How is Psychology Important in Business?

How is Psychology Important in Business?

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You wouldn’t think that business and psychology are two things that go together but without psychology in business, companies and entrepreneurs wouldn’t be as successful. We examine how and why psychology is important in business.

What is psychology?

Before we start linking psychology with business, we need to first have a firm grasp of what psychology is.

There are many definitions but all of them point to psychology being the scientific study of the human mind and its functions, especially those affecting behaviour.

In other words, psychology examines why we act the way that we do. To extend the definition, it also examines why we act in the way that we do in given situations.

And for a business, this should be triggering an ‘a-ha’ moment.

Psychology in business

You may not know it, but as business employs certain ‘tricks’ to tap into our psychology. For example, marketing campaigns are essentially created and funded with one aim in mind – to get people to buy a product or service.

There are many ways that businesses entice us to buy.

For example, have you noticed that most stores prices things as being so many pounds and 99p e.g. £3.99 or £26.99? There are a handful of stores that buck this trend – take a look around Wilkos and you will see prices rounded up as well bargains labelled up as £2.25 or £5.75.

There is a reason why stores do this and it relates to how we see the price and our reaction to it. It may only be a penny difference but buying something for £25.99 is better than £26.

And there are the deals, the BOGOFS (Buy One, Get One Free) and ‘buy one, get one half price’, all of which suggest we are getting a better deal.

But it is not just the pricing but the fact that the deal ‘can’t last forever’, along with the exciting colours of red on most sale ticket prices…

You get the drift. The company creates a specific circumstance to appeal to a certain reaction within you – ‘I must have this and I must buy it now because it could be double the price next week’.

The true extent of psychology in business

Understanding the impact of psychology in business will help a company grow a business. And here’s how they use it;

#1 Six human needs

Similar to Maslow’s Hierarchy of Needs, when it comes to attracting customers and growing a brand if a business can meet these six human needs, they are a step closer to unparalleled success.

  1. Certainty and comfort: an assurance of no pain but plenty of pleasure grabs attention
  2. Uncertainty and variety: humans need change, new stimuli and the need for the unknown
  3. Significance: feeling unique and important – which brands do you know deliver that?
  4. Love and connection: when someone feels part of something, they feel a further sense value
  5. Growth: the ability to expand capacity, capability and understanding
  6. Contribution: how good does it feel to ‘give something back’?

Some say that these six human needs are the driver behind our behaviour. What do you think?

#2 Personalisation

Just reading this word should have triggered something about you and the internet.

Increasingly, customers browse the web for information on products and companies, searching out the best price for the best product.

And as you do this, you may have noticed how the pay per click adverts of the top and side banners change. You looked for a family-sized swimming pool using a search engine and the next thing, you have adverts for not only family-sized swimming pools before your eyes, but family garden games and furniture too.

This is one example of personalisation. When we get a feeling, as consumers, that we are valued and a service is tailored specifically to use, we feel a certain sense of inner warmth… and we can be more generous too.

The Journal of Applied Psychology published the results of a fascinating study, Sweetening the Till: The Use of candy to Increase Restaurant Tipping.

This is what happened;

  • There was no mention of sweets but when the waiters gave out mints alongside the bill, tips increased by 3%.
  • In the next phase, the waiters brought mints to the table and pointed them out to the diners. They were then given the bill and the tips increased by 14%.
  • The next phase saw the waiters bring out mints with the bill. Shortly after, they brought more mints to the table, pointing out that they had brought more ‘just in case’. Tips increased by 23%.

These diners were made to feel valued and the service they were receiving made them feel special. This personalisation of service is important.

Can you think of a brand that seemingly went this extra mile for you? How did you feel? Do you think it affected your purchasing decision or how much you spent?

#3 Mirroring

Mirroring is a concept talked about in psychology and in particular, counselling. When someone mirrors what you are doing, they are interested in what you are saying and in you.

Flirting is a good example of this. Sub-consciously, if you fancy the person sat opposite you at dinner, you will mirror each other’s gestures. It’s a subtle way of giving off the right signals.

And this leads us to the phrase ‘treat others as you would like to be treated’. In other words, if you smile, people smile back.

And this is an important psychological aspect to bring into business too. The idea is simple; if someone does something nice for you, it tends to be reciprocated.

For example, the 30-day free trials you see with big brands is playing on reciprocation. They provide you with something free and you buy into their service.

Or giving away branded items also entices reciprocation, probably why many charities on sending marketing material will include a branded pen or another item in the envelope.

Is this something that you think still works today?

#4 A fresh experience

The queues go round the block at Apple stores but why is it that intelligent people queue for hours to spend hundreds of pounds on the latest Apple phone?

Is it the quality product? Or is it more about the fact that they want and must-have the newest features – who can mock the face recognition unlocking? – that the marketing material advertised?

Psychology would suggest that it is the latter and the loyal following that brands like Apple have, with clever marketing, created in its customer base.

And there is scientific evidence to back this claim too, although the jargon of the UCL Institute of Cognitive Neuroscience can be a little tough to decipher,

“It is a well-known fact amongst scientists that the midbrain region regulates our levels of motivation and our ability to predict rewards by releasing dopamine in the frontal and temporal regions of the brain. We have now shown that novelty activates this brain area.”

Have you ever queued for a store opening or the launch of a new product? Why do you think you did that?

#5 Scarcity

The psychology of supply and demand is often used as a driver behind marketing material and messages. That is why, as we covered in an earlier point, marketing will often contain a time marker.

But it isn’t just time that can drive us to buy but the idea something may run out. There have been various experiments conducted over the years about the psychology of supply and demand, alongside scarcity.

A real-life example would be Facebook. It started as a social sharing platform for Harvard students only but its success meant it was rolled out to the Ivy League and then, because there was a feeling of someone else having something others wanted, the social sharing site was rolled out to all users in September 2006.

When does the notion of scarcity work in kickstarting the psychology of demand and supply?

#6 Storytelling

Storytelling has been around for as long as there have been humans on earth. Even when we communicated in a series of grunts, we told stories and passed on folklores with cave paintings.

When we began to use verbal language, we started to tell stories, the ideal way of passing on legends and folklore over the millennia.

And we still do this today. The psychology of storytelling has long been used in marketing. Creating characters we can relate to, identifying their struggles and how they are mirrored in our own lives and the solutions a brand, product or service can offer is a long-established successful equation of marketing.

But why are stories so successful? Many psychologists believe because stories are part and parcel of our brains and that they are essential for lighting up the emotions and the senses.

Which adverts and marketing campaigns can you think of that successfully told a story and ignited our senses?

In Summary

It’s no wonder then that workplace psychology courses are increasingly popular. By understanding and tapping into psychology, not just of marketing but innovation and leadership, we can create a firmer basis to a business.

Nick Cooper
Nick is NCC's resident blog author and covers a range of subjects, including teaching and health & social care. NCC is an international learning provider with over 20 years’ experience offering learning solutions. To date, NCC has engaged with over 20,000 employers, and delivered quality training to over half a million learners.
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