The Psychology of Business

The importance of psychology in business is difficult to overstate. Because directly or indirectly, it can be used to help improve virtually every aspect of doing business. That might include making a better workplace, more productive employees, or better products. Psychology is essentially the science of understanding the way people think and behave, and business thrives on an understanding of people.

There are quite a few major branches within psychology; developmental, educational, counseling, cognitive, clinical, social, health, forensic, and others. Though some are not directly related to business psychology, others can nevertheless play an important role in the various ways psychology and business can be combined.

For example, social psychology involves studying behavior and cognition within a social context; how people think, feel, and behave when they believe they are being perceived by others. If you wanted to build a more successful advertising campaign based on social status or peer pressure, then you’d want to start by understanding the importance of social psychology in business. 

There are also more explicit ways of mixing business and psychology. For instance, marketing psychology or the psychology of business communication. Together, these subfields can be gathered under the single umbrella term of business psychology – which is about turning knowledge of human nature into better business practices. But how else might psychology and business overlap? 

Psychology of Business Communication

In Northeastern Arizona, Petrified Forest National Park has long been plagued by instances of visitors stealing the rare petrified wood for which the park was named. In attempting to discourage further theft, the Park posted signs that showed a large group of people stealing the wood, along with the message: “Many past visitors have removed the petrified wood from the park, changing the state of the petrified forest.” 

In the months following placement, instances of theft tripled rather than declined. By communicating that lots of people were behaving this way, the new signs had the unintended effect of normalizing theft. Essentially, these signs made people feel as though they had to rush to get their own piece of wood, like everyone else.

Then a new generation of signs were designed under the consultation of a psychologist. Research quickly indicated that more effective signage would show a single individual taking a piece of wood, serving to register the person performing the crime as an outlier who stands apart from the rule-abiding majority. In short, the improved signs served to stigmatize the violation rather than normalize it, and theft of petrified wood decreased by half.

Communication and persuasion are very complex. That’s why a background in psychology can make the difference between effective communication or achieving the exact opposite of your intentions, like with the Petrified Forest National Park. Those kinds of skills are invaluable for helping create better employee compliance with business policies, for influencing consumer behaviors in the direction you want.

In essence, the psychology of business communication involves looking at the complex relationships between business and informal communications. What kinds of things can help establish and build professional relationships? How can you influence trust as a way of improving the effectiveness of the group? Being able to answer these kinds of questions can be essential for a variety of careers in business administration.

Business Psychology & Marketing Psychology 

At a luxury watch shop, having a burly security guard standing near the entrance may indeed serve two purposes. Studies have shown male customers will spend more money on status purchases (watches, cars, nice clothes, etc.) while in the presence of a physically dominant male employee. Even an image of a physically dominant male can affect the amount that men will ultimately spend when buying status symbols.

Other studies have shown people perform “double mental discounting” when a gain is associated with multiple costs. For instance, someone who receives a $20 gift card along with a $100 purchase will tend to mentally deduct that $20 from their initial purchase. But they will also mentally deduct the $20 again on their second purchase, and that makes the consumer feel they’re getting much greater value than they are – while tending to increase total spending.

We also know that written “word of mouth” recommendations are more effective when the reader can judge their similarity to the person giving the recommendation. And any business trying to build a word-of-mouth campaign could adapt that kind of insight to creating more persuasive messaging for their target audience.

In summary, human behavior is often determined by a number of irrational biases. Marketing psychology basically involves learning how to use those biases to influence consumer behavior in various ways. Every click, every color, the placement of every icon – there is no element of design that is immune from the scrutiny of thoughtful marketing psychology.

Psychology in the Business World

Outside of communication and marketing psychology, the next most direct example of overlap between business and psychology is business and industrial psychology: also known as Industrial Organization (I/O) psychology. Essentially, this field basically involves studying psychology within the context of the workplace. 

For example, an I/O psychologist might look at ways to better assess performance, determine training needs, find ways to more efficiently train staff or motivate employees, or otherwise find ways to boost productivity and efficiency. I/O psychology aims to examine and improve the individual relationships between coworkers, between customers and businesses, and between the management and the rest of the organization.

This requires a specialized set of knowledge related to career and organizational development, group theory, decision theory, individual assessment, and so on. The application of psychology in business management is particularly easy to identify in this instance. Many of the skills improved by the insights of I/O psychology are the same skills required for effective business administration. 

Some of the more common psychology and business careers include positions like: Market Research Analyst, Industrial Counselor, Corporate Consultant, Human Factors Specialist, Recruitment & Training Specialist, Employee Retention Consultant, I/O Psychologist, Sales Representative, and more. People who pursue careers related to business psychology can end up in a wide range of different fields; the possibilities largely depend on the way you decide to blend the relationship between psychology and business administration.

Learn Business Psychology at National University 

National University is a regionally accredited university with a Bachelor of Business Administration, where students learn a range of well-rounded business skills in math, finance, accounting, economics, and operations management. Graduates are prepared with the skills required to apply knowledge to making sound business decisions to a variety of professional environments. 

Our Bachelor of Arts in Psychology prepares students to enter an equally wide range of professional fields, as they learn to apply priming, anchoring, social proof, and other essential psychological principles both inside and outside of the business world.

SOURCES:

Petrified Forest Park Thefts

https://the-journal.com/articles/165216

Psych of Communication 

https://newsroom.cisco.com/dlls/2006/eKits/psychology_business_comm.pdf

W.O.M Recommendation study

https://journals.sagepub.com/doi/abs/10.1509/jmr.14.0380

Male Status Spending Study

http://journals.ama.org/doi/abs/10.1509/jmr.15.0247

Double Mental Discounting

https://journals.sagepub.com/doi/abs/10.1509/jmr.14.0380