Dr. Aoife Lyons: Put behavioral economics to work for your business
Luther: Dr. Aoife Lyons is director of educational initiatives and engagement at Alltech. She received her doctorate in clinical psychology from DePaul University and is a licensed clinical psychologist. Thank you for joining us.
Aoife: Thank you so much.
Luther: You have a unique blend of education and work experiences. How’s this given you unique insight maybe into the customer or into business psychology?
Aoife: Well, thank you for that. I do have a unique blend because I’ve been very much immersed in the world of academia, but I also have a bit of business sense. I ran my own business in Chicago for a number of years before joining full-time with Alltech. So, I think that it gives me a sense of the humanity behind business and that not everything is driven by profit. And what people buy and what people decide to do is really not driven by price.
My father often says, “Make a friend, make a sale.” He’s not a psychologist. He discouraged me from psychology, but I think at heart he knows people.
Luther: It sounds like you basically have a deep understanding of how people think — maybe sometimes not even cognitively or in their conscious mind — and how business works at the same time.
Aoife: Well, I hope that I do, and I hope that I contribute something to that. Something that I was talking about yesterday was price anchoring. What that means is that price is arbitrary. I was teasing my assistant, Ailish, yesterday. She loves to go to the mall when we come over to the States. She will only buy things that are on sale because she loves to see that sale tag. I pointed out to her that she could buy the same thing from Gap Kids at the exact same price, but actually she won’t if she doesn’t see that sale tag.
Luther: Give us a definition of what that anchoring really is. It’s our perception of a sale price maybe versus a regular price.
Aoife: I’ll give you a real-life example that I gave yesterday. When I was in Chicago, I was running a private practice. The cost of an hour of therapy with me was $150 and a lot of people would pay that price, but I have a commitment to helping the underserved, and they couldn’t pay that price. So, I charge them $40, which was a deep discount, but also a lot for them. I made sure that they knew that the cost of a therapy hour was $150, so they knew the value of what they were getting. That’s price anchoring.
Luther: Thank you very much for that example. That makes a lot of sense. Is this part of the “predictable irrationality” that you’ve brought up? I know that it’s important to how we think about pricing, how we think about a business, a product, a service.
Aoife: Everything is predictably irrational. We just go around our worlds thinking that we’re rational beings and that we’re making decisions based on the pros and the cons. We just don’t.
Luther: I’m sure there are all kinds of examples of that, which you just kind of gave us. What about our human perception? Does this affect our buying decisions as well?
Aoife: It affects everything. One example is you get a bill in the mail, and it says that you owe $90 to the television company or whatever it is. You might ignore it. You’re going to get another bill. But, if they change the wording of the bill to include your name and then say 90 percent of the people in your area have already paid this bill, you will pay it. That is social pressure. We can use this.
Luther: What are some illusions in our decision-making? I think a lot of us think, “I’m logical. I make decisions based upon logic. If I make a buying decision, it’s because I’ve thought it through.” That isn’t always the case.
Aoife: Absolutely not. Let me ask you a question, if I can. What was the last big purchase you made?
Luther: A TV.
Aoife: How much did you pay for this TV?
Luther: About $800.
Aoife: When you went in to buy the TV, you probably saw one that was $1,200. You probably saw one that was about $600, and so that $800 looked good to you. If you had walked in and saw one for $800, $600 and $400, you would have bought the one for $600.
Luther: What is social proof?
Aoife: Are you going to go to the restaurant that has no one in it, or are you going to go to the restaurant that’s crowded? You’re going to go to the crowded restaurant because that food must be better. That is completely irrational. You base that on nothing except for the people in the restaurant. They might be actors. You just don’t know. But social proof, it’s called “herding” in psychology. We follow what other people have done.
Luther: In some experiments I’ve seen online that were reality comedies, so to speak, they will have a group of people in line to start off a process with no end in sight and people will come and get in line. Is that similar to what—
Aoife: Yes. Yes, that is exactly the same concept, and that’s social proof.
Luther: How can a business take advantage of that?
Aoife: Well, if you’re a restaurant, hire people to sit outside your restaurant, or form a line and they’ll come in.
Luther: Maybe scarcity is also a way to do that, perhaps?
Aoife: Scarcity is. But really the driving force in terms of business and what you’re going to sell right now is online. If you have enough online reviews and people who are endorsing your product, people will follow. Print ads are over. Do you believe print ads?
Luther: Yeah. I can understand that.
Aoife: I know if I’m going to buy a product, if I’m going to buy something online, I’d look at what other people have bought. I look at what they say about the product, and that is hugely powerful.
Big data companies, they draw people in with their big data, but then they use the data that we’re giving them to draw more customers in. I think that’s really the way of the future.
Luther: It sounds like one way that you’re saying you can take advantage of it, very different from scarcity, is through social media, through social sharing, through a buzz factor. Like you said, reviews, that’s a form of being social online, and it sounds like you’re saying that we trust each other, or at least the perception of another person, over the marketing or branding that the company may be doing.
Aoife: One hundred percent. In Alltech, I think our driving force is our people. I often give a presentation on how to be a good Alltech ambassador, and part of that is saying we’ve got a great brand. I’m very proud of the brand. It’s a family brand, but that’s not good enough.
Every time an Alltech person walks out there, they need to be an ambassador with how they dress; how they interact with people; if they’re warm; if they follow up with what they say they’re going to do; if they’re trustworthy.
Luther: So, moving along, what is choice overload?
Aoife: Choice overload is a really, really interesting point. If I were to put six jars of jam in front of you and you could taste them, you would probably pick one and buy it. If I gave you 34, you would be overwhelmed and say, “Forget it, Aoife. Not going to buy any more.”
When it comes to Alltech, we used to have a huge portfolio of products. A few years ago, it was thought, “Let’s just narrow this down. We’re not going to sell products anymore. We’re going to sell solutions.” This has been really, really successful because we’re not giving a choice overload. We’re giving a solution, and the solution might be one of four. It’s much easier for us to decide if we’re given one of four.
I think that this also relates to the millennial generation. Many people our age complain about them and their lack of decisiveness, and they just bounce about from job to job. The reality is I think they have too much choice.
Luther: From a millennial standpoint, there is so much choice out there. There are so many things to choose from that perhaps that’s part of why they do bounce from one thing to another or struggle, perhaps, to even find happiness or true meaning at times because there’s so much different variation available.
Aoife: Yes. Perhaps.
Luther: Often, companies think about focusing their products and services, narrowing them so that they can spend more of their attention and time on them, but perhaps the other effect of making that choice is that it gets rid of choice overload for consumers.
Aoife: We have to be in the space of creating a product that we all love and want, but we didn’t even know we wanted it until it comes on the market. So, that could be in the case of Apple, the iPhones. In the case of Alltech, we acquired a company just a year ago called KEENAN, and KEENAN makes big mixer wagons for cows. What is fascinating about them is they have gone with tech, they have gone with an app, and they have a system where someone on the phone, a young person, calls the farmer and tells the farmer what those cows are going to need before the farmer knows it. It’s the beauty of the human touch with technology. The farmers love that they can just dial into this big green machine as they call it. They have a solution, and they didn’t even know that there was a problem.
Luther: We spoke earlier with Jay Johnston from Fermentrics Technologies, and they actually have facial recognition for cows. They’re able to observe behavior and then they’re able to adjust according to behavior. So, these technologies are allowing us to have insights not only from humans, but honestly into animals and observe behavior and change accordingly.
Aoife: I’ll tell you an even crazier example of this. We have The Pearse Lyons Accelerator program going on, and one of the companies is a cow sensor company. They are putting a sensor on the tail of the cows when they’re pregnant. This sends a signal to the farmer when the cow is going to give birth. Now, it sounds simple, but it is revolutionary for the farmers because they don’t have to stay up all night waiting for the cow to give birth. They just get an alarm.
Luther: Wow. That’s fascinating. Consumers have more tools available to them, more information than ever before. So, with that being said, are they able to bypass some of the decision-making, some of the predictable irrationality, so to speak?
Aoife: We can’t bypass it. It’s just in our genes, and it serves us well.
I was asked a question yesterday, “Do younger people respond differently?”
No, they actually don’t. We are programmed to have these mental shortcuts for a reason. You and I are looking at each other while we’re doing this interview. We’re focused on each other. I’m not focused on everything else around me and neither are you. Our brains need to do that in order to get things done.
Luther: What is the take-home message for businesses based on mixing all of this together, the psychology with business, with the consumer, decision making? What would you give as advice in how to think about this and apply it to business?
Aoife: First of all, be aware. We’re so influenced in our decisions. We think that we’re making decisions. We actually aren’t.
Be aware of price anchoring. Use that to your advantage, what you price something at.
Second, your perception is not the same as everyone else’s.
The third point is the illusion that we make these decisions.
Luther: What do you find most surprising when you look at predictable irrationality in how human beings make decisions?
Aoife: When I stumbled on this field, I was at Harvard taking an economics course. They were talking about market demand and market supply, and they were showing me all these graphs and mathematical figures.
I actually said to the professor, “But that’s not how people behave in the real world.”
She just looked at me and said, “Which real world are you talking about?”
Economics is so different than the real world. Then I discovered this whole world of behavioral economics, which is basically taking economic theory — which brought the downfall of the stock market because all these economists were assuming that we were going to behave in predictable ways and rational ways — and putting on psychology and trying to look at people as human.
Luther: At the end of the day, it still is people consuming services products that we produce.
Aoife: I’ll tell you two examples of this. One personal and one sort of professional. I love Apple products. One of the things that I love is their Genius Bar. I also love that, when I have a problem, I get a person on the end of the phone and that person helps me. So, Apple is selling a product that I buy all the time, but it’s also that person on the other end and that human feel. And, I would say within my own team in Alltech, the human touch and loyalty is what it’s all about.
Luther: Dr. Aoife Lyons is director of educational initiatives and engagement at Alltech. Thank you very much.
Dr. Aoife Lyons spoke at ONE: The Alltech Ideas Conference (ONE17). To hear more talks from the conference, sign up for the Alltech Idea Lab. For access, click on the button below.
