Why was J. C. Penney's

CEO ousted?Behavioral concepts any retailer should learn

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Online Shoppers Behavior

Why was J. C. Penney's CEO ousted?

J. C. Penney stopped promoting sales and offering coupons and instead made a big deal about its “everyday” low prices.” - The New York Times, April 13, 2013

The Action

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Online Shoppers Behavior

“Sales dropped 25 percent in 2012” - The New York Times, April 13, 2013

The Result

Online Shoppers Behavior

Why was J. C. Penney's CEO ousted?

By Omri YacubovichHead of Biz Dev & Marketing @Commerce Sciences

17 Slides on:

How do online shoppers think?Behavioral concepts any retailer should learn

Online Shoppers Behavior

Introduction

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Hi,

My name is Omri Yacubovich. I'm an Israeli entrepreneur, script writer and innovation leader.

I'm currently heading the Business Development and Marketing @ Commerce Sciences –the first to apply behavioral science into E-Commerce. We are venture backed by Google's Chairman, Eric Schmidt, delivering significant conversion uplift for 1000+ online retailers including US Top 100 retailers.

Keep in touch!

About me

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Introduction

if (humans are rational) and (free to make decisions) then rational decisions are made

Common Belief

If our prices are always low, as they would if we offer coupons, we can dismiss coupons

In J. C. Penney's words

WRONG!

WRONG!

Introduction

1+1 = 2

1+1 = 11

Mathematics and Decision Making

Introduction

There are some factors that affect decision making abilities and cause people to make

irrational decisions -Wikipedia

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Introduction

How do we make decisions?

Imagine that every time you cross the road, you would have to calculate the cars driving speed, your walking speed, the length of the road etc.

How much time would it take to cross the road? Would you be able to cross the road at all?

A car goes from point A to point B, at a rate of 57 mph...

Introduction

How do we make decisions?

Instead of taking into account all the relevant data, our brain uses heuristics in order to make a decision.

Introduction

heuristics are simple, efficient rules which people often use to form judgments and make decisions” -Wikipedia

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HeuristicsDefinition

Introduction

Heuristics usually give reasonably good results

quickly & easily

Introduction

But there are some hidden traps - behavioral biasesMany of these biases affect belief formation, business and economic decisions, and human behavior in general

Introduction

A cognitive bias is a pattern of deviation in judgment, whereby inferences of other people and situations may be drawn in an illogical fashion.” -Wikipedia

Cognitive BiasDefinition

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Introduction

Common Cognitive Biases

Framing effect Anchoring Availability heuristic Reactance

Zero-risk bias Ownership bias

Loss aversion

Omission bias

Distinction bias

Duration neglect

Illusion of control

Bandwagon effect

Gambler's fallacy

Stereotyping

Information bias

Less-is-better effect

Confirmation bias

Pseudo-certainty effect

Introduction

the tendency to rely too heavily, or "anchor," on one trait or piece of information when making decisions.” -Wikipedia

AnchoringDefinition

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Introduction

AnchoringExample

According to Nobel Prize awarded economic and psychological researches (Kahneman & Tversky) , when people have uncertainty about the price of a product, they often look for information from surrounding offerings and willing to pay higher prices when "anchored" by an higher price.

Kindle offer in Amazon.com:

Introduction

AnchoringExample

When people receive discount they are automatically “anchored” to the price before reduction.

What's more appealing?

Product A Product B

Introduction

a tendency to prefer the complete elimination of a risk even when alternative options produce a greater reduction in risk (overall).” -Wikipedia

Zero risk biasDefinition

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Introduction

Think QuicklyChoose between a FREE $20 coupon to Apple store, or a $30 coupon for eight dollars.

Which one would prefer to get?

FREE $20 Coupon

$30Coupon

Get Free Coupon Buy for $8

Or

Introduction

Zero Risk BiasExample – Soap.com homepage

The FREE offer is more valuable than offering the a few dollars discount, equivalent to the delivery price.

By Omri YacubovichHead of Biz Dev & Marketing @Commerce Sciences

17 Slides on:

How do online shoppers think?Behavioral concepts any retailer should learn

Online Shoppers Behavior

Introduction

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