The presentation introduces behavioral economics and its applications for business. It discusses key concepts like mental accounting, anchoring, scarcity, and bundle framing. Experimental results are shared that tested different messaging related to these concepts. For example, adding phrases like "for your family" increased coupon savings and redemption rates. The presentation also discusses how RevTrax uses first-party purchase data and multivariate testing to better understand consumer behavior and optimize marketing efforts based on behavioral economics principles.

1. Presenters
1
Neil Gandhi
Vice President of Data Science
RevTrax
Email: NGandhi@revtrax.com
Jura Liaukonyte, M.A., Ph.D.
Professor of Strategic Pricing and Economics of Advertising
Cornell University
Email: Jurate@cornell.edu

2. Agenda
2
What is Behavioral Economics and why is it important for
business?
4 mini cases on Behavioral Biases and their application to
consumer behavior
How can RevTrax help with behavioral testing?

3. What Is Behavioral Economics?
 Behavioral economics is a branch of economics that
integrates psychological factors into traditional
models of economic decision-making.
 Economics is powerful because it helps us make
predictions about concepts such as market prices,
costs, and resource allocation.
 Behavioral economics is even more powerful
because it retains the formalization of
economics, while enriching it with insights from
other disciplines which allow it to make better
predictions about real-world behavior.
3

4. 4
Behavioral Economics

5. Why is it Important for Business
 Behavioral economics can be a valuable
toolset for shaping the behaviors of
consumers.
 Insights from behavioral economics can
inform the construction of choice
architectures, as well as can be used to
create powerful incentives to act in particular
ways.
5
Why is it Important for Business?

6.  Behavioral economics can be applied to all aspects of the consumer experience.
We will focus on four mini-cases that have yielded interesting results:
 Mental Accounting
 Anchoring
 Scarcity
 Bundle Framing
6
How Can Behavioral Economics be Used?

7. Part 2:
Applications of Behavioral Economics
7

8. Case 1:
Mental
Accounting
8

9. Case 1: Mental Accounting
 Mental Accounting is a term in behavioral
economics uses to describe people’s proclivity
to divide up their money into separate accounts
based on certain criteria
 The term was first coined by behavioral
economist Richard Thaler, in an attempt to
explain his discovery that propensity to
consume differed between separate mental
accounts
9

10.  Let’s do a quick example to illustrate this:
 Imagine you have set aside $5 each day for your lunch, so that you can buy
yourself a hot dog from your favorite stand…
10
Case 1: Mental Accounting

11.  Scenario 1: Say you get to the stand, and you
discover that because of a hole in your pocket,
you have lost exactly $5. However, you still
have enough money left in your wallet to buy
the hot dog. Do you still buy the hot dog?
11
Case 1: Mental Accounting

12.  Scenario 2: This time you didn’t lose any
money before arriving at the hot dog stand.
You buy a hot dog, but as you are walking back
to your office, before you have taken even one
bite, you drop it on the ground! Do you go
back and buy another hot dog?
12
Case 1: Mental Accounting

13.  It turns out that more people answer yes to the Scenario 1 question than the
Scenario 2, even though they are economically speaking the same question.
 In the first question, most people do not see the lost $5 as coming from the
“lunch account,” so they feel comfortable still making a withdrawal from that
account.
 In the second question, most people perceive the lost hot dog as a $5 loss from
their “lunch account,” so they do not feel comfortable making another
withdrawal from that account.
13
Case 1: Mental Accounting

14.  How can this phenomenon be applied to a business situation?
 We tested online coupons that originally contained a simple phrase like “SAVE $2.00”
 We added different phrases to these coupons and tested their effectiveness compared
to the control:
 We saw significant gains in coupon printing and redemption for the groups with these
added phrases.
14
Case 1: Mental Accounting
SAVE $2.00
SAVE $2.00
FOR YOUR FAMILYvs.

15.  Why did this happen?
 In additional tests, we saw that participants felt that the money saved was
contributing “for their family,” which are different accounts than money for
their personal use.
 This is a prime example of how businesses like yours can target the correct
mental account of your customers and see significant improvements.
15
Case 1: Mental Accounting

16. Case 2:
Anchoring
16

17. Case 2:
Anchoring (i.e
context
matters)
17

18. 18
What are the sizes of the two horses?

19. Use coupons to drive CRM acquisition.
Coupons can include standard
print-at-home offers as well as high value
and free coupons.
Example:
Through a social sharing campaign, a client delivered
over 60,000 high value coupons and received over
100,000 CRM opt-ins in under three months.
19
What are the sizes of the two horses?

20.  Anchoring is a psychological term, commonly referred to as anchoring bias, that refers
to the cognitive bias where an individual “anchors” their response toward the first
information they are presented with, even if that information is completely irrelevant.
 In one of the first studies on anchoring, researchers Amos Tversky and Daniel Kahneman
gave subjects five seconds to calculate the product of the numbers one through eight.
20
Case 2: Anchoring

21.  Anchoring is a psychological term, commonly referred to as anchoring bias, that refers
to the cognitive bias where an individual “anchors” their response toward the first
information they are presented with, even if that information is completely irrelevant.
 In one of the first studies on anchoring, researchers Amos Tversky and Daniel Kahneman
gave subjects five seconds to calculate the product of the numbers one through eight.
 They showed half of the subjects the numbers in forwards order, and half of the subjects
the numbers in backwards order.
21
Case 2: Anchoring
1×2×3×4×5×6×7×8 8×7×6×5×4×3×2×1

22.  Anchoring is a psychological term, commonly referred to as anchoring bias, that refers
to the cognitive bias where an individual “anchors” their response toward the first
information they are presented with, even if that information is completely irrelevant.
 In one of the first studies on anchoring, researchers Amos Tversky and Daniel Kahneman
gave subjects five seconds to calculate the product of the numbers one through eight.
 They showed half of the subjects the numbers in forwards order, and half of the subjects
the numbers in backwards order.
22
Case 2: Anchoring
1×2×3×4×5×6×7×8 8×7×6×5×4×3×2×1
Quick estimate:
512
Quick estimate:
2,250

23.  Anchoring is a psychological term, commonly referred to as anchoring bias, that refers
to the cognitive bias where an individual “anchors” their response toward the first
information they are presented with, even if that information is completely irrelevant.
 In one of the first studies on anchoring, researchers Amos Tversky and Daniel Kahneman
gave subjects five seconds to calculate the product of the numbers one through eight.
 They showed half of the subjects the numbers in forwards order, and half of the subjects
the numbers in backwards order.
23
Case 2: Anchoring
1×2×3×4×5×6×7×8 8×7×6×5×4×3×2×1
Quick estimate:
512
Quick estimate:
2,250
Correct
answer:
40,320

24.  In a modern demonstration of anchoring,
MIT professors offered to sell various
valuable consumer products (computer
accessories, wine bottles, luxury
chocolates, and books) to MBA students
 First, students were asked whether they
would buy each good for a dollar figure
equal to the last two digits of their social
security number.
 Then, after giving a yes/no response,
subjects were asked to state the most
they would pay for those items.
24
Wine Spectator Experiment

25.  The results showed that those with high
SSN numbers were willing to pay more for
the products across the board.
 Evidently, these participants did not have,
or were unable to retrieve personal values
for ordinary products,
 The values they provided were
anchored to their social security
number which is essentially a random
figure.
25
Wine Spectator Experiment

26. What not to do: disregarding anchoring bias
 Instead of listing an item with a severely marked-up
original price, and then almost always selling it at a
major “discount” of 30%, 40% or 50% off, JCPenney
knocked down all prices by about 40%
 This policy eliminated the anchor of the full-price item
upon which to base their savings.
 Even though prices were lower, the customer did not
have a reference price to compare the prices to, so their
was no “hype” around any of the products.
26
Case 2: Anchoring

27.  As a result, they saw steep declines in
sales all around the country, and
shareholders began to sell their stocks in
the company.
 New policy took away consumers'’ feeling
of small achievement when they got rid
of deals
27
Case 2: Anchoring

28.  As a result, they saw steep declines in
sales all around the country, and
shareholders began to sell their stocks in
the company.
 New policy took away consumers'’ feeling
of small achievement when they got rid
of deals
28
Case 2: Anchoring

29.  Now let’s look at two positive ways of applying the
anchoring bias to your business:
 In the first experiment, we randomly assigned low
or high values to the first set of “lead” offers. The
value of the rest of the “follower” offers was held
constant.
 We found this framing significantly increased the
printing and redemption of the “follower” offers,
even though their value stayed the same.
 When anchored with the high value coupon,
consumers spent more time exploring the rest of
the offers and felt that the perceived value of the
rest of the coupons was greater.
29
Case 2: Anchoring
- ❒ X
Lead Offer
1
Lead Offer
2
Lead Offer
3
Follower
Offer
1
Follower
Offer
2
Follower
Offer
3
Follower
Offer
4
Follower
Offer
5
Follower
Offer
6
Low or
High
Values
held
constant

30.  In the second experiment, we tested
different anchoring messages to see how
they affected coupon printing and
redemption
 The messages on the right were displayed at
the top of the offers screen:
 We found higher printing rates for
customers who saw anchoring messages
versus the control.
30
Case 2: Anchoring
Anchor Message Tested
You can print coupons and save money!
(Control)
The average person prints $24 in coupon savings!
Most people print at least $15 in coupon savings!
You can print up to $75.50 in coupon savings!

31. Case 3: Scarcity
31

32.  Scarcity is a heuristic, or a decision making tool, in
which people are more likely to perceive an item as
having greater value if it is scarce
 There are two types of scarcity appeals: those
driven by low supply and those driven by high
demand.
 To the right, we have an example of a low supply
scarcity appeal.
 These appeal to people who value uniqueness.
 High demand appeals typically involve phrases like
“almost sold out” and “while supplies last.”
 These appeal to people who value group
conformity.
32
Case 3: Scarcity

33.  In 2012, researchers performed a well-known experiment
that illustrated the importance of scarcity in the
marketing world.
 The item in question was wristwatches. They exposed
subjects to two different advertisements for a new
watch:
 “Exclusive limited edition. Hurry, limited stocks”
 “New edition. Many items in stock”
 The findings of their study were very significant: there
was a 50% increase in the amount customers were
willing to pay for the “exclusive” watch compared to the
“new edition.”
33
Case 3: Scarcity

34.  We conducted a series of experiments to test the effects of different
scarcity-suggesting messages on coupon printing and redemption:
 “Act Now!”
 “Limited Time Only”
 “While Supplies Last”
 “Grab It Now”
 “Maximum 2 Prints per Coupon”
 “Don’t Miss Out!”
 Among these, we found that all scarcity messages were effective and
“Limited Time Only” and “Don’t Miss Out” had the most significant
effects in increasing printing and redemption rates.
34
Case 3: Scarcity

35. Case 4: Bundle
Framing
35

36.  Bundling is a familiar tool to many businesses, and is used encourage sales
of products in a way that is profitable to the business and beneficial to the
customer.
 Bundle framing deals with the way that bundled offers are presented and
the particular combinations of stimuli that most encourage the customer
to purchase the bundled products.
 Framing is an important tool in behavioral economics for understanding
consumer behavior, and this tool can be used effectively with offer
bundling to produce significant results.
36
Case 4: Bundle Framing

37.  What kind of results in behavioral economic research led to the interest in bundle framing?
 A 1995 study at Columbia Business School revealed several interesting results dealing with
framing of bundled products:
 When bundles are composed of complements, people are more likely to buy them.
 Presenting the price of the bundle differently causes significant changes in likelihood of
purchasing.
 People who are more familiar with products inside the bundle respond differently to
framing than people who are less familiar with said products.
 With all of these results, it is no surprise that research into bundle framing is very useful
for marketing today.
37
Case 4: Bundle Framing

38.  First we tested coupons of the form “Buy Product 1, Get $X.XX of Product 2” and
switched around the order to see if it altered customer behavior
 We found that when the more popular product was placed first, the customer
engagement was the highest.
38
Case 4: Bundle Framing
Buy Product 1, Get
$X OFF Product 2
Buy Product 2, Get
$X OFF Product 1
Get $X OFF Purchase
of Product 1 and
Product 2

39.  Next, we tested whether placing bundle coupons
and standalone coupons on the same coupon
page would increase printing compared to just
one or the other.
 We found that adding bundled promotion to
standalone offers drastically increased total
engagement with both products.
 Finally, we tested whether this combination
worked on a variety of products and coupons.
And found this effect to be true for multiple
different combinations.
39
Case 4: Bundle Framing

40. Agenda About RevTrax
RevTrax is a leading provider of
personalization & promotional
marketing technology to CPG brands
and retailers.
Leader in personalized offers
and online to offline analytics
since 2008
Client base of 350+ national brands
& banners with our technology
deployed on hundreds of brand sites
and owned properties
40

41. 41
1st Party Purchase Data

42. 42
RevTrax captures 1st party path-to-
purchase data to understand consumer
behavior
Receive data from the brand’s clearing house
Understand which digital channels, marketing tactics, and executions drive the highest engagement for each consumer at each individual retailer
Create the opportunity to optimize media spend, CRM efforts, shopper marketing initiatives, etc.
Unique Identifier Channel Campaign Keyword Purchase Date Barcode ID Retailer
12344321 Search Branding Laundry Detergent 1/2/15 169294683 TARGET
23455432 Email CRM N/A 1/2/15 169301942 SAFEWAY
34566543 Search Acquisition Hair Care 1/3/15 169351160 WALGREENS
45677654 Social Facebook N/A 1/9/15 169401668 PUBLIX
56788765 Display Branding N/A 1/11/15 169416484 KROGER
Engagement Data Barcode ID Transaction Data

43.  1st party purchase data that ties marketing messages/tactics to actual purchase
 Silent observation vs focus groups, surveys, and panels which can distort true behavior
 Multivariate design vs simple A/B tests
43
Why is RevTrax able to uniquely support
BE testing effectively?

44. Thank You!
44
Neil Gandhi
Vice President of Data Science
RevTrax
Email: NGandhi@revtrax.com
Jura Liaukonyte, M.A., Ph.D.
Professor of Strategic Pricing and Economics of Advertising
Cornell University
Email: Jurate@cornell.edu