An understanding of human behavioral patterns – why and how people make decisions – can make a big difference when selling online. Using Amazon as an example, this article looks at how an understanding of psychology can drive sales.
Amazon dominates online retail. It generated $135.9 billion in sales in 2016.
There are many reasons for Amazon’s success, one of which is that it clearly understands its customers, and this is reflected in its site design, and the many innovations it has introduced to online retail.
Let’s look at how Amazon persuades shoppers to make a purchase…
1 Price Perception
This is an interesting one. It’s a common assumption that Amazon beats other retailers on price, especially offline rivals.
However, though this is the perception, the reality is that Amazon doesn’t have the lowest prices across the board.
What Amazon actually does is to identify the most popular products on its website and ensure that they are on sale for lower prices than the competition. It then often sells accessories like cables and adaptors at higher prices.
This creates the impression that the retailer is always price competitive, making it the destination of choice for ‘showroomers’ and shoppers comparing prices after visiting other retailers.
So Amazon is able to create this customer perception of low prices in the most cost-effective way, without cutting prices across the board.
2 Price anchoring
This refers to the human tendency to work from the first piece of information offered when making a decision, in this case the first price point.
So, if a customer sees a TV at a higher price first, then subsequent prices will seem more of a bargain, even if they themselves are quite expensive.
Companies will often present three price options, a common tactic with subscription products. This can have the effect of making the middle option seem the best value for money.
Amazon uses anchoring by showing the recommended retail price next to its own price.
A quick search online shows that most retailers are selling this TV at similar prices, so the RRP is a fairly meaningless figure here, but clearly useful as a anchor. A 31% reduction is persuasive.
This is one of Dr Robert Cialdini’s Six Principles of Influence, which looks at different factors which influence buyer behavior.
It’s the understanding that people will feel indebted to a brand when they receive something free.
As Cialdini says:
“The implication is you have to go first. Give something: give information, give free samples, give a positive experience to people and they will want to give you something in return.”
Amazon’s free trials for Prime fit this pattern. Shoppers are offered a free 30 day trial, which covers video, music and free shipping.
This also works because many people will simply forget to cancel after 30 days and begin to pay for the service, but the principle of reciprocity is in action here.
4 Commitment and Consistency
Another of Cialdini’s principles is that people don’t like to back out of deals and commitments.
In practice, marketers can use this by asking users to make a commitment, no matter how small. This could be a newsletter sign-up, or in the case of Amazon, a free Prime trial.
Once customers decide to try Prime, they are more likely to buy from Amazon as this is consistent with their identity as a Prime user. That and the free shipping…
The same applies to products like Amazon Dash, a wi-fi device for Prime users which re-orders products at the push of a button. It works very well as a loyalty program.
Once customers have made the choice to place the Dash button around the house, then it can have the effect of making these brand purchases more consistent.
Scarcity is about using the shortage of a product to sell more. It could be a cunning tactic to falsely inflate sales, but it should be about transparency over the availability of items.
If shoppers know that an item is scarce, it increases the perceived value. It suggests that the item is worth having, and also provides a reason for the customer to speed up their purchase decision.
Amazon uses scarcity in its stock level information, with clear information on the number of items remaining. If I want these headphones, I’d better move fast…
Amazon doesn’t use false scarcity either. It will tell customers if more will be ordered in future. This has the effect of making the messaging more believable.
Urgency is similar to scarcity, in that it can speed up the customer’s purchase decision, though it extends beyond availability.
Urgency should also be viewed as a way of helping the customer by providing clear information.
For example, information on shipping cut-off times can help customers to avoid problems with goods arriving too late for birthdays or special events.
Amazon’s messaging around shipping is a great example of urgency in action. It informs customers they can have the item by tomorrow, with a countdown timer for ordering.
7 Social Proof
Shoppers trust the opinions of others, and look for reassurance from the actions of others.
Reviews are an area where Amazon has innovated over the years, and they’ve now become a must for the vast majority of online retailers.
Reviews reassure potential buyers that the products they’re considering are worth buying, and that others have used them without any issues.
Amazon is a past master at presentation of reviews too. It gathers thousands of reviews for some products, so simply presenting a huge list of reviews wouldn’t work well.
Instead, it summarizes the review score (and number of reviews left), and presents the distribution of scores in a chart, allowing people to get an idea of the distribution of scores.
It also asks the simple question ‘was this review helpful?’ which allows customers to rate reviews, and surfaces the most useful reviews for other shoppers.
This tiny addition was said to be worth billions for Amazon, as the most useful reviews for shoppers are also likely to be the most useful for conversion.