Conducting market research, specifically, conducting qualitative research, requires a solid understanding and training in psychology. Simply put, understanding how people perceive, use, and think about products and services means that the researchers studying the customers need to have a very sound understanding of human behavior. As we’re all aware, human beings are incredibly complex, and how we make decisions reflects this complexity. To be an astute market researcher means that one should have training and experience in studying human behavior, and, more specifically, understand the tendency for people to have cognitive biases in how they make decisions.
Customers, however, are not the only ones with cognitive biases. At InterQ, when we work with clients, we see how cognitive biases hinder how teams develop products and market them, and, unfortunately, this leads to preventing sound decision making. How? In this post, we’ll break down the most common cognitive biases that we see in the business world, and how these “mental shortcuts” prevent organizations from looking objectively at their processes, product development, and marketing. The good news is that by understanding how cognitive biases work in the corporate world, leadership can help remove some of the dangers that cognitive biases have on developing products that consumers actually want to use and are attracted to. Let’s explore some of the most common ones.
Cognitive bias in the workplace #1: Sunk Cost bias
Oftentimes, teams will plow ahead with a project, even when they start to get feedback that customers don’t like it or it’s not working well – or market indicators say that their product may have too much saturation or competition. Objectively, we can look at this phenomena and scratch our heads: Why would a company double-down, effectively plowing more money into a product when all indicators point to low sales? This is where the cognitive bias of Sunk Cost comes in. This bias explains how people (teams/organizations) believe that once they have sunk enough time and resources into a product, they’re less likely abandon it, even when there is clear data pointing to failure. This leads to a loss of more time and resources and can severely hurt a company’s bottom line (and brand).
How market research helps: When market research is brought in early, and can show that a product is not well received, and, a company heeds this, the business can prevent losses by pulling the plug or going for a re-design, instead of sinking more money into a product or service that research indicates won’t be popular.
Cognitive bias in the workplace #2: Strategic Misrepresentation bias
This is perhaps the most common form of cognitive bias that we see in organizations who are working on products for the marketplace. To summarize, this is a bias of too much optimism. It occurs when teams underestimate the risk of their decisions, usually because a company is passionate about their innovations and wants to be in the marketplace, without first conducting enough research to test viability. Startups are especially prone to this heuristic.
How market research helps: Market research is objective (when done by an outside firm and with sound methodologies). The goal of market research is not to prove how well a product is liked and will sell, but to test how a product/service is used, whether it’s needed (e.g. – is there market saturation?), what the competitive field is like against the product, how buying decisions are made in the organization, and, ultimately, how to position the product for success – considering all of the factors above. When a company is optimistic and focused on sales or pushing a product through, these types of factors will not be considered by the parent company in the same way a market research firm would look at it.
In the next post, we’ll explore three additional common cognitive biases we see companies make: Ambiguity bias, Pro-Innovation bias, and Status Quo bias. Stay tuned!
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