Again, humans like relative improvements. Remember that these marketing decoys help offers look much better than they actually are.

In the book "Predictably Irrational," the author Dan Ariely mentions an experiment where participants were offered two offer sets. The offers were as follows: Offer A included a $59 internet-only subscription or a $125 internet and print subscription. Offer B also included a $59 internet-only subscription but included both a $125 print subscription and a $125 internet and print subscription.

In Offer B, it wouldn't make much sense to just choose the print subscription at the $125 price point when you could also get the internet subscription for essentially an extra zero dollars. And this was clearly shown in the results. Want to guess which one generated the most revenue? The Offer B set generated nearly 45 percent more revenue compared to Offer A.

The customers didn't choose anything they didn't choose before, namely the option to purchase the print-only subscription, but just its presence made the other two offers look much more desirable. Instead of competing with other companies using decoy products, companies can essentially micro-compete within their own products and generate more revenue.

It's all a game. Then there are smaller tricks that the companies employ on a regular basis. One is to slightly increase the font size of the products you want sold. The slight change is barely perceptible, but subconsciously we register it as something more worthy of our attention.

Another is to offer customers better but not necessarily overwhelming choices. This is where services like Amazon have truly cemented their position. Amazon has the resources not only to sell a lot of products but also to organize them in the right way and only present to the customers what they're most likely to buy.

Other companies can sometimes overwhelm the customer with too many flashy options, especially during Black Friday sales, which confuses them and makes the purchase seem that much harder to make. These are still things you and I can see and put our finger on. Companies go much further than that to make the customer feel safer to spend more.

Olfactory association is one of the ways in which this is accomplished. Olfactory is the sensation of smell. According to some reports, as much as 75% of all our sensation has got to do with smell. It's no wonder then that the memories that have an olfactory component are held the strongest and are recalled much easier as well.

The smell of McDonald's, for example, is something that the company puts as much effort into as anything you might see on the menu. There is a very good reason for it. Of course, the feeling of familiarity is crucial to the brand of McDonald's, especially considering going to McDonald's is something that the company hopes to become a generational tradition.

People go as children and eventually end up taking their own children to McDonald's. There are reports that McDonald's infused the smell of the cleaning liquid its staff uses to clean the store. A similar theme follows all major industries.

We've all heard about the new car smell or the new sneaker smell. These are all essential elements of a company's effort to construct a recognizable image, one which we may not even see. Singapore Airlines, regularly voted as one of the best airlines in the world, also uses this marketing strategy.

They're known to give passengers hot towels at the start of every flight, but even this seemingly innocent gesture is working to sew the brand image deeper and deeper into our minds. The company has its own brand fragrance, Stefan Floridian Waters, and it is infused into those hot towels that passengers use.

Needless to say, the flight attendants are wearing it too, and so is the cabin interior. Of course, it can go both ways. Starbucks reportedly removed some of the sandwiches from its menu because they smelled too much like eggs and took away from the coffee-heavy Starbucks smell customers know and love.

One may question whether doing these things is even ethical. Well, there are two sides to the coin, as with any debate. On the one hand, marketers might argue that using these techniques, they are better understanding what their customers want and giving them a better shopping experience.

On the other hand, this opens us up for attention sabotage, something which has been happening rather frequently with social media platforms already. One thing is for certain, though: we have far less control over our purchasing decisions than we thought.

We buy things we don't need to impress people we don't like, and the things you own end up owning you. This video is sponsored by The Daily Upside, a free business and finance newsletter delivered every single weekday.

As we've seen, companies will do pretty much anything they can to get you to buy more and think less—to act out of impulse without thinking much more into things. But being informed, both on the things you're buying, the economy, and the state of the world in general, is quite beneficial.

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