Healthcare marketers must address that people are irrational

People choose based on emotion and justify their decisions with logic. It’s one of the most challenging principles for healthcare marketers and analytical people, like our clients, to understand. It’s the reason why the customer will often not choose what an analytical person clearly sees as the “best option” or “best pricing package”. Irrational choices made by patients and customers can be frustrating, but it’s not their fault. People are irrational because well… they’re people, and their neural networks are loaded up with hundreds of logic-defying emotions. 

Most people think they’re rational, but in many cases, they’re not. This rationality gap is what behavioural economists call bounded rationality. In a perfect economic world, people make good decisions. However, limits of information, time, and abilities prevent people from seeking the best possible outcome.

One needn’t look very far to see glaring examples of people choosing irrationally: the US Presidential Primaries and the current polls in the Brexit Debate are two recent, large-scale examples.

A more pedestrian example is the Price – Quality Heuristic. The Price – Quality Heuristic is put into use when consumers interpret the price of something as being relatively low. Since they feel there must be something wrong with it, consumers may not buy it as much. On the other hand, if healthcare marketers set the price of something relatively higher than consumers expect, some customers buy it more.

This result flies in the face of the economic law of supply and demand which suggests that the quantity demanded of a good goes up as the price goes down, and vice versa. So, what’s going on?

Take the Red Wine Taste Test. In this test, researchers attached sensors to scan the brain activity of people tasting wine. Brain scans show that people enjoy expensive wine more. This happens whether the wine is truly high quality or not. People just have to believe it’s more expensive, and then they’ll like it more.

Another example of irrationality is the Ultimatum Game. Let’s say I give you 100 pounds in 20-pound notes on the condition that you split it with your friend. You can offer your friend as little or as much of it as you like, but if they reject your offer, neither of you gets any money.

It turns out that when researchers offer this scenario to subjects, half of the respondents turn down the proposer’s offer if it’s 30% or less of the total. So neither of them win!

The fact is, human motivation is not always motivated solely by gain; it’s also shaped by fairness, injustice, and even revenge.

The power of framing

Which would you prefer? A steak that is only 25% Fat or 75% Fat-Free? It depends on your perspective, doesn’t it? What’s surprising to people after they pick one or the other is that they are in fact the same thing.

Which raffle ticket would you buy, the one where 1/1000 is a winner or 999/1000 are losers?

Which government policy would you support? Improve our schools or raise our taxes?

This is the power of framing. If healthcare marketers can frame a proposal in such a way that it mirrors people’s values, then you’re on to a winner.

Psychological pricing (financing and .99p)

Which sounds cheaper? Laser eye surgery for $3000, or $1.64 per day over five years? It turns out they are both the same, but the latter sounds cheaper than a daily cup of coffee, doesn’t it?

Which looks like the higher quality laser eye surgery? Laser eye surgery for €4999.95 or€5000? Despite many people being fooled by .99p pricing, most people would opt for the round number when looking for quality.

Nudge theory

Can we get children to eat healthier by rearranging food on shelving? What if we put all the sweets on the lower shelf, and all the empty carbs on the higher shelf, and put more nutritious options at eye-level. It turns out that when school cafeterias did just that, more kids chose healthier options.

Risk v Loss

Let’s say I have three envelopes I can offer you: One envelope has £100 inside it, the other has £0, the only problem is that you don’t know which one has the money. Instead, I can just give you an envelope with £50 right now, and you can avoid the choice, does that sound better? Surprisingly, many choose the latter option of the sure thing (the £50 right now) even though they would have lost nothing if they took a chance between the envelopes, and had a 50% chance of doubling their gains. Your choice suggests whether you are risk-averse or risk-neutral. It turns out; most people are risk-averse.

Let’s say I flip a coin, heads you get £100, tails you pay me £50. Who wants to play? Again, I’m astounded that many people won’t take me on that game because they loathe to part with the £50 if they lose. But they have a 50% chance of winning £100!

People want to avoid losing, more than they want to win

Researchers have proven this principle in grocery stores. Why does Sainsbury’s charge 5p for shopping bags instead of giving you a 5p bonus for bringing your bag? Because charging 5p saves more bags than paying a premium of 5p for bringing bags to the supermarket.

A study of employee compensation showed interesting results. Employees doing the same job were split into three groups.

The first group was offered a bonus at the end of the year for hitting their targets.

The second group was offered no bonus.

The third group was offered a bonus at the start of the year with the condition that they’d have to pay back the bonus if they didn’t hit their targets.

Guess which group did best? The third group performed significantly better than the other groups.

Teachers can apply this learning to students and grades. Teachers that gave everyone As at the start of the year and told students they had to maintain good test scores to keep those As performed better than students who had to earn grades in the more traditional way – by starting at the bottom and reaching up.

Interesting stuff.

People are irrational, which is why healthcare marketers and sales people focus so much energy on framing, using psychological pricing, and reducing the fear of loss wherever possible.