Friday, August 1, 2014

Adoption of a new solution, product or service – the ‘psychology’ behind !

What led to the purchase of my second smart phone? Funnily, the question reared its ugly head only after I received the bank’s text reminder on my older phone that the expense has been credited to my already dwindling credit card. What was the rationale behind the buy? Should I blame it on my unenviable track-record of binge buying or was there a genuine (unidentified) need?

It’s never been easy to unearth the reason why a logical being would stray from rational economic behaviour. It’s been even more difficult to fathom how an individual’s values influence his choices in the in a given marketplace or under what circumstances an individual or an organization would like to be introduced to a new paradigm, product or service.

Typically, social scientists have drawn our attention to four distinct behavioural aspects that influence such adoptions or even considerations:

  • Worth: Buyers tend to attach ‘perceived’ value to the alternatives available, rather than the subjective ones, fundamentally associated with the products or services.
  • Frame of reference: Most buyers invariably resort to benchmarking a new offering against the existing alternatives (no wonder the buying decision becomes such a critical one when a new product is genuinely an ‘original’ concept with little or no comparable offerings. Uniqueness may not always be a ‘virtue’, after all!).
  • Valuation: More often than not these referential evaluations boil down to a discrete ‘gain-loss’ comparison.
  • The clincher: It has been found more often than not that the perceived notion of ‘potential losses’ leave far greater impact on consumers’ buying decisions than ‘probable gains’ out of adopting a new alternative.

The above-mentioned aspects merely cement the hypothesis well-established in behavioural economics known as the ‘Endowment Effect’ which says that people essentially assign greater value to things they own vis-à-vis the ones they don’t. Endowment effect in its very definition states that it becomes functional whenever the quantum of consumer’s ‘minimum acceptable benefits’ exceeds the ‘cost of acquisition’ that the consumer is willing to part with.  Such decisions are almost always influenced by, in addition to other cognitive considerations, a bias for status quo in a tight coupling with risk aversion.

Some economists assign a value three times greater to people’s regard for what they already have as compared to their perceived value of a new product they intend to invest in. So it’s a no-brainer that to get a prospective customer to buy into a fresh idea, the new product has to establish ‘perceptual’ benefits, many-a-times, over existing alternatives.

In some cases the ‘perceived’ improvements, it has been found, is just one of the many factors influencing the decision. Precise messaging, appropriate conveyance of the ‘value’ of the new product and veracious and credible ‘influencers’ are some of the strongest levers. Early identification of fans of the new concept go a long way in creating and leveraging convinced champions of the cause, in adoption of a new technology, product or service. Understanding and appreciation of the ‘need’ and the ‘behavioural pattern’ of the prospective users is no less important than ‘innovation’ itself, when it comes to predicting or even strategizing the success of the new product. 

Well, I am still trying to solve my own case of identifying the psychology behind burning some well-preserved cash in acquiring a fresh piece of the glitzy gadget. Till the time I manage to figure it out, I have decided to refrain from investing in another new smart device or even another ‘trending’ piece of OS or pricey app, at the least.