Imagine a wine store. The wine store’s bestsellers are German Riesling and French Chardonnay. During the opening hours, there is music playing in the background to create a pleasant shopping experience. The store’s shop assistant is a huge fan of French culture. One day, he changes the background music to his favourite Spotify playlist – French Chill Vibes. Suddenly, one type of the wines mentioned above is sold out. Which one is it? You are right to think it is Chardonnay.
Traditional marketing research cannot explain the correlation between the sales of Chardonnay and French background music. In this situation, neuromarketing takes the lead. In one of our podcast episodes, a neuromarketing expert Terry Wu explains the subconscious factors influencing consumers’ decision-making. This article summarizes some of his key points mentioned during the episode.
Episode 34
Episode Summary
The difference between neuromarketing and traditional marketing
Traditional marketing is trying to understand consumer behaviour using customer surveys, focus groups or consumer interviews. This approach is built on the premise that consumers understand why they buy what they buy. Neuromarketing, on the other hand, believes that most of our buying decisions are made unconsciously. In other words, consumers make choices based on their emotions.
The rational versus emotional brain
To better understand why customers were subconsciously inclined to buy French Chardonnay, look at the brain as a two-system mechanism consisting of a rational and emotional part. Decisions are a result of a complex interplay between these two systems. However, when people find themselves in stressful situations, the emotional brain can sabotage the rational brain. Consequently, this leads customers to make impulsive, irrational and uncontrollable purchase decisions. An example of that could be people stockpiling toilet paper at the beginning of a pandemic.
Video shopping as a new retail channel
Over the last several months, the video shopping trend has massively grown in Asian countries and is slowly but surely being received by Western retailers. According to Terry Wu, live stream shopping could be the missing piece of the shopping experience. A video tool offers real-time product demonstration and, therefore, makes the customers’ decision-making process faster and easier.
The indecisive customer
Customers are often overwhelmed by the volume of products promoted online. Decision anxiety leaves these customers in a stressed state of mind which eventually leads them to a decision paralysis. Ironically enough, having only one option to choose from does not help either. How many products should retailers offer then? It is recommended to stick to the good old rule of three and the power of crowd influence. Having the ability to read reviews and ratings rapidly reduces purchasing anxiety. What is more, knowing the reviewers’ location eases our decision process as people are likely to follow the people who are similar or close to them.
This article is only a key-point summary CX Insider podcast episode. For more insights and stories, listen to the full episode on your preferred channel.
Written by Valentina Svobodova
Full episode transcript
Valentina: Today, Terry Wu, neuroscientist and expert in neuromarketing, is going to tell us how emotions affect our seemingly rational buying decisions, to what extent we use our free will when shopping online, and how retailers can use neuromarketing insights to improve customer experience. Don't forget to subscribe, like, comment or share this episode and let us know what you think on LinkedIn or your chosen platform. Hello, everybody, welcome to another episode of CX Insider. I hope you all started a new year with achievable resolutions and powerful mantras. Today, Louis and I are going to speak to Dr. Terry Wu about neuroscience and its application in marketing and customer experience. Dr. Terry Wu, a specialist in neuromarketing, started his own online marketing company almost 20 years ago. Before that, he had received his PhD in neuroscience. Hello, Terry. How are you today?
Terry Wu: Hi, Valentina. And we. I'm doing well. Nice to be here. Nice to be here.
Valentina: Cool. Thank you for joining us. Terry, tell us about your business journey. As far as I know, most people don't study neuroscience and then pursue their career in marketing later on. What made you choose this career path from studying neuroscience for several years to marketing?
Terry Wu: Oh, I'll keep the long story short, I after I finish my degree in neuroscience, I came to Minnesota for a job at the University of Minnesota. While I was working on the job, I came up with the idea that I want to kind of have a business on the side because back then my boss, he is 15 years older than I am. I thought if I, you know, later on in my career, if I didn't have this job, I didn't want to go out, look for another job. I thought a business on the side would be a backup plan, and then I just kind of by chance got into marketing, and marketing and neuroscience didn't really have any common language back then. But gradually I kind of came to the understanding that if you want to bring people into your online channels like websites, you have to make a convincing persuasion to encourage and motivate people to buy. And how do you do that? This word neuroscience actually came in handy. And since marketing is really at the end of the day is about consumers decision-making. And neuroscience also studies human decision-making. So when we put the two together, you get neuromarketing. That's the perfect marriage of neuroscience and marketing and neuromarketing, really is trying to understand consumer decision-making and how do you influence their decisions. How do you create a good experience for your customers?
Valentina: That's interesting. I see the relation between the two. And what would you say? What would you say is the biggest difference between neuromarketing and traditional marketing practices?
Terry Wu: Traditional marketing primarily is based on understanding consumer behaviour, based on interviewing consumers, asking them questions, using focus groups, using consumer surveys. They have this basic assumption that consumers understand why they buy what they buy. But that actually is not true, because according to neuroscience and medical studies, we know that most decisions we make, including buying decisions, are made unconsciously. We make unconscious decisions, is almost impossible to trace. Back to the reasons you made. You have when you make those buying decisions. So there is a serious flaw in traditional marketing using these techniques like consumer surveys, focus groups and consumer interviews to understand consumer decision making. But with neuromarketing, it takes a step back and try to start from the brain to understand how the brain makes decisions and what actually influence those decisions. I give example. You go to a supermarket here, grocery store, normally they have a bakery. But the thing is, why do they have a bakery inside the store, because having a bakery is very expensive. It takes a lot of space and it requires you hire employees to manage a bakery. And at the end, you just sell a few loaves of bread and sell some cookies. You're not going to make much money out of it. But why do these grocery stores put a bakery inside? Is simply because we have a bakery, you have the fresh scent for a smell of baked goodies like fresh bread or fresh cookies, when people walk in the grocery store, when they smell the fresh scent. Yes. What a trigger is a hunger feeling. When they feel hungry, guess what, they buy more. This is all about the fine science. You understand how the people's decisions are influenced by different senses once made or a sense of influence is a scent because from nose to the brain to the decision center of the brain, you only about one snaps away. Is that the right path? So this is actually about understanding how consumers make decisions and what influences the decisions instead of just trying to ask them, oh, why do you buy more? Nobody was going to tell you I bought more because I smell the fresh bread.
Valentina: Mm hmm. Yeah, it seems to me that, like, neuromarketing is basically saying there's no such thing as rational as a rational customer. Like customers don't enact that their buying behavior rationally. Is that true?
Terry Wu: It's partially true. Sometimes we do make rational decisions. It really depends on what you buy. Just imagine, say I have a, I want to buy a laptop computer, I have decided that I'm going to set aside five hundred dollars for this and the most the highest priority is I want to have enough memory, I need to have a fast processor. And I decide just based on those criteria and those criteria, I find something that meets my criteria. I'm going to make the buying decision. That decision is more about like a more on the rational side than the emotional side. You really decide just based on the process of speed, based on the memory you have, based on the budget you have. You set about and you set some boundaries and then you make decisions. But if you're an example, this is more of an emotional decision. Do you use, let's say you want to buy and buy a mobile phone smartphone, are you going to buy Apple's iPhone and Android phone? That has a lot to do with a decision, you know, that decision has a lot to do with their people's emotions. Well, if you, if you are really loyal to the Apple brand, there's no way someone can talk you out of buying an Apple iPhone. You would definitely want to buy an iPhone no matter how expensive. This that decision is more kind of irrational because a phone is a phone, but sometimes that phone becomes a status symbol. I feel like if I use the iPhone, I feel more creative. I feel like I have a better taste or a better class. The same thing goes with buying cars. Why do some people buy spent sixty thousand dollars or a hundred thousand dollars to buy a BMW versus twenty thousand dollars buy a Toyota? It is not really just for the car because both cars can take you from your home to a grocery store. But if you drive a BMW, you want to drive from your home to your country club. You want to hang out with your friends. That gives you status. The driving the car is not about the car, it's about the experience, it's about how you feel. This is really how people make decisions. They make decisions. One thing is they can make decisions based on that rationality. The other thing is they make a decision based on their feelings. When they make those decisions, decisions based on their feelings, their decisions tend to be more irrational.
Valentina: Speaking of irrational and emotional customer and behaviour, when it comes to online shopping, for example, people sometimes experience this sudden urge or sudden need of buying something immediately at the given moment. And this is something called impulsive buying behaviour. And we have noticed this type of consumer behaviour has become very frequent in online retail since the beginning of the pandemic. And many retailers actually even use this principle of scarcity or celebrity endorsement, which leads to this impulse to purchase. Do we? My question is, do we know what is happening in a consumer's mind when they are impulsively buying items?
Terry Wu: Yes, let me give you a kind of a quick introduction on how the brain makes decisions. The simplest way to conceptualize the human decision-making process is to think that the brain has two systems. One system is the rational brain, the other system is the emotional brain. The rational brain is right inside the forehead, we call this part of the brain, the frontal cortex. The frontal cortex is heavily involved in reason and logic. We had the rational brain and the emotional brain. The rational brain becomes very active when you're solving a math problem, learning a new language or writing a business plan. The rational brain has another very important function. That is it controls our impulses. The impulse control is what really separates us from all other animals. When this part of the brain becomes active, we become more rational. Neuroscience studies have shown that normally when we're making decisions, the rational brain and the emotional brain become very active. So our decisions are the result of a complex interplay between the rational brain and the emotional brain. But when we're under stress during this pandemic, we're fearful, we're stressed, we're scared. Guess what? When you're under strong stress, the rational emotional brain can turn off the rational brain, you become more emotional than rational. When you do online shopping, and we saw this behaviour about maybe over half a year, half a year ago at the beginning pandemic when people started buying toilet paper. That was a very irrational decision because toilet paper does not protect us from the virus. There was no supply of toilet paper and also crowded places were not where you want to be at the beginning of a pandemic. But people stockpiled toilet paper simply because there are scared. They became very irrational and they follow the crowd and the crowd decision, make them feel safe. They decide based on how they feel instead of how they think. When it comes to impulsive online shopping during the pandemic, we're in a heightened emotional state, more experienced, intense emotions. Our emotional brain can turn off the rational brain. We become less rational. That's why you see, during the pandemic, people's buying behaviours become more impulsive simply because the rational brain very often goes offline when we're under stress.
Valentina: I see, I see, that's very interesting. In our last conversation, you mentioned YouTube being the new Amazon. Looking into the future 2021, do you think that Livestream or video could become new channels for customers to do shopping?
Terry Wu: It can be. Lifestream shopping has not really taken off here in the United States. We have QVC and HSN. They, they are TV shopping channels. You watch the TV shows, they schedule different products at different time slot and then they demonstrate what the products can do and you buy them. The Lifestream shopping has not really caught up here in the United States, but I can see why it can be a very popular, very useful way to persuade customers to buy because if you go to Amazon, the shopping experience is completely interaction between a customer and a website. There are no people out there showing you, demonstrate to you what the product looks like. How does it fit in your life, even how big it is and what it looks like holding in your hand? By having this Lifestream shopping, video shopping on the Internet, you can create that missing piece of the shopping experience and you tell people this will look like this is how big it is and this is what it feels like when you hold it or when you use it. That experience can actually be making it easier for people to make decisions.
Valentina: Since the beginning of the actual covid-19 pandemic, quite a few reports have been published saying that many people find themselves in a difficult financial situation and this leads them to a very distressed state of mind. And accordingly, banking institutions are worried that this will lead the customers to make poor financial decisions. Why, Terry, why do you think that consumers tend to make poor decisions when they are stressed,
Terry Wu: As I talked about earlier, we have a rational brain, we have the emotional brain. These two systems interact with each other a lot, but the emotional brain actually is the boss in making decisions. About 95% of our decisions are all driven by our emotions and impulses. Our emotions have sort of at least two purposes. One purpose is to maximize our pleasures, and the other one is to minimize our pain. So the emotions play a big role in our decision making. When we're stressed, our emotional brain really comes in as a predominant decision-maker. What it does really from the brain perspective, it turns off the rational brain, the rational way, simply the activity in the rational brain. When we do brain imaging studies, you can see when people are under stress, their rational brain is turned off, there's a very low level of activity. When there's a low-level activity, guess what? You don't make rational decisions. So I give you an example when the rational brain has lower activity. We were dreaming, our dreams are so weird and so strange. We do release crazy things. When people are dreaming, the activity in the rational part of the brain, the frontal cortex, is very low. So you don't have any control of our decisions anymore. You don't have any control or rationality anymore. So when we're under stress, our emotions tend to take over. And when our emotions take over, we make bad decisions. I give you an example. This is kind of not related to the financial situation, but this example really demonstrates what happens when people are under stress. Their decisions can be very strange. This study actually looked at how the name of the hurricane can really influence the casualties of the hurricane. Here in the United States, we just had a very busy hurricane season. I give you this example, imagine two hurricanes, Hurricane Adam, Hurricane Amy. They are the same, they're in the same category, they carry the same amount of rainfall, they're heading to the same destination. Do you think and Adam or Hurricane Amy is going to come or kill more people?
Louis: I reckon Amy is going to kill more people because people are going to take this seriously than Adam.
Terry Wu: Exactly, exactly, because really, seriously, Hurricane Amy is going to cost three times more people than Hurricane Adam. When people are preparing for a hurricane, they're very stressed. And when they're stressed, they don't make rational decisions. They need to make the decision of whether to stay put or evacuate. That decision needs to be based on the strength of the hurricane, the amount of rainfall, the location of a direct hit and some many other factors. But instead of making decisions based on those factors, they make their decision based on, oh, aye, that hurricanes named after a girl, that hurricane must not be very strong. And that's why they don't evacuate. When they don't evacuate, guess what? A hurricane on average, a hurricane named after a girl kills three times more people than a hurricane named after a boy. This actually, when people are under stress, they just make these decisions not based on any reason or logic.
Louis: Wow, OK, so in future, you would recommend that the people who named the hurricane should call them names like Hercules, strike a bit more fear into the hearts of people.
Terry Wu: But that study actually came out about 10 years ago. But as far as I know, the National Weather Center still named hurricanes, alternate them between boys names and girls names.
Louis: And they work through the alphabet.
Terry Wu: They go for the alphabet, you know, remember here in the US, the biggest the most damaging hurricane in the recent history is Hurricane Katrina. That's a girl's name.
Louis: That's gotta be quite interesting to see if they act on that research at all. Earlier, sorry to change the subject, but earlier you were talking about sensor sensorial, an emotional experience. Our previous guests on the show was actually a specialist CX researcher called Jason Sit, and he told us there are three primary dimensions to customer experience, in-store and online. One is pragmatic experience. So I'm guessing that relates to the objective, rational part of the brain, but that more importantly, the sensory and emotional experience and like you said, that primarily drives consumer decision-making. How can neuromarketing help improve customer experience and reduce this stress and provide a more positive sensory and emotional experience for shoppers?
Terry Wu: When shoppers make decisions either in a store or online, they're facing this really unconscious fear that fear is what if? What happens if I make the wrong decision? If you shop in a store, you, the store say, is just like a five miles away from your home, you always have this kind of a fallback plan that if this doesn't work out a swing by and drop it off, return it, I get my money back. But when is on online, you don't have anybody to talk to. You can see the product. You cannot feel the product. You don't have any people to help you make decisions. This is actually a tremendous hurdle. In persuading people to buy online. But Amazon has done a really good job in reducing this decision anxiety. What I call decision anxiety, that's the decision of making the wrong decision. The decision anxiety is the fear of making the wrong decision. Amazon has done a tremendous job in reducing this anxiety, and that's why people buy it. I'll give you example. Amazon is very good at using crowd influence to influence the shoppers. What is crowd influence? The reviews, the ratings, the number of questions asked and the best seller labels, we go to Amazon, you see a product you want to buy and the Amazon going to immediately show you the ratings of the product, how many reviews this product has and whether this product has a bestselling label or Amazon's choice label. Also, Amazon has another small nudge is how many questions have been asked or answered for this product. The more questions answered that means more people are intrigued or they interested in buying this product? Those are all sort of nudges to really motivate people to tell people it is safe to buy this product. And then also the other thing is the crowd influence is not just about the size of the crowd. It is not just about, say, this product has three thousand reviews versus the other one has maybe three hundred reviews. Amazon recently came out with this new technique to persuade people to buy it. This technique is based on who's in the crowd, not about the size of the crowd. I give an example. I'll give you a study to illustrate why who is in the crowd has a very strong influence on our decision making. We're actually born with this tendency to follow the people who are similar to us. I'll give you one example. Say there's a young child. He is four years old and his parents decided we need is time for us to adopt a dog. And but they bring a dog back home and guess what, this little boy is scared of the dog, he cries all the time. He cannot really stand getting close to the dog. The parents are very puzzled with this a very friendly dog. Well, the parents have three choices. The first choice is you send the dog back to the shelter. The second choice, you let the boy cry until he gets tired of it. The third option is you set up a play date, you get all the dog-loving friends coming over to your house and have all these boys and girls of the same age to play with a dog. Within probably about 20 minutes, this little boy is going to warm up to the dog and that's going to eliminate his fear of the dog. 80% success rate in getting rid of young children fear a dog. This is really powerful because the boy really is if you as a dog, you can play with a dog. So, hey, you know, it's safe to play with a dog. No, the boy looks for people who are similar to that, to him. Those people are the young boys and young girls of the same age. So this actually illustrates that we're not just following the crowd blindly, we follow the crowd who are similar to us. Amazon recently came out with this review. In the review, Amazon doesn't just say, oh, here are the reviewer's name, but it also tells you where the reviewers are from. These reviewers are from the UK or from Ireland or from the United States. Amazon tries to show you the reviewers who are close to you. I would not be surprised half a year from now or six months or more, three months from now, Amazon is going to show you this reviewer is within one hundred miles from you. Or this reviewer's from the same county or the same state or the same city from you. So Amazon really try to use this little nudge to tell you, OK, you don't just follow the crowd. What really matters is who's in the crowd. Use the influence to reduce that anxiety you have. We make decisions.
Louis: Absolutely, yeah, Amazon have definitely done a great job with social proof, providing social proof to customers, and it's almost like they're taking the free will away a little bit during your shopping experience, because there's also the future customers who bought this frequently bought this. So would you say that Amazon has designed the customer journey for us?
Terry Wu: Amazon, well, I always ask people well, I sometimes ask people, do we have free will? This actually relates to the Amazon experience. And people sometimes they're puzzled. I get, why does it have anything to do with Amazon? The question I want to ask people is, the last time you bought anything at Amazon, did you make that decision yourself or did Amazon make that decision before you went to Amazon? Amazon has done a tremendous job in helping you make decisions. Amazon almost make this decision for you. When you go to Amazon, Amazon almost can predict which product you're going to buy based on your shopping habits, based on the crowd influence, based on many factors. Amazon almost has a very high chance of predicting which product you will buy. Amazon is going to show you that product. So Amazon really took away your free will in your decision-making. And but the thing is, the good, the good thing is Amazon reduce that decision anxiety. So you don't have to really spend five days or five weeks to make that decision. Amazon reduce the anxiety so you can make that decision within five minutes. So Amazon that it gives you a good experience in making decisions, in buying a product. This is actually what I always tell people. Amazon doesn't sell you anything, but Amazon helps you buy everything. That's a big, there's a big difference between the two.
Louis: Absolutely, yeah, I can see that for sure. Amazon is, is obviously an amazing platform and it's going to is going to continue growing. But, playing devil's advocate, I don't think it's going to replace the High Street, and especially for customers like the ageing population who are not as technologically adept. So as mentioned earlier, if it has a negative emotional response during a shopping experience, it can be quite stressful. And for the ageing population, they will struggle to remember things and they will struggle to analyze facts, features and benefits. Do you think there's a way that retailers can better design their services to facilitate a more, more relaxing experience for these older people?
Terry Wu: Absolutely. The thing about helping older people to adapt to the new way of shopping online is to make the shopping experience simple. Because for people of older age, their mental acuity is on the decline. They really cannot think very rationally. They don't remember things very clearly either. But if you try to streamline the process, make it as simple as possible and again it is just really about reducing their decision anxiety. If you can reduce their decision anxiety and make it easier to buy, make it easy to decide, this is going to help them to make a decision faster and easier and create a better experience.
Louis: Absolutely, but one shopping experience I personally think is amazing, is the Apple experience, as people call it. Because it's wonderfully simple and there's so much sensory opportunity to feel the products. And I think retailers could learn a lot from that. OK, so we're running, we're running out of time, unfortunately. Terry, what would be your advice for retailers wanting to reconnect with their customers virtually or use technology to help reduce stress for the customer, especially in the current time?
Terry Wu: It's a great question and there are many things to talk about, but I want to kind of focus on one thing is how to reduce their decisions anxiety. The decision anxiety is about what people have control of, what they don't have in control. When you, when you give people control, they feel like, OK, I can make a decision, make the decision on my own, I can decide what's best for me. One way to reduce decision anxiety is to give customers choices. You give them a couple of choices and then also you have the nudges built into it. These are the things while in the retail environment, it can be online and can be in-store. It can be kind of a mix. You buy online, you pick up on and in the store, you give them options. When they have options, they feel like, OK, I can, I'm in the decision, I'm in the driver's seat. I can decide what was best for me instead of just giving them one choice, one choice that normally creates some unconscious anxiety and they tend to not buy if you just have one choice. Studies have shown that if you get a customer, just one choice, very likely they're not going to make the decision. But if you give them maybe two or three choices is a lot easier for customers to make decisions. But one thing is there is no free lunch here. You have to be mindful. You don't want to give them too many choices, too many choices that often lead to decision paralysis. And they simply cannot, they get overwhelmed. They simply cannot decide how many, which one is the best choice for me. If you look at Amazon, Amazon does a very good job. If you do a research, say you want to buy a computer, Amazon normally shows you this computer and then if you scroll down, Amazon is going to do the side by side comparison of maybe two or three to four computers. Amazon allow you to give you the chance to see other choices. But Amazon does not give you 20 choices.These 20 computers all meet your desire and meet your requirements. But Amazon only gives you maybe anywhere from two to four choices. Give customers choices is, giving customers choices is a great way to reduce anxiety, reduce our stress. They have actually done a study, a study, a really interesting study. This has been mentioned in several books, it's Williams-Sonoma. In the 1980s, Williams-Sonoma introduced the first breadmaking machine in the US market. And they came up with just one model, it didn't sell. It didn't sell very well, and people back then, they didn't know what this was and didn't know whether this was a good value. And then Williams-Sonoma does something very clever, but it's a kind of counterintuitive. They introduced a bigger, more expensive model. The bigger, more expensive model did not sell very well at all by the original model started flying off the shop. What they did was they create a reference point so people can compare prices, and the other thing is when that you give people choices, they say, OK, between the two, the decision used to be, whether I should buy this one or not buy it. Now, the decision is, whether I should buy the smaller one of the big one. So you shift their decision from buying versus not buying to buying which one? That's actually a very kind of a clever shift in their decision-making process. And that's what about giving people one additional choice so they can decide which one I'm going to buy. Instead of whether I'm going to buy this or not.
Valentina: It's incredible to see how the subconscious mind works when the consumer has three or one or four options to choose from. I've got one last question for you, Terry. You've recently launched a brand called Why the Brain Follows, focusing on leadership development. And on the actual website, I found a statement saying that traditional leadership is in crisis. How exactly would you say it is in crisis?
Terry Wu: At least in the US during the pandemic, leadership is failing at all levels. From the top to bottom, from the White House to the city government to the school board. People have no idea how to lead. This is the time when the pandemic, the COVID pandemic was really a good test of leadership skills. But the leadership development, this huge industry, really traditionally has been based on mainly anecdotal evidence and personal experiences and personalities. I got into the leadership study research is simply because there are a lot of parallels between sales and marketing and leadership. In the old days, sales and marketing, the industry itself, is also based on personal experience, anecdotal evidence and personalities. But there was very little science in marketing ourselves and there was little science in leadership. That's why I made a shift in the leadership. I felt like there is a lot of decision-making science that can be applied to leadership decisions. And if you understand those decisions and how to make the decisions more impactful, that's how you lead better. That's why I made a shift from why the brain buys to why the brain follows.
Valentina: Thank you, Terry. I'm afraid we have to finish this episode. But for anyone who is interested to find more information about neuromarketing and what Terry does, check out the websites, neuromarketingservices.com or whythebrainfollows.com or connect with Terry on LinkedIn. Thank you very much, Terry, for joining our podcast today. It was great to have you here.
Terry Wu: You're very welcome, Valentina, and I hope you guys stayed well and safe.