Behavioral Economics: How Apple Dominates In The Big Data Age
Apple’s success didn’t happen by chance. The company has used core behavioral economics principles in the big data age to influence customer behavior and build their brand. Here’s how they created their success and what you can learn from them.
The first iPhone was released in 2007. Over a decade later and people will still queue overnight to get their hands on the latest iPhone models. Even hefty price tags of over $1,000 don’t stop them, as every release, without fail, sees droves of fans waiting in line.
It’s safe to say that Apple has dominated the market in a unique way.
Apple’s success didn’t happen by chance. The company has used core behavioral economics principles in the big data age to influence customer behavior and build their brand.
Here’s how they created their success and what you can learn from them.
What is Behavioral Economics?
First up, let’s clarify what behavioral economics is. Behavioral economics is a psychological study of what influences economic decision making. It looks at different factors including cognition, emotions and cultural and social influences, analyzing their effect on people’s decisions and actions. (Read: Implementing a Smarter Customer Engagement Strategy Using Big Data.)
Behavioral economics is generally split into two key areas. This explores both what motivates people to make a purchase in the first place, as well as what judgements cause people to purchase from one brand instead of another.
What Part Does Big Data Play in Behavioral Economics?
Big data is the study of large data sets to reveal patterns, trends and behaviors.
In the 2018 Robert B. Menschel Economics Symposium, Hersh Shefrin stated that big data gained importance in behavioral economics from the 1990s. Using data sets and results started to eliminate the reliance on volunteer human subjects for experiments, allowing people to test theories and gather results from existing data.
That marked a big movement forward for behavioral economics, using big data from customers to analyse purchase decision making. It is these tactics that companies like Apple have used, seeing exactly who is buying their products and why. Then, using this data, they have further reinforced customer behaviors and turned their brand into the success story it is today. (Read: Top 6 Trends in Customer Relationship Management.)
6 Behavioral Economics Principles Used by Apple
Apple has used a variety of key behavioral economics principles to build its unstoppable tech machine. These are just six of them.
The term “tribe” in this regard describes social groups with similar interests and beliefs. To belong to a tribe is to share a sense of identity.
Apple excels at tribalism. Their customers don’t just own Apple products, they are part of an elite group of people who also use Apple products. There’s even a website simply named Apple Tribe, which posts Apple-related news, reviews and guides. As Wendy Liebmann explains:
“These people aren't just buying products. They're buying an aesthetic, a lifestyle that the brand connotes".
Apple’s brand is less about the product itself, and more about the lifestyle. Using Apple makes you cool, it helps you be creative, it allows you to be successful–and anyone can join.
It’s why Apple doesn’t just have one celebrity associated with the brand, they have several, who all seemingly use the product to help their success, creativeness or otherwise. Jon Favreauuses Apple to help direct a scene. Jamie Foxx asks Apple to choose which script he should work on next. Even Samuel L. Jackson gets Siri to organise his calendar and find organic mushrooms for a special date-night meal he’s preparing.
Apple isn’t a brand. It’s a club filled with the successful, the creative and the popular.
Apple’s tribalism is, in part, fueled by the repeated debate about what type of phone is better: iPhone or Android.
This debate practically resembles two opposite tribes at war. On one side of the ring, you have Apple. In the other corner, you’ve got Android users. Which product you own will determine the side you stand. And Apple is determined to be the winning side.
Even if you stand on the Android side, Apple still benefits. Android hasn’t got a clear company dominating this market, with several companies like Samsung, Google, Huawei, LG and more battling for the same customers. Apple man their side uncontested.
The Endowment Effect
The Endowment Effect is about how much value you put onto the items you own. Say someone was selling a pair of two identical mugs, they should be priced the same. But if one of the cups is yours, there’s much more value placed on it. It’s worth much more to you, so you might pay £2 for one mug, but you’re willing to pay £10 for the one that you own.
Apple uses the Endowment Effect as part of their retail experience. This is why they have working models of all of their products in their stores, ready for you to interact with.
Play on it as much as you want. No Apple employee is ever going to kick you off it because they want you to feel like it’s yours. And when you feel that, big data has shown you’re willing to pay more for it.
If you can give customers a chance to interact with your product before they buy, do it. Learn from Apple’s lax rules around customer handling and let customers feel like they already own your product.
If your friends or family are using and trust Apple, then you’ll be more likely to want one of their products for yourself.
Tribalism is about being part of a club. In one way, social proofing is about not wanting to be the only one of your friends on the outside. But it’s more than that. It’s a personal recommendation from others that Apple products are something that you should be using.
It’s reassurance that customers can trust you.
It’s why people will look for builders on review sites like TrustATrader or ask their friends who they recommend. They need to know who they can trust.
If you don’t have any form of testimonials on your website, you might want to rethink that. One BrightLocal survey found that positive customer reviews make 73% of customers trust a business more than they previously did. It’s a massive vote of confidence for your business, brand and product. (Read: Why CRM Strategies Fail, and What to Do About It.)
Heuristics are mental shortcuts that allow people to make quick judgements. They’re designed to shorten decision-making time and allow people to carry on, without stopping to think about their next course of action.
Apple takes advantage of heuristics with their packaging.
Every part of Apple packaging is designed to be clean, simple and direct. It’s incredibly minimalistic, made up of their elegant white colour and contrasting black. Every component of their product is neatly tidied into its own dedicated compartment of a made-to-measure box.
Even the user manuals look incredibly clean on top, featuring just one word: ‘Hello’. It’s simple and inviting, making you want to look at it. I can’t say I’ve ever thought the same about another user manual in my life.
Every single detail is designed to show quality and ease of use. The heuristics at play here are simple: if the packaging is this well designed, the product must be even better.
The lesson to learn here? Do not overlook the small details. Every single component of your product will tell a story about your business. Make sure you get the little things right to help promote the big picture.
And with over 20,300,000 YouTube results for the term “Apple Unboxing” alone, the data proves that this detail has had quite an effect on their audience.
The Halo Effect
The Halo Effect is a type of cognitive bias, where we use impressions of people or a thing to influence how we feel overall about them. For example, if someone is attractive, we might perceive them to be funnier or more charming than someone who is unattractive.
Apple has cultivated an image of their brand and every release they bring out only adds to the halo effect. All of their core products, such as the iPhone or Macbook have the same name, only changing the model number. The result is that this will be the same quality as the previous product, if not better.
People make snap judgements that the latest iPhone model is going to be excellent because of past experiences. After all, if people queued for hours for the last phone, imagine how good the next one is.
A Strict Price Image
Pricing isn’t a straightforward number. There are many physiological factors to pricing that influence whether or not we buy.
Apple uses a strict pricing technique to maintain a particular image and perception of the brand. This is to keep a high price for their products and never have a sale. Although sales are good in some respects to help drive profits, the downside is that customers might stop buying at full price because they expect to find it cheaper later on.
Apple customers don’t have this perception. They understand that the price they set is how much it will cost them, meaning they won’t delay purchasing to find a cheaper deal elsewhere. (Read: Saving CRM: Why Sales Isn’t on Board.)
In addition, the high price image that Apple sets is designed to influence quality. If something costs this much, then it must be good quality. That’s why nothing that Apple sells will ever come cheap. In fact, recently they proved this with a set of 4 wheels costing an astounding $700.
Now, we’re not suggesting that you should suddenly hike your prices up and cancel all sales, but pricing is an important factor that you need to consider. Look at your customer data to settle on a consistent pricing strategy that works for your business.
Apple: A Behavioral Economics Machine
Part of Apple’s success comes down to maintaining a strict brand image and implementing core behavioral economics to reinforce it. In their customer’s eyes, Apple isn't just a technology company. They don’t just sell phones or computers.
Apple is a statement. It’s a clean, professional brand used by the creatives, the successful and the popular. If you want to be in that club, you have to buy their products. Every detail about Apple is well thought out. From the pricing to the packaging, every component is set out to reinforce this image of quality and influence customer’s decision making.
Not every tactic that Apple uses will be right for your business. But if there’s one thing to learn from them, let it be this: every detail matters.
Think about what your customers might want and help them make up their mind with micro-details that sway them into your direction.