The Psychology of Traders- The Key Messages for Marketing Campaigns
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Introduction
Their immediate environment always inspires traders to engage in commercial activities. The trader’s emotions and mental state help them to dictate whether the activity they engage in will enable them to make profits or not. A trader will not venture into an activity if they postulate a future loss. The prevailing market conditions will also influence one’s willingness to be a trader. The experience of other traders or their own will also influence their choice to trade. Different traders will source information about the venture they are willing to engage in from different sources. Trading is taking a making risk with the hopes of benefitting from it rather than suffer the loss. Traders can be categorized according to their trading techniques and source of information. There are various sources of information such as the internet especially social media and market statistics on the trends and performance of certain goods earlier traded. The economic cycle plays a big role in terms of influencing traders. Most of the marketing techniques employed by traders, pry on the psychology of the buyer to persuade them to purchase their products.
People That Love Videos- Priming Effect
Changes in one aspect of the economy triggers an automatic reaction by the traders hence influencing their decision of whether to trade or not. Buyers will buy if they get to spend less. People will decide to trade if the change will enable them to make profits. On the contrary, they will not decide to trade if the change will bring them a future loss. The traders will therefore wait and watch for any change in the market of economic aspects. They will wait for the perfect opportunity to engage in business. For example, the scarcity of a commodity will encourage more people to trade in it because they will be assured of making profits from the venture. Traders will shy away from the same commodity if it is surplus in the market because they will make less profits. They are always on the lookout for any change that might present an opportunity to trade. Their hopes are built on the possible shifts in the economy or social structure.
Traders consider themselves independent thinkers and their decisions are rational. However, traders are normal human beings and are victims to priming. Exposure to certain economic stimuli will influence people to respond in a certain manner that is somehow subconscious. The response will tend to rotate around the stimulus and it comes automatically. Some traders use priming to improve sales in different ways. This is often inculcated in the product advertisement to capture the attention of buyers and influence them to make irrational decisions and buy the products. The marketers also use priming to guide the customers to their products. Traders will be encouraged to use priming to boost the market base of their products. The customer’s free will to choose is taken away. Traders who are unbiased and logical in their customer approach find this concept useful to help them improve sales.
Traders use priming with the aim of capturing the attention of the customer. Some traders label their products with enticing slogans that will attract the customers. Such slogans include “buy two get one free”, or “buy more and save more”. One may think they are actually saving money while in the real sense they are spending more. Other priming techniques involve the use of free gifts attached to the commodity that influences the buyer to spend on the commodity. Some traders use rand priming to boost sales of their products. The consumer’s mind reacts in a certain way when they see some branding words. For instance, a product labelled “best quality” will have the impact of influencing the consumer to buy the product as compared to one that is not branded. When a client watches an advertisement for example, and the product advertised is portrayed as harmful, the client will not buy the same product when they come across it in the stores. Their brain will induce an automatic response of rejecting the product even at the slightest gaze. Using this concept, traders will brand their products the best way possible to attract customers. They will also brand their stores names that are associated with affordable and money-saving products.
People That Love Social Media and Don’t Want to Be Left Out- Scarcity Effect
Traders will always trade more on a scarce commodity than a readily available one. The commodity assures them of a ready market. Consumers will buy more of the scarce commodity because they are not assured of how long it will be available in the market. Scarcity directly affects the consumer’s willingness to buy. Traders who operate on social media platform will also want to be part of the trade. They advertise their products through social media which has a lot of influence especially on the young population. The traders want the commodity to be scarce so as to attract more customers and increase. They will trade with the confidence of making more profits. Traders will also want to have many people enquiring about the commodities and placing orders and requests. This may be through social media, benefitting those traders that love using the media as a platform to conduct and enhance their business. Scarcity of essential commodities such as food and assets will offset an increase in the demand hence more profits to the trader.
Scarcity of a commodity will increase the demand of another commodity that has the same utility. For example, scarcity of rice may increase the demand of maize. A trader will seize this opportunity and venture into the trading of maize. This will in turn increase profits for the trader. Traders will create slogans like “buy while stock lasts” so as to induce urgency in the need to buy the scarce commodity. Consumers will get the knowledge about the product and its scarcity and make efforts to buy them before they get depleted. These are some of the scenarios that attract traders to venture into trade. Social media commands a great audience and any trader who is able to establish and run a business through social media is sure to reap profits. The youth for example want to be updated on everything happening around the world and many of them are glued to their smartphones and computers in the name of keeping up. They promote many social media businesses either directly or indirectly. Through advertisements, they are kept aware of the commodities available.
Assets can also be acquired and sold online without requiring any physical operation office. Traders can direct buyers to where they can acquire the items they need and make profits from such endeavors. The reduction of the cost of the internet and availability of faster and efficient phones which are cost effective attracts traders to work through social media. Free online education to traders on how to exploit market gaps and skills required to run a successful online business is useful and encourages more people to become traders. Traders who engage in buying and selling of shares also benefit from social media advertisement. They have an easier access to information which they can share to the public. They also spend less time compared to trading physically. Trading online is more efficient because the platforms have alarms and notifications for news that can affect the stock market. More traders want to engage in online trading business because it has several advantages.
People can start an online business with ease and this attracts them into online trading. Customers always have the tendency of reviewing the comments of other customers who have used the product before buying. Moreover, they also check the number of subscribers to the trader’s product and their decision to buy is based upon the feedback given by their peers who have used the product before. A positive feedback will attract the customers to buy the product because they believe they will be satisfied. Similarly, a product with a big number of subscribers will entice a customer to buy one’s products because they will be assured of quality. A trader can create a big customer base through social media where they will be advertising their products. Their products can also be improved in quality in areas recommended by consumers through reviews and comments on social media platforms. Some consumers will order for the products through social media. This will influence more customers to order for the products because of social proof from their peers. Placing orders on social media will benefit the trader in proofing to other consumers that their goods are of good quality. The more the number of orders creates an urgency as other consumers will think that the products will be depleted before the can acquire them. Pre-orders of products such as gadgets boosts the confidence of other consumers who are willing to purchase but are unsure whether they will get the quality they want.
People That Love Social Proof- Social Proof
Social proof is a marketing strategy used by traders to assure customers of good services. Marketers employ various tactics that psychologically assure the customers that the services offered are the best. Consumers always want proof from others who have already consumed the product that it will satisfy their need. For example, retail outlets will post pictures of high profile celebrities to proof to customers that their products are approved by them. People who know the celebrities will believe the goods and services are of high quality. A trader will therefore be encouraged to venture into the business because it is partly marketed by the high profile and famous individuals. On the other hand, restaurants are designed to have a small reception and waiting area. The customers that are waiting for a table will have no choice but to wait outside. Consequently, potential customers passing by will think the restaurants have a huge number of customers because of the high quality services. They will therefore visit the restaurant to get the services. Country clubs require people to join a waitlist in order to become members. Despite preventing excessive members from joining, they also make the clubs seem more exclusive.
A trader can get social proof from a variety of sources. To begin, customers give social proof to the trader. Satisfied customers will give positive testimonials and experiences about the quality of goods and services offered by the trader, hence influencing the trader to continue dealing in the product. Negative testimonies from users and customers will influence the trader to stop giving their services. In addition, credible and esteemed experts from the trader’s line of business also give the trader social proof. The experts who portray similar mannerisms that traders want their customers to have encourage the trader to continue providing services. Furthermore, friends of customers and the trade’s friends are a source of social proof. Customers who have consumed the products give testimonies to their friends and this inspires them to try the products the trader provides. High profile celebrities who have tried a product may recommend the product and thus influencing people to buy it.
A big percentage of customers decide to purchase a product by looking at its review, unlike product descriptions from the manufacturer. Their peers’ experience on the level of satisfaction and quality of the product can influence them to purchase. Therefore, traders always have to ensure high quality standards of their products. Traders employ various psychological tactics to attract customers to buy the products. To begin, traders show real-time statistics of how many people are viewing the page currently or how many are buying. Customers will feel the urge to purchase the product because they do not want to be left out. In addition, traders show customer testimonials on their websites so as to entice the potential customers reviewing their products’ information. A good testimonial will convince the customer to purchase the product. Customer testimonials and reviews are factors that attract people to become traders.
Similarly, celebrity endorsement is a psychological tactic that can be used to boost sales of a product. People will tend to believe that products used by celebrities are of high quality. Traders therefore try to engage high profile individuals to endorse their product and influence customers to purchase the products. Media mentions of the product can also be employed by traders to boost sales of their products. People will be made aware of the product and be convinced its quality is good because it is mentioned in newspapers, TV segments and unsolicited reviews. Excerpts from the media mention can be pasted in the products website to be seen by customers reviewing the products. Not to mention, conversion rate is likely to go up by showing customers the existing customer base. A big the customer base reflects the good quality your product offers and this will improve purchases consequently increasing the sales. The popularity of the product will be as a result of the high quality and the level of customer satisfaction.
Another strategy of using social proof is through social media takeovers. In this case, an influencer or expert in public matters takes over posting of the trader’s brand on social media. Potential consumers of the trader’s brand who are not familiar with the brand will get informed on the social media page of the influencer. The influencer has many followers and fans and some of them are potential consumers. Similarly, hosting expert guests to blog on the trader’s social media page gives consumers social proof. The trader’s followers and the ones who come across the guest’s posts tend to accord the expert’s authority to the trader, because the account being used to pass the message belongs to the trader. In future, followers and fans will consider the trader as a source of the information.
People That Love a Cheap Bargain- Decoy Effect
Also known as the attraction effect, the decoy effect is a psychological tactic employed by traders that involves influencing the consumer’s preference between two options by presenting them with a third option. The third option has a price tag that is between the two products’ prices and is known as the decoy. Traders create a decoy product to nudge the consumer to choose the target product over the competitor. Consumers decision-making is hindered when faced with multiple alternatives because of choice overload. The consumers therefore tend to make their decision –making easier by selecting a manageable number of alternatives based on their prices and quantity. The role of the decoy is to manipulate the key choice attributes i.e. price and quantity in order to direct the consumer towards purchasing the target product. A consumer will think they are making a reasonable choice based on the available information.
For instance, when faced with the challenge of selecting between two products with different price tags, the consumer will always consider price and quantity. The cheaper product will have less quantity while the expensive one will have more quantity. A decoy is introduced that has a slightly higher price than the cheaper one, but with more quantity of the product. On the other hand, it will be slightly cheaper than the product with higher price tag, but less quantity as well. If the consumer buys the decoy at a cheaper price than the target product, they will get less product quantity or accessories associated with the target product. The consumer will therefore opt to spend slightly more on the target product so as to get more value for their money. The decoy therefore influences consumers to buy the target product that costs more than their competitor’s products.
Traders take advantage of the complexity of making choice by consumers and guide them in a direction that favors their products. In a normal situation, consumers will always go for the cheaper product when tasked to choose between two products. Traders influence their decision making while the consumers believe they are making a decision rationally from the available alternatives. The possibility of using decoys to increase sales of a product attracts traders to deal in the product. The decoy has the effect of influencing the consumer’s choice based not only in price but also the quantity and value for the money. The regularity of choice is therefore affected by the decoy effect. The decoy is usually asymmetrically dominant over price and quantity over the competitor’s product, while its asymmetrically inferior in all aspects to the target product. It shifts the regular choice pattern and consumers purchasing decision is influenced and irrational.
In a competitive market, traders employ this method to promote their products and reduce the level of competition. Some consumers may opt to go for the decoy, but still a great number will try to maximize the value of their money and spend a little more on the target product.
Impulse Buyers- Anchoring Effect
Some consumers purchase products without prior planning. Feelings and emotions have great influence on the decision to buy the product. The unplanned purchase is based on an irrational thinking and traders use this tendency of consumers to boost their sales. Traders introduce offers that are enticing to the consumers and influence them to make the unplanned purchase. Anchoring effect is a situation whereby the initial price tag of a product forms the reference point of negotiations and decision making. Any price agreed upon by the trader and the consumer is a variation of the initial set price of the product. For example, when buying a car, the seller sets the initial price from which negotiations can be done. After negotiation the consumer is given a discount from the initial price and makes the purchase. The anchoring price is usually higher than the actual price tag of the car. However, the consumer will think that the price they agree on after the discount is fair because they don’t know the actual price of the commodity. Traders use these two tactics to boost sales. Introduction of offers and features to attract customers will trigger the customer to make an impulse purchase. During negotiations the trader will set an anchoring price that will be referenced during negotiations.
A trader dealing in phones and mobile accessories will introduce offers such as free headphones or chargers so as to attract buyers. During negotiations, the trader will set an anchoring price higher than the actual value of the phone. The buyer will ask for a discount and the reference price will be the anchoring price. Finally, they will agree upon a price that the buyer considers fair but in real sense higher than the actual value of the phone. Using the free earphones and charger, the seller will attract the buyer and influence him to make an impulse purchase. The anchoring price enables the trader to make a profit. Such opportunities will always attract more people to engage in trade. The consumer will suffer from impulse buying because they did not plan to purchase the phone. The ability and willingness of consumers will attract people to engage in trade.
Fundamental Trader
A trading method whereby the trader focusses on a company’s particular occasion to determine the type of stock to buy and the right time to buy it. Some traders will opt for a long term trading investment, whereby they buy stock and hold it until the right time to sell it. For example, a fundamental trader will go to the shopping mall and analyze the products sold at each store and decide to buy or not according to their study. The trader’s decision will be based on the performance of the product. A product that has a high turnover ratio will attract the trader and they will decide to buy. On the other hand, a low profitable product will not attract the trader’s attention. The trader will therefore want to deal in products that will earn him profits rather than make losses. Some trading strategies are made irrationally while others are based on a study of the market trends and the daily factors that play a role in the product market.
For instance, the choice to buy a company’s stock may be influenced by the financial health of the company. Financial statements indicating growth of a company’s financial sector will attract fundamental traders to buy stock because of the assurance of profit making. Change or lack of change will influence the decision made by traders. Many investors are appealed by fundamental trading’s approach based on facts and logic. Investment made on factual basis is sure to follow the trends and traders will make profits. However, obtaining and interpreting the facts could be time consuming. The market itself might not behave as predicted, especially the short term, regardless of the predicted logical trend. A fundamental trader is mostly concerned with obtaining information on speculative occasions that lack at the rest of the market. Traders dealing in takeovers, acquisition and reorganizations will experience price increase in the speculation phase to the event and decline after the event. The speculation phase is thus the best time to buy and sell stock to make profits.
Noise Trader
Engage in short-term trades that earn quick profits by investing according to economic trends. Noise traders overreact to good and bad economic trends and their timing is spontaneous unlike technical analysis of facts and statistics generated by market patterns in prices and volumes. Investment decisions are made irrationally without technical analysis of fundamental data. Technical traders are noise traders who follow random signals of any type. Price is the major action indicator and the patterns are derived from daily price series chart. Noise traders do not wait and analyze the market patterns comprehensively, but they focus more on the price pattern of the commodities. They wait for prices to go up and sell their securities and when the prices are low, they buy. These daily trends in prices present them opportunities to make profits from trading their stock.
Sentiment traders
Traders who seek to point out and engage in market trends. Sentiment traders do not try to outsmart the market by finding good performing securities, but make every effort to spot securities that are moving with the market pace. They combine details of both technical and fundamental analysis in an attempt to pinpoint and engage in market movements. To be successful in sentiment trading, one has to study early morning trends to identify potential securities to sell or purchase. However, this kind of analysis is time consuming and quick timing is required in timing. The trader should make their trading decisions before trends change and opportunity fades. Traders can either choose to trade in securities or currencies. Securities have lower commissions and large financial institutions and professional traders often opt to trade currencies rather than trading in stock. Professional traders have more experience, information and leverage on securities but still opt to trade in currency because of the restrictions associated with trading in stock.
Market Timer
Market timers attempt to speculate the direction of movement of securities to gain profits by trading in the securities. They analyze economic trends and technical indicators to postulate accurate directions of market movements. Other traders especially those engaged in short term trading take an opposite bearing of what the trends suggest. However, this does not always turn out to be successful. Investors are not able to dedicate sufficient time to this trade to be successful. Most of them engage in long term strategies which are more lucrative and satisfying. Experience of short term investors does not indicate potential benefits of engaging in this trade, though profits are possible. For the long-term traders, it is not easy to determine the time to opt out of the trade. As day traders would attest, market timing could be a profitable trading strategy. Proper timing to trade the assets will reap profits for the trader.
Arbitrage Traders
Arbitrage traders buy and sell assets in an attempt to make profits from price differences of similar financial instruments on different markets or in similar forms. It provides a means of ensuring prices do not fluctuate far from just value for long periods of time. Arbitrage trading is associated with hedge funds, and is an easy way of making profits when it succeeds. For instance, if an asset trades on many exchanges and is less profitable in a single exchange, it can be purchased on the first exchange at the low price and sold at a different exchange at a higher price. Advancement in technology has enabled many traders to computerize trading systems to monitor deviations in similar financial instruments. Consequently, this creates mispricing in the market and makes it difficult to earn from the trading strategy. The computerized system acts quickly upon any inefficient pricing setups, thus eliminating the opportunity very quickly.