Lecture 1 - CEP

Exam: depends online (open book)/on site (close book)

MC / essay / Fill in questions

Segmentation

One size doesnt fit all.. Change your advertisements.

• Geographical (observing)
• Demographic (already collected)  
• Behavioural (pushasing history)
• Psychometric (selfcentered)

Segmentation variables/factors for this course

• Age
• Location
• Personality
• Curious
• Urban/rural
• Values

With a Multiple Line Mean of Attributes you can compare the groups with each others. In this example the groups are quite similar. There is (ofcourse) a little bit of variation.

When looking at personality there is a lot more variation between the groups. The red group is the most different.

How would you use data on these questions to market the course? What kind of messages would we like to communicate?

They could enlighten the hedonistic of the course, because that was a high value.

Cognition

How do we make economic judgements?

• Using reason and applying logic
  • Maximizing the utility
  • Systematic thinking
  • Applying logic rules
  • Understanding inferences

Lets play a game

Toss a coin. Heads: you get €100. Tails: you lose €100 . The chances are equal, but most people don’t want to lose, so they don’t play.

How do we actually make decisions?

Loss aversion

• Asymmetry between perceptions of gains or losses
• We like gaining things, we dislike losing things
• But we dislike losing more than we like gaining
• Losing is around 2,25 times stronger than gaining

This is called the prospect theory

The decision you make is dependent from the reference point you have. If gain: risk aversion. If loss: risk seeking.

Efficient information processors

• Heuristics
  • Shortcuts or rules of thumb
  • Simple rules for quick decisions
• Biases
  
  • A judgement that does not follow logic
  • A bias is usually the outcome of an heuristic

Using heuristics we will either reach the most logical conclusion or be biased.

Availability heuristic

• We make decisions based on information
  • But information can be activated more or less easy
• We make decisions based on easy to access information
• Some features of easy to access. Information:
  
  • Recent, frequent, extreme, negative
• It is a good predictor most of the times

Anchoring

• An initial value is used as a reference point
• The assessment of the value of a product is affected by the anchor
• It happens even when the anchor is irrelevant for the judgement itself

If you go to a electronic store there is a computer for €3000, you’ll think it is expensive. But when all the other computers in the store are €4000, you’ll find it still a lot of money, but not find it that expensive anymore.

Sunk cost fallacy: when we start inventing in something, we keep investing. I don’t want to lose what I have already invested, so I keep going. Also when it is not logic to keep investing in it.

Hindsight bias: people consider logical clear things after they happened. ‘Of course this happened!’

Endowment and marketing

Structure

• Observation
• Endowment effect
• Frequently used techniques
• Systematic observation

Tony’s Chocolonely Super Store

When you grab a chocolate bar, the empty space will be replaced immediately. You will also be provided with a tiny piece of chocolate. When you walk further, you have boxes with all different tastes. Further in the store is a computer, you can design your own chocolate bar; colors, text.

Endowment effect:

If you already own a product, we value it higher. ‘How much do you want to pay for this?” €1. When you already have it and someone asks ‘How much do I need to pay ypu to get this?’ €1,50.

• Loss aversion
  • A loss has a greater psychological impact than a gain.
• Psychological ownership
  
  • Non-transferable positive valence of the object: emotional connection
  • Self-referential memory effect: childhood memories
• Frequently used techniques?
  
  • When you try a bike/car, you are more emotionally connected to it.
  • Food testing in a supermarket.
  • Free trial on Netflix/videoland etc
  • Free coins on videogames