How (Not) to Use Behavioral Economics to Influence Consumer Decisions
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You need not dig deep to unearth a story that features a disgruntled Viagogo user. In fact, the Facebook group Victims of Viagogo has amassed over 5500 members, and is littered with angry customer complaints aimed at a company that has quickly become the bane of the entertainment industry.
Formed in London back in 2006, Viagogo has grown to be the ‘world’s largest secondary marketplace for tickets’. This growth, however, has come at a cost, with its business practises having attracted much criticism. For instance, back in 2012 leading up to the Olympic Games in London, the company liquidated its assets in the UK and registered a new company Viagogo AG in Geneva, making it exempt from UK law — which banned the resale of tickets for the olympic games.
That aside, if there is one way this controversial company can be heralded, it is for its textbook use of behavioral economics to bolster its marketing approach. It comes as no surprise that the company’s founder, Eric Baker, has expressed his admiration for the ideas set out in Nassim Nicholas Taleb’s Fooled by Randomness, a book that touches on many of the hidden biases and cognitive shortcuts that behavioral economists strive to explain.
This marketing approach continues to help Viagogo sell millions of tickets for prices that far exceed their original value. The Guardian newspaper has published several articles that highlight just how large these mark-ups can get. For instance, it was reported that tickets for a Harry Potter play worth £140 were listed on the site for £8,327, and tickets for an El Clasico football match listed for a ridiculous £196,155.94.
Despite these excessive prices, thousands of Viagogo users all over the world choose to purchase tickets from the website every day. So what drives them to do so? This article contends that Viagogo’s use of behavioral economics is, in part, culpable for this seemingly irrational consumer behavior.
Behavioral Science, Democratized
We make 35,000 decisions each day, often in environments that aren’t conducive to making sound choices.
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Priming a Scarcity Mindset
Viagogo’s meticulously designed user flow — the path taken by a user on its website to find, select, and purchase a ticket — adopts behavioral economic principles to (a) increase conversion rates and (b) sell tickets for highly inflated prices.
When a vendor creates the perception that their product is scarce, buyers are more attracted to that product. Resource scarcity, as highlighted in Robert Cialdini’s book “Influence”, comes in two forms: limited-time and limited-quantity. With limited-time scarcity, an offer is made available for a predefined period, after which the offer becomes unavailable. In limited-quantity scarcity, the offer is made available for a predefined quantity of the product. Both of these forms of scarcity are harnessed by Viagogo to great effect.
When selecting an event on the Viagogo platform, all users are presented with a loading bar. A cursory look at the website’s script reveals that this is actually one of forty-five set timers used purposefully throughout the site. This particular loading bar, which leads the user onto the marketplace where tickets are being sold, is set to a specified number of seconds (approximately 45 seconds I estimate), which is ample time for the user to be exposed to the scarcity messaging, or “scarcity primes”. Research suggests that this has unprecedented effects on a Viagogo user’s intention to purchase tickets.
The effects of scarcity priming on consumption levels are concrete and remain consistent across different countries, cultures, and stimuli (Jung and Kellaris 2004). Laran, Juliano, and Salerno (2013), for instance, measured participants’ calorie consumption across two conditions. In the first condition participants were primed with a text that emphasised harshness and deprivation, with words like survival, persistence, shortfall, and adversity. The control group read a text with neutral words (i.e. words that didn’t evoke scarcity). They found that those who were subconsciously primed to think about scarcity consumed more calories (18.9 grams of candy) compared to those who were not primed (13.7 grams of candy). The scarcity-primed participants, the authors conclude, responded to the perception of impending scarcity by increasing their calorie consumption levels.
Viagogo uses comparable scarcity primes to nudge its users into a scarcity mindset. Their aim is to increase ticket consumption. Messages such as “Less than 2% of tickets left for this event”, and tickets “selling fast” are displayed to users above the loading bar, and in brightly lit pop-ups and tabs that follow users all over the site (see screenshot below). Their constant presence ensures that even if not actively attended to, they are subconsciously taken in by Viagogo users.
This should result, according to Laran and colleagues’ (2013) candy consumption study, in a considerable increase in ticket consumption. In their study, calorie intake increased by 28 percent when participants were primed into a scarcity mindset. If Viagogo’s scarcity primes have a similar effect, they could be increasing user ticket purchases by up to 28 percent.
The other main scarcity heuristic focuses on time limitations. Viagogo implements various time constraints throughout the buying process to limit the duration of a ticket offer, with the aim to accelerate purchases. Studies show that this may also increase the perceived value of the tickets being sold. Lee and Seidle (2012), for example, found that participants exposed to messaging that indicated limited-time scarcity (“Exclusive limited edition. Hurry, limited stocks” compared to “New edition. Many items in stock”), were willing to pay an additional 50 percent for a wrist watch. This is because these consumers used scarcity information as a heuristic cue, which induces relatively thoughtless and reflexive responses, and concurrently decreased their reliance on other product attributes, like price.
Neuroscience can provide some further insight into this decision process. It is thought that scarcity cues can overload the brain, which leaves less bandwidth for executive control functions (Mani, Mullainathan, Shafir, and Zhao, 2013). This effect, known as cognitive overload, is thought to diminish the glucose levels in the frontal cortex (the region associated with attention, planning and decision making). Dewitte, Pandelaere, Briers, Warlop (2005) found that concurrent cognitive load, as is the case with Viagogo’s bombardment of scarcity primes, can have devastating effects on consumer decision making.
In combination with the limited-time scarcity primes, Viagogo also uses a “social demand” or consumer competition heuristic. Consumer competition, as defined by Aggarwal and coauthors (2011), is the act of consumers striving against one or more other consumers for the purpose of achieving a desirable economic reward (i.e. two users in competition to purchase a ticket for a popular event).
In Viagogo’s case, when a user enters onto an events landing page, they enter into a live marketplace where tickets are rapidly being bought by other consumer competitors. It is hard to ascertain whether this marketplace is purposefully simulated to mimic the perception of consumer competition, or whether in reality other users are actually purchasing tickets. Either way, it has a powerful effect on a users purchase decision.
A study conducted by Worchel, Lee, and Adewole (1975) provides some insight into this. In their study, before participants could take a cookie from a jar of 10, the jar was switched with another jar of two cookies. One group was told that the missing cookies were needed for other tasters (competitors) in the study, while the second group was told that the researcher had initially given them the wrong jar. For the first condition, in which the cookies became scarce through the process of social demand (i.e., needed to supply the other tasters), participants rated the cookies’ quality higher, and believed them to be more valuable, than did the participants in the other condition.
Is this fair for consumers?
In sum, Viagogo is tapping into several powerful behavioral heuristics to increase both the amount of tickets being bought on their platform, and the price for which they’re being bought.
It could be argued that these tactics are simply marketing ploys comparable to those used by a smooth-talking car salesman who is closing in on a deal. In which case, it should be up to the user to see through the sales gimmicks, just as they would in a car showroom.
Looking at it another way, with the hundreds of thousands of customers navigating through Viagogo’s user flow, they have had the opportunity to fine-tune their system to fully optimise their equivalent of a ‘sales pitch’. Testing exactly where and when on the website the placement of a scarcity prime yields the highest conversion rate; which phrase works best; whether they work in green, blue, or red boxes; whether to address the user by name or not. Perhaps they’ve even figured out the perfect amount of ticket scarcity to portray to users: it could be that “1% of tickets left” is too little, 5% is too much, and 2% is just right. The point is, Viagogo has the luxury of an unlimited and hugely heterogeneous sample of participants to test and tune its use of scarcity primes (or any other behavioral heuristic they may choose to apply). Which may give them an unfair advantage over their users.
The AI Governance Challenge
To illustrate this point further we should imagine the human equivalent of Viagogo’s user flow. Having rehearsed his or her sales pitch hundreds of thousands of times this car salesperson would know exactly what to say to portray to the customer the scarcity and exclusivity of their offer. They would know exactly when in the conversation to push this point, and how to phrase and deliver it to optimise their sales rate. Additionally, there would be hundreds of consumer competitors in the car showroom snapping up seemingly better cars for lower prices. Under these conditions it’s easy to imagine that a consumer’s decision making ability would come under stress, possibly leading to snap, irrational purchases. The question, then, is should this be allowed? Or should there be laws and regulations brought in to protect vulnerable users online that come up against such powerful tools of influence. Ultimately, as digital marketing continues to become more ubiquitous, targeted, and powerful, this is a question policymakers need to consider.
Aggarwal, Praveen, Sung Youl Jun, and Jong Ho Huh. “Scarcity messages.” Journal of Advertising 40, no. 3 (2011): 19-30.
Cialdini, R.B. Influence: Science and Practice, 5th ed. Boston: Pearson. (2008)
Dewitte, Siegfried, Mario Pandelaere, Barbara Briers, and Luk Warlop. “Cognitive load has negative after effects on consumer decision making.” (2005).
Jung, Jae Min, and James J. Kellaris. “Cross‐national differences in proneness to scarcity effects: The moderating roles of familiarity, uncertainty avoidance, and need for cognitive closure.” Psychology & Marketing 21, no. 9 (2004): 739-753.
Laran, Juliano, and Anthony Salerno. “Life-history strategy, food choice, and caloric consumption.” Psychological Science. 24, no. 2 (2013): 167-173.
Mani, Anandi, Sendhil Mullainathan, Eldar Shafir, and Jiaying Zhao. “Poverty impedes cognitive function.” science 341, no. 6149 (2013): 976-980.
Vaidyanathan, Rajiv, and Praveen Aggarwal. “Who is the fairest of them all? An attributional approach to price fairness perceptions.” Journal of Business Research 56, no. 6 (2003): 453-463.
About the Author
James completed an International BSc at the University of Leeds and Australian National University. Following this, he completed an MSc in Behavioural Economics at Leiden University where he received a Cum Laude distinction. He now works for a tech start-up in Amsterdam and continues to work with Leiden University to publish research around sustainable behaviour.