As human beings, we all like to think that our behavior is rational and that our choices are where our best interest is. But if this was true, then why do road safety campaign fail miserably, why is it so difficult for people to save for their retirement and why do we feel so bad about returning that pair of jeans that doesn’t fit.
With the help of behavioral economics, it is now established clearly that people make decisions using a complicated mixture of emotions and reasons, with emotions playing a bigger role than the rational analysis.
In fact, behavioral economics leverages on different disciplines such as psychology, neuroscience, sociology, etc. to understand why people are sometimes irrational. And while the applications of Behavioral Economics are common within NGOs and Governments with the objective of improving the population’s wellbeing, only a few businesses have taken advantage of the understanding that BE can bring customers.
How can behavioral economics improve my CX?
By acknowledging the importance of factors such as emotions, culture, social and physical environment, BE allow companies to enhance their customer experience by including customer’s biases in the design of CX processes and ecosystem.
An example of how can a better understanding of customer bias impact CX design, is related to what is called “The Peak-end rule” which refers to the fact that customer’s judgement of an experience is not the average of positive or negative feelings but matches with the most extreme point and the end of the episode (Kahneman & Tversky, 1999)
Put simply, people are more likely to rate their restaurant dinner positively if the bills come with a complimentary dessert even if the service and the food were below average.
This comes against some of the existing practices in contact centers where the objective of minimizing call durations urges the agent to end the call in an expeditious manner ignoring that among the things customers want is to be cared about.
While many companies aim for efficiency in the customer interaction process leveraging technological developments, they often forget the important role that emotion plays for their customer’s satisfaction. In fact, studies show a high correlation between emotional attachment and share of spend.
Very often, behavioral economics offer high impact low investment solutions to improve customer satisfaction by introducing small changes in the customer journey. Some small but efficient ideas can be to offer customers choices to give them a feeling of control, set the unpleasant parts of the experience to come early in the interaction process and make interactions, including text-based ones, emotional.
If my customers are irrational, how can I know what they want?
What makes it more difficult for businesses is that although the customer’s decisions are often irrational, they can be answered in a very rational way when asked about their behavior motivation. The reason behind this is that people are unaware of the behavioral biases that affect their decisions.
So how can we understand customers? While behavioral economics provide an undeniably useful toolkit for understanding the customer’s decision making processes, it is important to include observations and experimentation as part of the research techniques used.
When running a consumer research, one should be careful about answers given by respondents especially when they are asked for a thorough evaluation or for their detailed opinion. An interesting way to address this is by using methodologies that allows to stay as close as possible to the way consumer act in their daily lives.
In fact, experimentation is one of key techniques that allows to identify how changes in the consumer environment can have an impact on consumer behavior and preferences.
Ethnography on the other hand, allows a deep understanding of consumer choices by spending a considerable time with consumer in their natural environment and testing hypothesis in live situations. Here again, rather than asking respondents to explain their choices, motivation understanding should come from observation and indirect questions.
Both these techniques are now enriched by the possibilities that are offered by online technologies that allow a real-time monitoring of consumer behavior, a smoother interaction between the moderator and the respondents as well as an access to a valuable quantity of social information.
Is influencing customer behavior ethical?
When it comes to using the concepts of behavioral economics for business purposes, one important question that needs to be raised is whether introducing nudges to influence behavior and decision making is unethical.
- Any nudge should never mislead and should always be transparent.
- It should never be hard to opt out of the nudge.
- There should always be a good and clear reason for why the nudge will improve the welfare of those being nudged.
In a nutshell, behavioral economics provide a theory as well as techniques and methodologies that can help companies improve their customer experience in an impactful and cost efficient way by acknowledging that people often make decision based on emotional, psychological, social and cultural factors rather than on rational analysis.