Wednesday, November 23, 2011

Important psychological error that marketers should be aware of when determining a target group: base rate fallacy

For the last post, I talked about three biases—sunk cost, anchoring effect and Barnum effect— that keep you from being a smart shopper. For today’s post, I will do a deep dive on one particular psychological concept that people frequently make mistakes on, called base rate fallacy. As a northwestern senior majoring in Psychology and Integrated Marketing Communication and minoring in Statistics, I came across the concept of base rate fallacy in a psychology class, “Decision Making,” and thought that this concept would be applicable and helpful to the field of marketing, especially when determining a target market. Throughout the article, I will first explain the concept of base rate fallacy, and then will demonstrate how it touches the area of marketing.
Base rate fallacy is a common cognitive error that most people make by ignoring the base rate and focuses solely on certain characteristics. In order to facilitate the best understanding of the concept, I will give you a short quiz. Pay attention to the description of John, and guess what his occupation is:
John is a muscular African-American who is 6.5 feet tall. He drives red Mustang and is popular among girls.  Is he a NFL football player or a nurse?

You would probably have guessed him to be a football player, because most of the descriptions of him match with the common stereotypes of how football players are like; tall, sports car, muscular, etc… However, if you rationally think about it, you realize that you’ve ignored the basic base rate; the number of nurse is much more than the number of NFL football player, and thus it is more probable for John to be a nurse! People frequently commit this base rate fallacy because people tend to focus more on external features of and characteristics of a group, rather than a size or hard number.
 As a student who studies both psychology and marketing, I think it is especially important for a marketer to be aware of base rate fallacy. When deciding which group of people to target, marketers have to consider target group’s own interests and characteristics. However, it is very probable for some marketers to commit base rate fallacy, because their attention on target group’s interests and features might blind them from looking at a big picture, such as the size of a target group.
For example, let’s say you are planning on one marketing campaign. Two target groups have been identified. Group A fits perfectly with the nature of the campaign; campaign’s features corresponds with the group’s interests and passion. However, the size of the group A is quite small, only 1,000 people. Group B has characteristics that fit relatively well to the campaign, but not as perfectly as Group A. Group B is consisted of 10,000 people. In this situation, marketers should be careful not to choose Group A by the mere excitement that the campaign fits perfectly with the target group’s interests, because in a long term, targeting group B is more profitable choice, considering ROI and the number of people being reached through the campaign.
Therefore I suggest that it is important for marketers to always have a broad perspective. Identifying target group’s interests and characteristics is important, but a marketer should not solely focus on just one aspect, but should consider various aspects of the whole process to execute a successful marketing campaign.
Jake Kim, Undergraduate Northwestern IMC, @JakeKim4

1 comment:

  1. Good article and nice labels. Don't forget terms like Analytics for the researchers also Northwestern for the alumni.

    It is a deep read. While I like the reference to the last article, start with establishing your expertise and the main things you want us to learn from your article.

    Don't be afraid to tell them your expertise in these types of technical articles.

    Interesting subject