Customers Are Often Irrational

Penney Pinching

“The first rule is that there are no irrational customers,” Drucker wrote in Management: Tasks, Responsibilities, Practices. “Customers almost without exception behave rationally in terms of their own realities and their own situation.”

“in terms of their own realities and their own situation.” is a huge caveat. Essentially plenty of customers behave irrationally – by any sensible definition of rational. I agree, to make them customers and keep them as customers you need to develop theories that can make sense of their behavior. And it doesn’t make sense to think if they behave irrationally that means randomly (chaotically, unpredictably, uncontrollably). Customers can be predictably irrational (as a group).

Seeing that people will choose* to fly lousy airlines because the initial price quoted is a little bit cheaper than an alternative (or because they are in a frequent flyer program) you can say the customer is behaving rationally if you want. Coming up with some convoluted way to make their decision, which based based solely on their desired outcomes (and cost factors etc.) is not rational, to be seen as rational seems like a bad idea to me. Instead figure out the models for how they fail to behave rationally.

They consistently chose an option they shouldn’t rationally want; in order to save some amount of money they don’t care about nearly as much as the pain they will experience. And the amount they will then complain about having to suffer because they chose to deal with the badly run airline. That isn’t rational. It is a common choice though.

The problem is not in thinking the customers are being irrational for not buying what you are selling. The problem is in thinking the customers will behave rationally. Your theory should not expect rational behavior.

There are plenty of other examples where customers make irrational decisions. I don’t think calling them rational (within the irrationality of their “own realities” makes sense). People will buy things because they think it is a better bargain to get the more expensive item that is the same, for more money, because originally the store charged more and now it is on sale. Anchoring isn’t an understanding of how people are rational. It is an understanding of how psychology influences people in ways that are not rational.

People are driven by brains that, while capable of being rational, are quite often not rational even within their own realities (in any way that seems sensible to consider that phrase – in my opinion). If people don’t understand basic math and make bad choices about what options are cheaper that doesn’t mean that they make the right choices within their own reality (of failing to apply 8th grade math correctly to the situation); it means many people can’t do basic math in the situations they encounter in their lives.

I suppose you can call it being rational to do make the choices people make (“within their realities” – which I guess means in this context non-rational realities). Or you can call it being foolish. Or you can call it basic psychology that can be used by marketers to manipulate people.

I don’t suppose the word you use matters as long as you accurately understand what your customers will actually base their purchase decisions and happiness on. However, I think it is better to acknowledge people are just often irrational than to try to explain that things are rational from their non-rational reality.

Another example of irrational but predictable behavior. Those that are less knowledgeable do a worse job estimating their knowledge (they overestimate what they know so think they are better able to make good decisions than they are). This is known as the Dunning-Krueger effect. You can train people to overcome this tendency to bias rational understanding in favor of what we would like to believe. This bias is especially bad if we are very unskilled in an area and not used to getting feedback on our weaknesses. Effective self reflection on where you are failing to be as good as you can be helps correct this bias and allows you to make better rational decisions.

Related: Aligning Marketing Vision and ManagementManagement Pioneer Peter Drucker 1909 – 2005Drucker on Overpaid ExecutivesConfirmation BiasPleasing CustomersRevealed Preference

All Models Are Wrong But Some Are Useful” – George E.P. Box

The Drucker Institute went on to quote much more sensible things Drucker said, in my opinion

Drucker advised that, when customers act in an unexpected manner, a business should ask the following: “What in the customer’s behavior appears to me totally irrational? And what therefore is it in his reality that I fail to see?” Asking such questions forces executives “to take action according to the logic of the market rather than according to the logic of the supplier.” Either you must adapt to a customer’s behavior, or else you must “embark on the more difficult job of changing the customer’s habits and vision.”

I think this idea is right. The problem is in trying to understand the customer’s motivation and decision making as a rational process. Customers are manipulated all the time and it is rarely because they are shown new evidence that rationally educates them to make a better decision (though it is possible to educate customers). It is normally by manipulating the psychology of people into making irrational decisions that gains businesses new sales not by helping customers make more rational choices.

Food taste is not affected by packaging. Perception of food taste is affected by packaging.

* Granted, in the airline example, some time people don’t even have the option (either there is no decently run airline to chose or they work for a company that doesn’t respect people and doesn’t give any weight to the suffering they impose on their employees).

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6 Responses to Customers Are Often Irrational

  1. Hi Jon

    Not everything that came from Druckers mouth is gold. Marketing success has more to do with appealing to emotion than to reason. Human beings are emotional beings, capable of reason and thus capable of acting in a rational manner. But it is not in our basic being to be rational, it is an act that requires us to use our mental abilities to over-ride our natural actions and thus change what is our natural behaviour pattern.

    Unfortunately we only do this on issues that we feel strongly about. This issues relate to where two competing emotions come into play. A personal example buying a vehicle two conflicting emotions come into play, one my desire to drive a veehicle I like and want and two my desire to keep my money. If I let the desire for a vehicle win out I would own a 4×4 pickup, if I would have let the desire to keep money win I would own some tiny car (yaris or smart car), instead reason and rational thought took over and I bought a slightly used Vue. The point is that unless two emotions come into conflict people will always first follow there emotions. Apple has built a successful company based on that sole fact.

    If you understand the emotional needs of your buyers, you can always find a way to get them to buy. Technical adavantage is always trumped by emotional need.

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