Tuesday, April 12, 2011

Easter Eggxample of Behavioural Economics

Easter Eggs.  If you're ever chatting with someone who isn't familiar with Behavioural Economics or doesn't see the opportunities in understanding the power of irrationality, Egg them.  Let me explain.

We love Easter Eggs. In Australia we consume an average of twenty Easter Eggs for every man, woman and child, and that means it's big business for our chocolate manufacturers.  But in economic decision making terms, our love of Easter Eggs is irrational.  Here's why.

Imagine you visited two different supermarkets.
  • The first offered you 100 grams of Cadbury chocolate for $2.98.
  • The second likewise offered you 100 grams of Cadbury chocolate, but for $2.15.
You'd opt for the second, right?  After all, it's the same product but you save almost 40%.

Now imagine you are within one of the supermarkets and they have two offers;
  • The first is the same offer you took above, 100 grams of Cadbury chocolate for $2.15.
  • The second offer is an Easter Egg. 100 grams of Cadbury for $2.98.
Now which do you choose?

Block chocolate vs Easter Egg
Traditional economics, based on rational arguments of supply and demand would have us taking the $2.15 offer every time.  But guess what? We are not always rational.  The fact that the chocolate is shaped like an egg, wrapped in foil, available at a certain time of year and can be given as a gift means that the majority of us will buy the $2.98 Easter Egg and pay a 40% premium.

And Behavioural Economics can help us explain why. 

We make judgments about one thing relative to another.  In the examples above, 100g of chocolate that was the same could be judge of the basis of price.  However, when one chocolate was shaped like an egg, the grounds of relativity became different.  Have you ever wondered why Easter Eggs are not in the confectionery aisle?  Because relativity is being confined to the "Easter Egg"  category rather than the chocolate category. (And for anyone who may argue that it would be logistically difficult to have the Eggs in the chocolate aisle I will posit that if Eggs were shown to sell better in the aisle, that 'logistical difficulty' argument would evaporate. It's purely about moving higher margin chocolate, and that is best done when the customer can't easily compare $2.98 to $2.15.)

Social Influence
We are greatly influenced by others around us.  Indeed, that we even have such things as Easter Eggs is a social construct.  To give your child a block of chocolate is just not the same as an Egg.  As consumers we justify the economic irrationality by deferring to such emotional reasons as the magic of an Easter Egg hunt, smiles on faces etc.  And as marketers, that's what we aim to amplify so that our Brands have a reason to be purchased outside purely rational reasons.

And this is a key thing about explaining Behavioural Economics.  All those reasons for paying more can be cited by the consumer as entirely rational because we are great at justifying our decisions. But rationalised isn't the same as economically rational.  Why is this important?  When you next pitch a product or campaign for development, remember it's not just about the 100 grams of chocolate. It's the shiny foil, the social construct, the timing, the gifting, the emotion that your customer will be processing when they are in your aisle.  Get excited because if you can help your consumer rationalise their purchase, the economic rationalisation becomes moot.

And this is the massive opportunity Behavioural Economics presents to marketers, product managers and retailers.  Yours is the opportunity to turn the magic of irrationality into margin for your business.  So tell me, what's your Egg? 

Prices quoted from Woolworths, Moorabbin 8 April 2011


  1. The supermarket is a great place to look for examples of Behavioural Economics. Ever paid more for a cola because it's in the cooler near the checkout? But the interesting area to watch at the moment is self-service check-outs. According to Aus Scan survey results, we love them. Really?

  2. I do enjoy your articles when I get the chance to drop in! Another thought-provoking exploration.

    I think that behavioural economics struggles with terminology. The whole, 'economically rational' thing, for instance. Don't misunderstand me, post-rationalisation by consumers very often doesn't stand up to scrutiny.

    Whilst I think your point about relativity is a good one, I also think that even with more readily available comparisons consumers would choose eggs: after all, it's not as if they don't know roughly what a chocolate bar costs.

    So what do I think is going on at an unconscious level? The associations with Easter trigger thoughts of chocolate eggs, this makes them feel attractive because easy neural links and associations are accessed (misattributed ease). There is the habit of buying them at the time of year. There is also an associated pleasure (from the less-mundane-than-regular-chocolate-bar experiences of receiving them as a child) - even I think Easter Egg hunts are exciting and I don't particularly like chocolate!

    The product itself delivers a more engaging experience: breaking the egg, the random nature of the chunk that you get, the 'present-like' packaging and the (often) extra goodies.

    Ultimately, there's nothing truly irrational going on. The unconscious mind is having an easy and psychologically rewarding time: there is nothing it likes more!

  3. Phillip thanks for your very interesting thoughts. To my mind you have perfectly illustrated behavioural economics in action - ie. we rationally know that other forms of chocolate offer better economic value but are influenced (through social norms, marketing etc) to buy eggs at Easter time. To your point about the more engaging experience of eggs, would that not suggest that they should be on sale all year round? Love your input, so keep it coming. And of course, happy Easter!