Framing Effect On Our Buying Behaviour – Strategy With RS

Let us talk about us. We tend to believe that we are rational & make decisions based on available facts. This is far from true. We tend to get swayed by the way the question is framed – in behavioral science it is termed as ‘Framing Effect’. We behave differently to the same choice depending on how it is presented to us – whither as a loss or a gain; whither as more or less.

Take 2 Mayonnaise brands, which are available in the market.
1. Brand 1 claims it is 99% fat free.
2. Brand 2 claims it contains 1% fat.

If you were in the market to buy a mayonnaise, which Brand will you choose? Chances are you may choose Brand 1 over Brand 2 although both brands offer the same benefit.

The reason for choosing Brand 1 over Brand 2 is largely due to how the proposition is framed – more is better than less.

Financial institutions have understood the importance of ‘framing effect’ & have embedded it in their business to get us to change the way we borrow & spend money.

Take loan. To get us to take loan, financial institution could frame their proposition in 2 ways.

1. Do you want to take debt?
2. Do you want to take credit?

Chances are when loan is presented as ‘debt’ we may instinctively say no.


Negative connotations are associated with debt. It is an obligation … a burden & it is taken when we are in financial crises.

Take credit. Positive connotations are associated with ‘credit’. It signifies optimism & hope that our tomorrow will be better than today.Therefore, when the financial institutions offer us credit we are more likely to say ‘yes’.

Are the proposition framed to manipulate us? It may seem so.

Till recently most of us were bombarded by phone calls from strangers who did not even ‘verify’ who we were, but offered us ‘credit’ on ‘phone’ or through email. It is tantamount to you walking down a road & a stranger walks up to you & without even introducing herself, asks you – ‘Do you want credit?’ Sounds ridiculous? But that’s exactly what financial institutions did to get more & more people into the ‘credit’ trap. And credit soared at supersonic speed.

In 1950s, an average American House hold had a debt of 0.5% of its annual income. But by the time ‘credit’ took root the average American House hold had taken ‘credit’ which was 2x there annual income (Source: Fortune).From USA let us move to the world. In 2013 it is estimated that humanity has taken on debt, which is 2x, the Global GDP! (Source: Fortune)

What do we use credit for? To live the aspirational lifestyle which is out of reach for us, now!

Business Lesson for us:

1. It is not what you say that is important, but how you say it. i.e., how we frame our questions & arguments.

2. Learn to live with in your means because one day you will have to back the ‘credit’ with interest. And when the day of reckoning comes you may have to liquidate things, which you really need.




In this series, Rajesh Srivastava, Business Strategist and Visiting Faculty at IIM Indore gives you a regular dose of strategy case studies to help you think and keep you one step ahead as a professional as compared to your peers. Rajesh is an alumnus of IIM Bangalore and IIT Kanpur and has over 2 decades of experience in the FMCG industry. All previous Strategy with RS posts can be found here