Cognitive biases are mental shortcuts that influence the way people perceive information, make decisions, and interact with the world around them. These biases are patterns of thinking that help individuals process information quickly based on prior experiences, emotions, and social factors. While cognitive biases can often lead to irrational choices, they are fundamental to human behavior and decision-making.

For marketers, understanding these cognitive biases provides a unique opportunity to craft campaigns that resonate on a deeper psychological level. Brands can align marketing strategies with these natural mental tendencies to influence consumer choices, encourage engagement, and drive conversions. 

In this blog, we’ll explore key cognitive biases that impact consumer behavior and reveal how retailers can apply these insights to create more impactful, customer-centric marketing strategies.

What is the impact of Cognitive Bias in Decision Making?

Cognitive biases have a profound impact on decision-making by shaping the way individuals perceive options, evaluate information, and ultimately make choices. These biases, which stem from inherent psychological tendencies, often lead people to rely on mental shortcuts rather than careful, logical analysis. Cognitive bias is especially influential in consumer behavior for the following reasons:

Influenced Perception of Value

When a high original price is presented before a discounted price, consumers are more likely to perceive that the discount has a greater value. This perceived value often overrides objective considerations, nudging consumers toward making a purchase.

Driving Urgency

Biases create a sense of urgency, pushing people to act quickly to avoid missing out on a deal or losing an opportunity. These biases tap into a primal fear of loss, prompting decisions based more on emotions than logical assessment.

Creating Trust & Social Validation

When consumers see that others endorse a product—through reviews, testimonials, or influencer partnerships—they’re more likely to follow suit, sometimes without fully evaluating the product themselves. This is why endorsements and popularity indicators are powerful tools in marketing.

Simplification of Decision Complexity

Cognitive biases often reduce decision fatigue by providing mental shortcuts. For example, when a product is labeled as “most popular” or “expert-recommended,” consumers are more inclined to choose it without delving into extensive comparison. This simplification aids quicker decision-making, especially in environments like online shopping, where options are abundant.

Different Cognitive Biases in Marketing

Cognitive biases have become one of the key strategies of marketing. It tends to influence the way businesses promote their products and services along with the consumer’s reaction to these promotions. Understanding different types of biases is important as marketers will be able to create more effective campaigns to make conversions. 

1. Anchoring Bias: Power of First Impression

Anchoring bias is a type of cognitive bias where people rely heavily on the first piece of information, which is the “anchor” when making decisions. In the retail industry, this information often means that the first price, offer, or product feature that a customer sees becomes their reference point.

Marketing Hack for Using Anchoring Bias:

• According to a study in Price Strategy Journal (2023), the products that included the original anchor sold 33% more units when compared to those listed in the sale price. 
• Retailers can display the higher ‘original’ price next to the discounted price. By using this strategy, the retailer will anchor the customer’s perception of value which will make the discount appear more significant. 

2. Scarcity Bias: Creating the Need for Urgency

Scarcity bias is the psychological tendency that places a higher value on things that are limited in availability. When something feels rare or exclusive, it becomes more desirable. The key takeaway from this bias is that highlighting scarcity can push customers to make faster purchase decisions, enhancing conversion rates.

Marketing Hack for Using Scarcity Bias: 

• From the 2023 data of E-commerce Marketing Journal, it was observed that limited stock had 22% higher conversion rates when compared to the ones that were not. 
• Retailers can like E-commerce companies provide limited-time offers like flash sales, and countdown timers to create a sense of urgency. For instance, when shopping, if customers see highlights like “Only 2 left in stock” next to the popular items, they will feel the urgency to buy that product. 

3. Bandwagon Effect

The bandwagon effect is a type of cognitive bias where the actions and opinions of others influence our own behavior. This is because of the conviction that people tend to follow the crowd, especially when they’re uncertain about a decision.

Marketing Hack for Using Bandwagon Effect: 

• According to the data of the Statista survey of 2022, 62% of Indian customers tend to have a positive bias toward product reviews when they shop online. 
• Retail platforms can use labels such as “#1 Best Seller” or display positive reviews and ratings to make certain products more appealing by showing they’re popular with other buyers.

4. Decoy Effect

The decoy effect is a cognitive bias where consumers tend to change their preference between two options that are initially provided to them when a third, “decoy” option is introduced. This third option is asymmetrically priced or positioned to make one of the original options seem more attractive.

Marketing Hack for Using Decoy Effect: 

• Retailers can use the ‘Decoy Pricing’ strategy where when presenting two price points, add a third option that makes the middle or higher-priced option seem like better value. For instance, the video streaming industry provides monthly, quarterly, and yearly subscriptions where the quarterly plans are priced close to the yearly plans making the yearly subscription look like a better deal. 

5. Loss Aversion

Loss aversion bias refers to the tendency to prefer avoiding losses over acquiring equivalent gains. In other words, people are more motivated by the fear of loss than by the prospect of gain.

Marketing Hack for Using Loss Aversion: 

• Companies can formulate their strategies on the basis of the idea one poor customer experience will have a more lasting mark on their memories when compared to numerous other good customer experiences.
• For instance, Fitness apps often tend to use the phrase “Don’t miss out on your streak” through notifications or people tend to pay small, regular charges to avoid one large unexpected bill. This creates a fear of loss and customers tend to make a purchase.

Cognitive Bias Marketing Strategies That Worked for Brands

Understanding cognitive biases provides retail marketers with a powerful toolkit for shaping customer perceptions and decisions. By strategically leveraging biases brands can create experiences that resonate more deeply with consumers and drive stronger engagement.

1. One Dollar Aussie Chips: 56% Increase in Sales with Anchoring Bias

KFC Australia 2014 came up with a strategy of “One Dollar Aussie Chips”. The main ideas of the marketers were similar to those of supermarkets wherein they would cap the purchase amount. 

But the highlight of the campaign was that instead of hiding it at the bottom of the ad, they decided to make it their main headline that stated “A deal so good you can buy only four”. 

The basic idea behind this campaign was to limit the purchase of products that people already love. The product should be made scarce in the sense that people will go crazy. 

This led to an increase of 56% in sales of the “1 dollar chips”.

2. Netflix Limited-Time Shows Create Scarcity Bias

Netflix’s content library is in a constant state of flux, with titles being added and removed regularly. When a movie or show is nearing its departure from the platform, Netflix typically alerts its users about the limited time left to view that particular show or movie. This notification can take various forms, such as a “last day to watch” label, personalized alerts sent directly to users, or featuring the title in a “Leaving Soon” category on the platform which creates a sense of urgency in the user’s head making it more valuable and they tend to stream the title. 

3. Bandwagon Effect in Adoption of Tik-Tok

TikTok has effectively utilized the bandwagon effect to fuel its rapid expansion in the social media landscape. As more users flocked to the platform, their enthusiasm encouraged others to join in, creating a viral growth cycle. This phenomenon is evident as individuals see their peers engaging with TikTok, prompting them to participate. By capitalizing on this social influence, TikTok has attracted a massive user base and established itself as a dominant player in the market, demonstrating how the bandwagon effect can drive significant user adoption and engagement.

4. Decoy Effect in Jio Saavn

JioSaavn effectively employs the decoy effect to enhance its subscription offerings and encourage users to opt for the annual plan. The platform provides a basic free tier with ads and limited features, while the Pro version offers an ad-free experience, unlimited downloads, caller tunes, and superior audio quality.

The subscription options are priced as follows: ₹299 for 3 months, ₹589 for 6 months, and ₹749 for 12 months. The annual package emerges as the most appealing choice, as it not only avoids the hassle of frequent renewals but also proves to be more economical compared to paying for multiple shorter subscriptions, which would total ₹1,200 for a year.

By strategically positioning the annual plan alongside shorter options, JioSaavn nudges users toward choosing the more beneficial long-term subscription. This choice architecture subtly influences consumer behavior by making the annual package appear as the most rational and cost-effective option, thereby leveraging the decoy effect to boost subscriptions.

Conclusion: Harnessing Cognitive Biases for a Stronger Marketing Strategy

Cognitive biases are subtle but highly impactful. Using these strategies ethically and thoughtfully can elevate your marketing strategy that will in the long-term foster customer loyalty, and ultimately drive business growth. For retail CMOs and entrepreneurs, adopting a bias-informed approach isn’t about manipulation, it is about enhancing customer experience by aligning with natural human psychology. Thus, by putting these insights into action, you will be better equipped to connect with your audience, meet their needs, and turn browsing into buying.