Nudge Marketing in Financial Products — How to influence decisions
Investors like to believe that they have made an investment decision, whether investing directly in stocks or choosing a mutual fund for SIPs or credit card purchases, based on a rational decision instead of an emotional decision. Is it really the case? How subtle advertisement nudge us to make an impulse decision without giving it a proper thought. Before we get into that, what exactly is a nudge?
Nudges leverage many heuristics so behaviour can be subtly encouraged. They seek to appeal to individuals by making the decision feel more natural and automatic without forcing or manipulating. It’s a powerful tool for businesses looking to improve their sales.
For those looking to learn more about these, Thinking, Fast and Slow by Daniel Kahneman does a fantastic job at thoroughly introducing the concept.
Nudge Marketing Examples
Are you looking to get started with nudges? Check out these examples
- Distraction
Certainly, we come across ads that prominently highlight there is no Entry/Exit load in this fund. The uninformed investor is forced to believe that the fund is really good because it has no entry/exit charges. Ask yourself a basic question — If you invest in a Fixed Deposit, will there be any Entry/Exit load? The answer is No. By pointing us towards something that is anyways free, we are inevitably nudged towards a purchase.
2. Anchoring
Visit any mutual fund website, you will almost always find a graph(either a line graph or a bar chart) with an increasing trend. It will also tend to disclose that this fund has been able to beat index returns. A chart with ever-increasing returns and easily beating the index is a sure-shot way of enticing us to invest in the fund. What is disclosed may not be the real case.
3- Cue-Routine-Reward
Everyone wants to become rich. Becoming a crorepati is something that everyone aspires to in India. It is a mean to early retirement. Cravings are what drives us. By labelling our dreams, again we get nudged to do what we are shown.
Final notes -
I am not saying that Mutual funds are good or bad. There are funds that are really good and can generate alpha in India. The above are ways that reduce the cognitive load and indulge us into a quick decision. It is better to not get swayed by the noise in the financial markets. I want to highlight how our decision making is influenced by such nudges. As the saying goes in Latin — “Caveat Emptor”.
I hope you all found it useful.
Till next time….
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