Understanding what’s driving our decisions to try a new category and a new product or service.
A few months ago, I was delivering a presentation on the psychology of buying, and one of the questions, designed to gauge our innate aversion to trying ‘new’ tech, was asking who bought their groceries online and who didn’t. The result was surprising, to say the least.
Asking the question, I assumed that most of the attendees would be in favour of buying online due to the sheer convenience of it all. It turns out that less than half of the people in the room shared my enthusiasm for the virtual trolley. Reasons cited for still going into the actual store boiled down to not being sure they’d get the best product or the right product and having an overall lack of trust in the process.
It was a classic example of the phenomenon that Kahneman and Tversky coined “loss aversion”. Every new purchasing decision we make is underscored by a very powerful driver: the need to avoid a loss. And it’s worth remembering that loss is not always financial by nature but could mean loss of time, loss of convenience, loss of control etc. In their Nobel-prize winning research, Kahneman and Tversky found that ‘losses loom larger than gains’, and as a result, what we have is often valued higher than what we might have (even if that is a completely irrational evaluation). It goes a long way to explain why a consumer might decline using a new product or service, when it actually seems perfectly rational to purchase it. The same goes for the way we do things, for example online buying.
But then the plot thickens. When it comes to choosing a new technology, be that a new phone or new software, there’s another layer of decision making that flows from our innermost need to avoid loss, and it’s best described by the Unified Theory of Acceptance and Use of Technology (UTAUT) by Venkatesh et al. This model was in fact built on the original Technology Acceptance Model (TAM), one of the most widely used frameworks for explaining why a consumer will accept(try) and continue to use a new technology. The framework suggests that there are four driving factors that lead to a person’s acceptance of a new technology:
Performance Expectancy (or Perceived Usefulness in TAM) – will this new piece of tech deliver a real gain to me?
Effort Expectancy (or Perceived Ease of Use in TAM) – is this easy enough to use?
Social Influence – are others using it and are they expecting me to do the same?
Facilitating Conditions – is there enough technical support for me when I use this system?
In summary, collective research tells us that we will only choose and accept a new technology if the wins are significantly more than the expected losses (Kahneman puts this win at approximately 2,5 times higher than the perceived loss) and if we see it as both useful and easy to use. Added drivers will be social pressure and the assurance that there is enough support facilitating the new choice.
In summary, when it comes to adopting a new technology, consumers are often choosing both a category and a brand in the category. When they choose the category, the decision is probably being made at a win or loss level. When they choose their supplier in that category, it is more than likely based on the UTAUT framework – and that’s where the marketing function in your organisation plays a pivotal role.
One of the greatest mistakes we can make is to impose our own inner-company mindset on the prospect, assuming they perfectly understand that our product or service is the superior choice in the market – and that the only discussion to be had is whether they want the standard or premium version of our product. But to the prospect, we’re just part of a long line-up of products in a category they they're not even sure about yet.
It’s your marketing team’s responsibility to understand what the aversions to loss are for their specific target market (through qualitative and quantitative research) and to then market the wins against the perceived losses, all the while making sure the usefulness, ease of use, popularity and social necessity, as well as available support for your product is being sufficiently and consistently communicated at all levels in the marketing funnel.
P.S. If this article sparked your interest, you will definitely appreciate this Harvard Business Review article by John Gourville, diving deeper into Kahneman and Tversky's research.