Cognitive Bias Can Have a Significant Impact on How Customers Make Purchasing Decisions

Why B2C PMs should study ‘Hyperbolic Discounting’

Imagine you have the choice between receiving $50 now or $100 in a month. Psychology suggests that you would be more likely to choose the $50 now, even though waiting for the $100 would give you a better payoff. This bias is thought to be related to the way people perceive time and the value of rewards. It is called ‘Hyperbolic discounting’

For example, people might choose to indulge in unhealthy behaviours like smoking or overeating, even if they know it will have negative long-term consequences. This is because immediate rewards are more appealing than the delayed benefits of better health. Similarly, people might choose to take on high-interest loans or credit card debt because immediate access to cash is more appealing than the long-term costs of interest and fees. Hyperbolic discounting can have significant implications for businesses that sell business-to-consumer (B2C) products, particularly when it comes to pricing and promotions.

Hyperbolic discounting is a cognitive bias that can have a significant impact on how customers make purchasing decisions. Understanding it can help PMs to create more effective marketing and pricing strategies that can increase sales and customer loyalty. Here are some areas that PMs can elevate by applying the concept of hyperbolic discounting

How customers perceive the value of a product or service can have implications for pricing strategies. PMs can use pricing tactics such as limited-time offers, discounts, or bundling to take advantage of customers’ preferences for immediate rewards. However, PMs also need to be aware that hyperbolic discounting can make it challenging to persuade…

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