Classical Conditioning

Classical Conditioning Definition

Classical conditioning in business refers to generating responses favorable to the product even though there might not be a direct relationship between the concerned product and the desired response. It has two main aspects that affect human behavior – First is the interest it generates and then is the behavior it reinforces on the brain.

Let us dive in further to understand its major applications across different business lines. In this article, we are going to provide you a list of examples of classical conditioning in business & everyday life.

Classical Conditioning

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List of Classical Conditioning Examples in Business & Everyday Life

Example #1 – Stock Markets and Participants Behavior

Stock markets have been the biggest example of classical conditioning over a long period of time. The place often thought of a platform where intellectuals make money while speculators consistently lose it has time and again proved that often reactions are knee jerk and in the heat of the moment. A simple rule of finance states that when the economy is booming, the equity should give you better returns. However, when the economy is going through a rough phase, safe assets like sovereign bonds and gold should be preferred. But what happens when a large firm in a booming market post unexpected result.

The unexpected result might be different from the expectations in terms of top-line numbers, but still, an analysis is required to understand what lies beneath. In order to understand how the firm has performed in the last quarter, the layers of these implicit details need to be decoded one by one. But what market participants actually do? They only look at the initial set of numbers, and if these numbers are unexpected, they start selling the stock of the firm.

The simplest reason being they have been conditioned to react in such a way over the years. Just because everyone is doing it, one should do the same. It leads to a knee jerk reaction, often an overreaction by the market and its participants. That is why we sometimes face situations where stocks of even blue-chip stockBlue-chip StockBlue-chip stocks refer to the stock of large stable companies having market capitalization in billions that provide a good return on stocks, may provide dividends, have less risk and are considered to be safe investments. Examples of such stocks include Coca-Cola ltd, IBM Corp, Boeing Co., PepsiCo, General Electric (GE), Intel, Visa, Wal-Mart, IBM Corp, Apple, Walt Disney, Mc Donald’s, Goldman Sachs, Johnson & Johnson, more firms are down by 5 -10 % even when they have posted decent results. An investor with basic knowledge of finance but who is able to calm his anxiety and avoid blind sheep behavior can weather these storms and, In fact, used these situations to generate better market returns. It is a classic case of behavioral finance and its effect on investors.

Example #2 – Conditioning the Consumer: An Application in Advertising

Firms across the globe are as much dependent on advertising, if not more, as they are dependent on the quality of their products. To generate consistent profits, retain a positive image, and customer retention, they need to reinforce the brand value among the consumers. The advertising firms use classical conditioning to reinforce these values and also to acquire more customers. Take the example of cold drinks and their advertising mechanisms.

Time and again, they have positioned their market strategy to position these products with heat, thirst, refreshment, and adventure. In terms of the classical conditioning scenario, these activities act like unconditioned stimuli to attract customers. Such has been the effect that a customer starts feeling thirsty as soon as they come across any poster leading to an impulse buy. With time the brain gets conditioned, and response becomes even stronger.

The same principle can be applied to the sponsorship these firms target. Most often, they try to associate themselves with major sporting events across the world and sign in the biggest sports celebrity. An association of the Indian great batsman Sachin Tendulkar with major soft drink brand Pepsi has been so successful that it has become a case study on its own for marketing strategists and enthusiasts. Another example is the keyword SALE and its effects on the consumers. It is very common in the retail industry to increase footfalls as the consumers over the years have been conditioned to enter the store as soon as they see a boarding or a poster marked SALE.

This keyword acts as an unconditional stimulus and generates a favorable response from our brain leading to an impulsive urge to feel like shopping. A similar strategy is used by online commerce portals to attract customers. They also utilize the concept of FOMO – fear of missing out, which further reinforces the urge to shop. Surprising is the fact that the SALE is around the year, but still, the customers have a fear of missing out.

Example #3 – Corporates: Conditioning the Employee

Time and again, corporates across various lines of business have used classical conditioning to improve employee outputs. For example, rewarding the agent with a variable bonus better than the expectations reinforces the positive behavior. It motivates not only to perform better but also incentivizes the peers and motivates them. It acts on two grounds – first, it motivates the employees for positive behavior, and second reinforces that behavior to generate expected results. Similarly, the same can be used to improve the safety of the employees in manufacturing firms and eliminate accidents on the shop floor.

Example #4 – Insurance

Insurance is often advised to counter any unprecedented activity or a life-changing event. Most important, being term insurance where the victim can safeguard the interest of its dependents in case of his death. The concept is mainly to make sure that the loss of an earning member of the family can be countered by a lump sum payment to his immediate family. However, the insurance companies have designed new products like ULIPS, which have conditioned the consumers to think on generating some returns even on these insurance premiums.

The fear of losing out the money to generate returns attracts customers towards these products. Since everyone else is taking it, it reinforces the behavior in the consumer, and eventually, he ends up purchasing it. Even for this basic product, through advertising and reinforcing behavior, the insurance firms have been able to influence consumer behavior through classical conditioning.

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