Cognitive Biases in E-Commerce from the lens of a Software Engineer

What

Psychology is a very effective technique that could be leveraged when selling online. We all believe that we are making rational decisions when making online purchases. But, this is not the case. There are a number of factors that come into play when we decide to buy something online. Most of these factors are called cognitive biases. When people receive and interpret information from their environment, they frequently make systemic errors in thought that have an impact on their decisions and judgments. This is called a Cognitive Bias that companies leverage to drive up their sales and their bottom line. Some of the most common Cognitive Biases in online shopping are -

Social Proof

It is the idea that we all tend to follow the crowd. Hence it is critical for online stores to show how much everyone loves their products. This is why e-commerce websites rely on testimonials, reviews, and ratings. Another type of social proof is social shares. The more people who share a product, the more likely others are to believe it is good.

Scarcity

A very powerful psychological trait says that if an item is limited it evokes fear of missing out.

Hotel booking systems and other reservation portals often use this tactic to spur the user to take action and book the product before it is gone.

Framing

Framing is a cognitive bias that causes different reactions from people depending on how information is presented. It is basically wording something slightly differently in different scenarios to shift people's perspectives. This is often used as the basis in A/B testing to determine which semantic is better suited to convert visitors into buyers.

Something that was not covered in class is price framing, which is another powerful tool that sites use to establish the value of their product. The concept is that comparing anything to something else is the best approach to determine its value. But this does not necessarily mean comparing my product with my competitors. That is not advised. But instead of making potential clients compare our prices to our competitors, we create different pricing/subscription tiers for our own product.

Why

Usually, there are 3 tiers used in these pricing models.

Basic

This will be the cheapest and the most stripped-down version of the product offering the most limited features.

Pro

This will be the normal version which is packed with the main features and capabilities. Suitable for individuals and small businesses.

Enterprise

Most expensive version with lots of features that are only suited for large companies. Most extra features will be for administration and integrations into the company's existing infrastructure.

The idea of this 3-tier pricing is not to sell the Basic or Enterprise editions but rather to use these pricing models to show that the Pro version is the best version offering all the features and is a good value for money. The needs of a majority of people won't be satisfied by the basic version because it is so underpowered. The enterprise tier will be out of most people's budget. This will make the Pro version seem like a really good choice.

Three tiers with various price points are the typical strategy for SaaS organizations. Basic, Standard, and Premium plans, etc. That's not to suggest that one can't create layers that are more complex than three. However, it's crucial to avoid confusing potential customers with a plethora of pricing options.

How

For quickly expanding SaaS companies, the additional benefits that result from a tiered pricing structure are great. 

• Wider appeal: Offering options for businesses of various sizes and budgets will draw a wide range of clients.
• High conversion rates: If the pricing model meets a broader range of client needs, the conversion rate should rise as well.
• Upselling: Having wider options might see a company upgrading to higher tiers.

All the above biases that come into play in online shopping might feel manipulative. Some psychological traits mentioned here are so powerful that people can be manipulated to do a lot. This has led to Dark Patterns. These are immoral design techniques that exist solely to persuade people to act in a certain way.

Here are some disadvantages if things are taken too far and if Dark Patterns are employed - 

• If customers feel manipulated, they will return the product, which will reduce the revenue.
• If customers feel manipulated, they will voice concerns on social media, which will reduce our reputation.

As responsible engineers, our aim is to fill a need and do so ethically. Our use of these psychological patterns should be to encourage customers to do what they have already decided and not compel them to make the decision. At this point, the fact that they are browsing our website indicates that they are already interested. The challenge lies in preventing cart abandonment which is a whole another beast altogether.