6 Cognitive biases used in the Marketing world

How many of us think that we make rational and objective decisions without any biases?

Majority of us do right?

But with decades of study behind them, psychologists seem to differ

They have formulated hundreds of errors in our behavior when we process and interpret information

Well, nevertheless, we marketers love it.

Here, I highlight 6 such errors that companies leverage to explode their sales

So, let’s dive in

1. Anchoring Biases

We rely heavily on the first piece of information presented to us while making decisions

People have anchor price for almost everything that we see around.  We Indians certainly do.

Oh, that’s a Mac! Its costly.

Let’s go to CCD, Starbucks is expensive.

So, we have imprints in our minds which we use as mental reference points when we make decisions. Companies exploit this a lot in promoting their products.

Often discounts are written as Rs 1000 300.

Why would they show the old price if they are selling at the new price?

The idea is when you sell an item at a price, it becomes the anchor price. So next time when you reduce the price, you can leverage the anchoring bias of consumers by displaying the old price ( striked off) . Everyone looks for a bargain. So, customers always compare the current price with anchor price.

J C Penney stores realized this the hard way when they removed all their discounts and promotions to implement their fair and square pricing strategy.

D-Mart use this bias beautifully. In all their price tags they display MRP and D-Mart price (fairly lower than MRP) which instantly blow consumers.

2. Scarcity Biases

We tend to place a higher value on an object that is scarce and a lower value on one that is available in abundance

In my last blog, I explained how De beers created false scarcity to manipulate human minds to believe diamonds are rare and valuable. Well, if you haven’t you should definitely check that out. It’s an incredible story.

Another example I can think of is what Udemy does. They usually run a discount on their courses saying “courses available at this price for next 2 days only” (creates scarcity)

These tactics usually work with consumers a lot. I bought 2 courses last week just to find the prices reduced even further after those 2 days.

3. Reciprocity Biases

We tend to reciprocate the actions of others creating a wave of indebtedness. If someone offer us something for free, we are more likely to return a favor to them.

This is another incident that happened in my life.

So, there were 2 salons near my hostel

First one offered hair cutting at Rs 150 and the other one at Rs 80.

OH. Easy peezy!! I chose the second one.  I can save 70 bucks.

But no. I ended up spending Rs 200. Yes!! 50 more than the first option. How???

Man, their service was extremely good. They gave free water, free hair wash. All this at 70 rupees. 

And the stylist was so jovial. He was damn sweet that when he asked whether I want a hair massage, I impulsively said yes.

How will I say no? they gave so much care, hair wash and all for free.

This incident happened twice. Reciprocity bias is not a scam!!

sad me

Even bigger companies exploit this.

Freemium subscriptions where customers get a free 1 week or 1 month before they purchase is a form of exploiting reciprocity.

4. IKEA effect

We tend to give disproportionately high value on products they partially created.  (or, simply put) I love my child more than your child

Classic example would be of IKEA itself with their “Do It Yourself” (DIY) products. Customers themselves assemble their tables which makes them value these tables more than other ready-made ones.

Giving users the option of having a customized product is also an example of IKEA effect usage.

A notable example is of Subway. A customer can have his own version of sandwich. Success of subway largely depend on this USP.

5. Bandwagon effect

We tend to do something primarily because everyone around us is doing it, even if what they are doing isn’t aligned with our original beliefs

Companies use this effect to sway consumers to buy their product by creating an illusion of popularity for their product. They create a “If everyone has one, I want one too” effect

In E-commerce, reviews and ratings create a bandwagon effect. A one 5 star rating by itself means nothing, but an average 4 star rating from 1000 reviewers can easily influence people’s purchase decisions.

Recent Dalgona coffee trend that exploded during the lockdown is another example of bandwagon effect

6. The compromise effect or decoy effect

We are more likely to choose the middle option of a selection set rather than the extreme options

If you have ever noticed, In a café or a restaurant, you will always be offered 3 options to choose from.

Small, Medium, Large


Regular, Large, Jumbo

This is not by accident. Companies are using the decoy effect.

The uncertainty and perceived risk of purchase regret compels us to choose the middle one.

These 6 cognitive biases explained are just tip of the iceberg. There are many more that you can delve into to master yourself at marketing. Click here to know 101 cognitive biases.

To be a great marketer you should understand why and how people act the way they do. The more you understand psychology the better you get in marketing.

What do you think?  I’d love to know if you have noticed any unique behavior like these.

Hit the comment boxes with your suggestions too. I badly wanna improve. Genuinely!!

Leave a Reply

Your email address will not be published. Required fields are marked *