CNN 12 To 20

Session 12 – 20
Neuromarketing
Scenario
Some tasks that we face are urgent: if they are not performed within a
given time frame, the opportunities to work on them are gone.
Other tasks are important: the consequences of either performing or not

performing such tasks are sizable.
We define task importance as the state that involves significant

outcomes. Important (vs. unimportant) tasks are characterized by big
(vs. small) outcome magnitudes.
We define task urgency as the state that requires immediate

responsiveness. Tasks that are urgent (vs. nonurgent) are characterized
by short (vs. long) completion windows.
When faced with simultaneous tasks of varying levels of urgency

and importance, how do we decide which task to perform?
Prof. Sudipta Mandal / Department of Marketing 2
Neuromarketing
Scenario

Neuromarketing
Scenario
• The limited time frame embedded in an urgent task is a salient
restriction in the local decision context, and it elicits attention,
diverting focus away from the magnitudes of task outcomes (e.g.,
payoffs).
• Choice restrictions tend to draw attention – and thus create
attentional neglect in the unrestricted domains
• In situations where something becomes restricted, our cognitive
processes are often suppressed and our attention is heightened.
• When a person’s behavioral freedom is threatened by restrictions
the person becomes focused on reestablishing what had been
threatened.
• Can you think of any other marketing example?
Neuromarketing
Scenario 1 – Decision Making

• Consumers’ decision making in the face of resource scarcity
– both time scarcity and inventory scarcity – The role played
by products and brands

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• Suppose time is counting down, or
• Suppose the the inventory is getting acquired by other
customers very quickly
• Is this a context of high or low effort decision making?
• What kind of feelings do such situations induce in
prospective customers?
• Sense of “low control” or “lack of control”

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• Under conditions of low control people generally feel
helpless or stressed
• Low control often leads individuals to exhibit lower levels of
persistence and effort
• Neuro-physiologically what is happening in the consumer’s
brain?

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• Risk  High or Low?
• Anterior insula highly activated
• Anticipated Gain  High or Low?
• Nucleus Accumbens not highly activated
• Under such conditions what does the brain want? – The
brain’s objective?

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• An objective of the brain is to “feel good”
• Feeling in control is associated with many positive
outcomes, including greater psychological well-being
• And therefore, what do people want to do?
• When individuals perceive a discrepancy between their
desired state and their current state, they are motivated to
reduce the discrepancy between their current and desired
levels of control
• People naturally have a strong desire to restore control
when it is threatened

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• While individuals may possess a desire to restore control,
they must also face the fear that they do not have the ability
or resources to do so
• Therefore, low control is often associated with lower
persistence and less effort
• Tension therefore exists between individuals’ desire to
restore control and the assessment that the goal is
attainable

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• What role can products and brands play in such
circumstances?
• Products and brands serve as external sources that provide
functional and symbolic benefits
• What are functional benefits?
• Utilitarian
• What are symbolic benefits?
• Value-expressive

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• When feelings of control are low, consumers will want tools
to ensure that it is feasible to achieve positive outcomes
• Also, consumers want to be able to contribute their own hard
work and feel empowered
• Consumers believe that effort and hard work will help them
control the outcomes
• And this needs to be communicated through the brand’s or
the product’s communication

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Brands Portraying High Brands Portraying Low
Effort Requirement Effort Requirement
Low Control
High Control

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• How did the results look?

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• Replicated the findings for the likelihood of purchasing a golf-
club

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• Basketball context

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• Threats to one’s control in a specific domain (e.g.,
academics) should only lead to a preference for high-effort
products in the same domain

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• So what are the marketing implications?
• Marketers’ intuition is often to provide consumers with the
easiest, most high-tech routes to achieve their goals.
However, a focus on ease over effort in brand
communications may be counterproductive. The most
effective approach will depend on consumers’ feelings of
control.
• While often viewed as detrimental to effort and performance,
low feelings of control may cause individuals to work harder,
particularly when consumers are aided by the reassuring
functionality of brands.

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Scenario 2 – Number Divisibility & Loneliness
$19 vs. $21 dinner x lonely vs. accompanied:

Lonely  $21 better than $19
Accompanied  $19 better than $21
Hotel Rooms: 305 vs. 301 or 307

Lonely  305
Accompanied  301 (objectively divisible by 7 but subjectively
perceived to be indivisible) or 307
Choice of paintings: (45 cm x 63 cm) vs. (43 cm x 67 cm)

Lonely  45 cm x 63 cm
Accompanied  43 cm x 67 cm

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Marketing Scenarios – Related to Curiosity

• Consumers’ curiosity is frequently activated through teaser advertisements
for novel products but left unsatisfied because crucial details (e.g., product
features, price) are deliberately left out
• More often than not, consumers explore the web for product-related
information in a seemingly endless and unsatisfactory attempt to satiate
their curiosity.
• Many present-day platforms or portals (social media feeds, news feeds,

meme pages) use the format of infinite scrolling, where continuously one
post is followed by the next one. These are endless feeds, where users also
tend to keep scrolling and spend time(sometimes hours) at a stretch.
• Dopamine hack  where the brain releases dopamine while using such
platforms, thus users tend to continue scrolling and the habit grows stronger

Neuromarketing
Exercise 1
• You have 4 cards in front of you on which either one
letter or number appears – a, b, 2, or 3. You have to
verify the statement – “All cards with a vowel on one
side have an even number on the other”. You would
need to indicate only those cards that would need to be
turned over in order to determine whether the rule is
true or false. Which card or cards would you choose?

Neuromarketing
Exercise 2
• It is claimed that when a particular consultant says the
market will rise (i.e., a favorable report), it always does
rise. You are required to check the consultant’s claim
and can observe any of the outcomes or predictions
associated with the following:
1. Favorable report
2. Unfavorable report
3. Rise in the market
4. Fall in the market
• What is the minimum evidence you would need to check

the consultant’s claim?
Neuromarketing
Exercise 3
• A & B and C & D are 2 pairs of political candidates. If A
is now paired with C, predict the winner?
Political Performance
120
100 100
100
80 75
60
40
25
20
0
A B C D

Neuromarketing
Illusion of Validity
x = overall evaluative
judgment
y = parameter that serves

as the basis for evaluating
the accuracy of judgment

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Case Study – Risky Decision Making

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Case Study – Risky Decision Making

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Regulatory Focus
• There are two main ways in which people achieve the
fundamental goals of seeking pleasure and avoiding pain —
by being either promotion focused or prevention focused.
• Promotion focused individuals approach their goals with
eagerness and tend to place more emphasis on
accomplishments and aspirations than safety and
responsibilities.
• Prevention focused individuals are vigilant of potential
losses and generally more concerned about duties and
obligations than self-fulfillment.

Neuromarketing
Regulatory Focus
• Promotion focused individuals place more importance on
what they “want” to do.
• Prevention focused individuals place more emphasis on
what they should, or “ought” to do.
• Who are more “approach”-oriented and who are more
“avoidance”-oriented?
• How are the neuro-physiological reactions different for
promotion vs. prevention focused individuals?

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Regulatory Focus
Information Processing Style
• People tend to engage in either –
• global processing (“seeing the forest”), or
• local processing (“seeing the trees”)

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Regulatory Focus
Partitioned Pricing and Combined Pricing
• A product with a base price of just $15, but with a shipping
and handling fee of $4.95.
• A product with a combined price of just $19.95.

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Regulatory Focus
If I say –
• Global processing leads consumers to perceive partitioned
pricing as more attractive than combined pricing while local
processing leads partitioned pricing and combined pricing to
be perceived as similarly attractive.
• Is this true? Why or Why Not?

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Regulatory Focus
If I say –
• Promotion focus leads to more global processing than
prevention focus.

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Regulatory Focus
If I say –
• Partitioned versus combined pricing is more effective for
promotion focused individuals but there will be no difference
in evaluations of partitioned and combined pricing for
prevention focused consumers.
• How would it look visually?

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Regulatory Focus
How do you persuade individuals with different regulatory
foci through differential brand communications
• How are information processing styles of promotion focused
individuals different from those of prevention focused
individuals?

Neuromarketing
Regulatory Focus
“The Ultimate Aerobic

Machine for a Great
Workout!”
Why Exercise?
• Gives your body complete

conditioning while you achieve
cardiovascular training
• Ensures that you get buff

Neuromarketing
Regulatory Focus
“The Ultimate Aerobic

Machine with the Right
Features!”
How to Exercise?
• No-impact stepper designed to

cushion each step
• Multiple incline setting

complements the precise,
patented geometry of the stride

Neuromarketing
Regulatory Focus
Regulatory Focus and Selective Information Processing
• Consider tooth-paste as an example
• Could be emphasized on the basis of features such as –
breath freshening, teeth whitening etc.
• OR
• Could be emphasized on the basis of features such as –
cavity prevention, plaque control

Neuromarketing
Regulatory Focus
Regulatory Focus and Selective Information Processing
• When do we engage in selective information processing?
• Under high information load
• Under high information load what do you think promotion-
focused and prevention focused individuals would place
more weight on?
• Under high information load, relative reliance on positive
information is greater for promotion-focused individuals.
• Under high information load, relative reliance on negative
information is greater for prevention-focused individuals.
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Implicit Theories / Consumer Mindsets

• Fixed Mindsets
• Growth Mindsets

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Fixed Mindsets (Entity Theorists)
• Consumers who have a fixed mindset believe that human
characteristics are unchangeable.
• More worried about the final outcome than the intermediate
process.
• More self-enhancers or more into impression management.

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Growth Mindsets (Incremental Theorists)
• Consumers who have a growth mindset believe that human
characteristics are changeable.
• More worried about the intermediate processes than the
final outcome.
• Less self-enhancers or less into impression management.

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The Role of Implicit Theories in Evaluating Brand
Extensions
• Compared with entity theorists, incremental theorists will
deem a greater number of brand extensions for a particular
brand to be viable.
• Implicit theories affect the perceived malleability of a brand
by affecting the perceived malleability of a brand’s
personality and not its physicality
• What does this mean?
• More Conceptual and less Perceptual

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The Role of Implicit Theories in Evaluating Brand
Extensions
• What happens when there is a large change in personality of
a brand upon brand extension?
• Too great a change in a brand’s personality violates an
incremental theorist’s latitude of acceptability, which results
in a response similar to that garnered from entity theorists.

Neuromarketing
Clips – Representativeness Bias

• https://www.youtube.com/watch?v=4quN-Bnu--M
• https://www.youtube.com/watch?v=da7tD87BYD8
• https://www.youtube.com/watch?v=XY25d2274_Q

Neuromarketing
Heuristics and Biases

• Availability Heuristic?
• Availability is a heuristic whereby people make judgments
about the likelihood of an event based on how easily an
example, instance, or case comes to mind.
• For example, investors may judge the quality of an
investment based on information that was recently in the
news, ignoring other relevant facts.
• In marketing, availability can play a role in various estimates,
such as store prices or product failure. The availability of
information in memory also underlies
the representativeness heuristic.

Neuromarketing

• What is the fundamental problem underlying the
representativeness heuristic and the availability heuristic?
• People believe members of a particular social category (X)
have certain attributes (Y)
• That is X  Y
• They infer that individuals who have these attributes (Y)
belong to that category (X)
• That is Y  X
• Moreover, NOT-Y  NOT-X

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• Computer Science graduates (X) in general are logical in
their approach (Y)
• People infer that individuals who are logical in their approach
(Y) are likely to be Computer Science graduates (Y  X)
• Moreover, people who are not logical in their approach are
unlikely to be Computer Science graduates (not-Y  not-X).

Neuromarketing
Mental Accounts, Sunk Costs, Endowment Effects,

and Neural Substrates
• Thaler starts off with a couple of examples – what are
these?
• A few more examples given by Thaler –
• Example 1 – Mr. and Mrs. L and Mr. and Mrs. H went on a
fishing trip in the northwest and caught some salmon. They
packed the fish and sent it home on an airline, but the fish
were lost in transit. They received $300 from the airline. The
couples take the money, go out to dinner and spend $225.
They had never spent that much at a restaurant before.

Neuromarketing

• Example 2 – Mr. X is up $50 in a monthly poker game. He
has a queen high flush and calls a $10 bet. Mr. Y owns 100
shares of IBM which went up 2 today and is even in the
poker game. He has a king high flush but he folds. When X
wins, Y thinks to himself, "If I had been up $50 I would have
called too.”
• Example 3 – Mr. and Mrs. J have saved $15,000 toward
their dream vacation home. They hope to buy the home in
five years. The money earns 10% in a money market
account. They just bought a new car for $11,000 which they
financed with a three-year car loan at 15%.

Neuromarketing

• Example 4 – Mr. S admires a $125 cashmere sweater at the
department store. He declines to buy it, feeling that it is too
extravagant. Later that month he receives the same sweater
from his wife for a birthday present. He is very happy. Mr.
and Mrs. S have only joint bank accounts.

Neuromarketing

• What is the fundamental underlying premise or principle of
the idea of a mental account?
• That is money is not absolute and
• That money is not fungible, i.e., interchangeable
• Goes against the traditional neoclassical economics premise
that money is the same irrespective of how its used

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• So we have these mental accounts in our head, supposedly.
• If that is true how would it operationalize in the head?
• Why do we behave as if money is not fungible?
• What are aspects of the brain’s functioning that make it so?

Neuromarketing

• In the case of the cashmere sweater buying vs. gifting –
• When we spend money on ourselves our insula gets
activated and we perceive it as a loss  pain of paying.
• But when someone gifts it to us we perceive it as a gain.

Neuromarketing

• The gain circuits are different from the loss circuits in our
brain.
• The instance of buying vs. gifting is being evaluated in
different circuits so therefore, to me they are different mental
accounts.
• What could be the unconscious driver?
• In terms of risk in the anterior insula it goes up quite a bit.
• If I spend that money out of my savings account somewhere
in my brain I feel it is too risky, my insula is firing up.

Neuromarketing

• But, what about this money that I have saved up for buying a
house vs. taking a loan for 15% interest?
• I am willing to take the risk and even suffer a minor loss with
the higher rate of interest, but I am not willing to take the risk
over my house savings.
• At some level the unconscious driver is that I will not treat
the two similarly. So therefore buying a house and a car
come from different accounts.
• And we can keep on defining mental accounts for different
categories and different ways.

Neuromarketing

• So something has to be happening in the brain to explain all
of these phenomena.
• We also know that the brain doesn’t do anything that doesn’t
make it feel good, so it has to be making it feel good.
• If we are working on that assumption, one of the ways it has
to feel good is if it minimizes the risk, maximizes the gains.

Neuromarketing
Understanding Reward in the Brain

• https://www.youtube.com/watch?v=7VUlKP4LDyQ
• https://www.youtube.com/watch?v=YzCYuKX6zp8&t=15s

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Varieties of Rewarding Experience

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• Another example –
• When I am buying a beer for a party at the house I buy a 6
pack and I will be paying whatever the price is, but if I am
going to a beach with my buddies then I don't mind paying
three times the price also

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• What about willing to pay different for the same beer?
• If I am the marketer and I am selling beer on the beach vs. to
the house, what is the implication for me, i.e., for the marketer?
• First, I need to develop an understanding of the mental account
system under which the person is operating.
• Because if my product is some other mental account then my
degrees of freedom change.
• If I can convince the person that the beer is not just for his
house party but for some other purpose then he will add it to a
different account.
• In his head this is now kicking in a different way.
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• What is the key TAKEAWAY for a marketer?
• It allows us to improve our selling process if we can get a
good idea of what a mental account is.
• Not that it will work for all products all the time but it gives
you one tool to implement an action.

Neuromarketing

• Each mental account has a different amount of risk
associated with it. Therefore when we shift the mental
account we just shift the propensity of the risk curve.
• What does this mean?
• The risk profile of a product will change depending on
the mental account it is situated in.

Neuromarketing

• What is prospect theory?
• Can you can think of an example?
• If I lose Rs.2000 the perceived pain or loss is much more than
if I gain Rs.2000.
• In any population about 70-80% will behave like this which is
a very strong effect.
• Essentially losses loom larger than gains is one summary
of it; and on this insight Daniel Kahneman got his Nobel prize.
• Normally the neoclassical economists would say the line
should be a straight line.

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• What is it about the BOPs that makes us behave this way?
• Our neural constructs for gain and loss are different.
• We are wired to minimize losses and avoid pain – that circuit
is essentially stronger.
• The pain circuits tend to be stronger because they have
higher survival value.
• The gain will also help me survive but if I am not alive I can’t
enjoy the gain.

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• 70% of a typical audience would behave this way.
• 30% would go the other way where they are risk seeking,
not averse.
• From the brain perspective the first principle was that brain
wants to avoid pain, feel good  the most amount of
serotonin comes from avoiding pain or getting out of
danger
• A loss of money in today’s world is very dangerous, it is
almost the same as having survival value.
• Thus money is not on this linear curve, it is on this convex-
concave curve.
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• Imagine I am offering a discount of Rs.2500
• If I give a discount at one go then …
• Whereas if I give the discount in 2 instalments of Rs.1250
each then the perceived value becomes higher.
• So one implication is if I want to give gains to the consumer I
segregate the gains.

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• By the same token if I want to raise the price what should I
do according to this theory?
• I should integrate the losses.
• Because if I segregate the losses I am compounding the
loss making the perceived pain much larger, so I just
integrate the losses.
• But why are petrol prices raised in small instalments?

Neuromarketing

• We tend to have a pattern in our mind about the price. The pattern
has a reference point which is what we call the reference price.
• But we tend to react to price changes which are actually outside a
certain range.
• Band of price indifference, latitude of price acceptance (LPA).
• But we only react beyond that level because when the changes
are small then I don’t get that signal  insula fires less
• The change in price is too small for me to bother about.
• My brain is not sending enough dopamine into my VMPFC for me
to think about it, so I don't even think about it  It goes below the
radar

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• And, over a period of time slowly I am growing accustomed
to that change.
• So over a period of three months the price may have risen
by Rs.6, I am not too concerned about it, some people will
be concerned.
• But the reaction will be more muted, because my brain is
being conditioned slowly.
• The dopamine spike which should have come with one, are
not coming at the same level, they are much lower. And
therefore I am less likely to react at the same level than if
the price change had come at one go.

Neuromarketing

• But prospect theory is not just about pricing applications –
where else can it be applied?
• Branding
• In terms of BOPs, a brand is feel good, and that happens
due to one of the other principles which is pattern.
• A brand in my mind is a pattern, and the better the brand
the stronger is the pattern.
• What about brands and patterns?

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• Any change in the brand will either be perceived as a gain or
a loss.
• Because my pattern is my base.
• It is the reference from where I judge.

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• First we have to define what my objective in the brand change is.
• Lets say I am going to add another sub brand in my brand
portfolio.
• And I have got my main brand to which I am adding a sub brand
 brand extension.
• The brand extension, however, is in a category which is different
from my original brand category.
• By definition, I will affect the pattern negatively unless that’s a very
attractive category that my segment wants.
• So the call that I have to take is how do I counteract that negative
impact. I have to figure out ways and means to minimize the large
negative impact.
Neuromarketing

• So how do I do that?
• I might decide to put it in a particular position in the store, or
do a particular bundled pricing and so on.
• Ultimately you can argue that wherever there is a pattern
there is a reference of some kind, the breaking of the pattern
will have some implications

Neuromarketing

• A jump from 10 to 20 vs. a jump from 110 to 120 – which is more
significant?
• It is in relative terms.
• In our heads everything is relative.
• And it is relative to a pattern or reference.
• We never ever look at anything as an absolute.
• We are either deliberately or unconsciously comparing it to

something inside.
• Does this ring a bell?
• Common scale but not common currency

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• There is a good evolutionary reason why we do that, patterns are familiar,
patterns are comfortable, they won’t hurt us, they are not dangerous, we
have known them over time.
• So if one wants to sell a new idea one of the good approaches is to relate
it to the pattern that already exists.
• Even if it’s a radically different idea, if you make it sound as if its similar to
something that is already known, the chances of sale increase
substantially. I am thinking that it is part of the old pattern, it is familiar, it is
secure.
• But there is always a tradeoff. What is the tradeoff?
• It has to be different enough to attract attention in the first place to pique

my curiosity but it has to be perceived to be similar enough so that it is not
too far out of the pattern
Neuromarketing

• Mental Accounting and the principle of Transaction
Decoupling/Payment Decoupling

Neuromarketing
Insula
• Plays an important
role in mapping
somatic states
• Provides
an emotional
cognition to
physiological
experiences

Neuromarketing
Insula

CNN 12 To 20

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Session 12 – 20

Other tasks are important: the consequences of either performing or not

We define task importance as the state that involves significant

We define task urgency as the state that requires immediate

When faced with simultaneous tasks of varying levels of urgency

Prof. Sudipta Mandal / Department of Marketing 3

Scenario 1 – Decision Making

Prof. Sudipta Mandal / Department of Marketing 5

Scenario 1 – Decision Making

Prof. Sudipta Mandal / Department of Marketing 6

Scenario 1 – Decision Making

Prof. Sudipta Mandal / Department of Marketing 7

Scenario 1 – Decision Making

Prof. Sudipta Mandal / Department of Marketing 8

Scenario 1 – Decision Making

Prof. Sudipta Mandal / Department of Marketing 9

Scenario 1 – Decision Making

Prof. Sudipta Mandal / Department of Marketing 10

Scenario 1 – Decision Making

Prof. Sudipta Mandal / Department of Marketing 11

Scenario 1 – Decision Making

Prof. Sudipta Mandal / Department of Marketing 12

Scenario 1 – Decision Making

Prof. Sudipta Mandal / Department of Marketing 13

Scenario 1 – Decision Making

Prof. Sudipta Mandal / Department of Marketing 14

Scenario 1 – Decision Making

Prof. Sudipta Mandal / Department of Marketing 15

Scenario 1 – Decision Making

Prof. Sudipta Mandal / Department of Marketing 16

Scenario 1 – Decision Making

Prof. Sudipta Mandal / Department of Marketing 17

Scenario 1 – Decision Making

Prof. Sudipta Mandal / Department of Marketing 18

Scenario 1 – Decision Making

Prof. Sudipta Mandal / Department of Marketing 19

Scenario 1 – Decision Making

Prof. Sudipta Mandal / Department of Marketing 20

Scenario 1 – Decision Making

Prof. Sudipta Mandal / Department of Marketing 21

Scenario 1 – Decision Making

Prof. Sudipta Mandal / Department of Marketing 22

Scenario 1 – Decision Making

Prof. Sudipta Mandal / Department of Marketing 23

Scenario 2 – Number Divisibility & Loneliness

$19 vs. $21 dinner x lonely vs. accompanied:

Hotel Rooms: 305 vs. 301 or 307

Choice of paintings: (45 cm x 63 cm) vs. (43 cm x 67 cm)

Prof. Sudipta Mandal / Department of Marketing 24

Scenario 2 – Number Divisibility & Loneliness

Prof. Sudipta Mandal / Department of Marketing 25

Scenario 2 – Number Divisibility & Loneliness

Prof. Sudipta Mandal / Department of Marketing 26

Marketing Scenarios – Related to Curiosity

• Many present-day platforms or portals (social media feeds, news feeds,

Prof. Sudipta Mandal / Department of Marketing 27

Prof. Sudipta Mandal / Department of Marketing 28

3. Rise in the market

4. Fall in the market

• What is the minimum evidence you would need to check

Prof. Sudipta Mandal / Department of Marketing 30

y = parameter that serves