By applying the principles of behavioural economics, organisations can greatly improve the effectiveness of their Customer Experience (CX) strategy. As well as providing deeper insights into consumer behaviour, behavioural economics can greatly assist the human orientated design of customer interactions and touchpoints.
In the past, consumer behaviour was analysed with the assumption that people optimised their purchasing decisions on sound economic and rational factors, i.e., they would always choose the best product or the one that offered the most for the lowest price. These days we know this is not the reality of how and why people behave. So much more is actually going on in our decision-making processes.
Over our life, we build up mental shortcuts that affect how we make decisions. Those shortcuts are referred to as biases or heuristics. On one hand, we need these shortcuts to process the large amount of decisions we need to make on a daily basis. On the other hand, these mental shortcuts aren’t necessarily based on thoughtful, reasoned judgment, and the conclusions our unconscious minds reach aren’t always to our benefit.
Behavioural economics aims to understand these biases and heuristics and how they impact our decisions. That’s not to say that the rational and functional factors have no part, but the part they play is only a small one. According to a number of behavioural theorists around 90% of our decisions are based on emotions driven by heuristics.
Behavioural economics explains in psychological terms why people make the decisions they do. It gives us a language so we can talk about people’s biases and heuristics. It explains why people buy a Mercedes when a Hyundai can do exactly the same thing. Or why people buy the heavy kilojoule burger when they want to lose weight. It’s about looking at the full range of social, emotional and cognitive factors influencing our purchasing decisions and behaviour.
Understanding behavioural economics can help organisations better predict how people will behave and design customers experience that are more likely to change their behaviour.
Helping customers optimise their decisions
As humans, we’re not very good at optimising choices for ourselves. The unconscious factors and biases that affect our choices, frequently means we end up with a product that is not wholly suitable. This is where behavioural economics can help. If the role of customer experience is to give customers the best possible experiences, then behavioural economics can ensure the customer optimises their choices to deliver the outcome that best suits them.
As an example, hundreds of thousands of children die each year from consuming dirty drinking water[i]. NGOs have made concerted efforts across a number of countries to ensure access to cheap and effective water treatment methods (such as chlorine tablets). You would assume most people would purchase these treatments to reduce the chances of their children dying. However, researchers from Harvard found only 10% of families who could did.
People’s biases and heuristics meant they weren’t making the best choices for themselves or their children. Applying behavioural economic thinking, the researchers discovered that cost wasn’t the issue – it was the effort and attention regular water treatment required. People have a tendency to chose what is easy now over what is better later (present bias).
To raise adoption rates, treating the water was made easier by providing concentrated liquid chlorine, making it free, and making it easier to add the right amount. The water treatment setup was put where people collected their water, making it hard to miss.
Designing experiences to change behaviour
In a seamless or frictionless customer experience, a customer has no need to go to any extra effort to complete a transaction or interaction with the brand. All barriers and points of friction are removed. With the above example, the experience involved with water treatment was redesigned to remove any barriers, thereby encouraging people to adopt the desired behaviour.
Customer behaviour often appears to be completely irrational, but that doesn’t mean it’s completely unpredictable. When you understand the emotional and subconscious factors that really drive decisions, you can do a better job of predicting what customers will do. This lets you design a customer experience strategy that appeals to key emotions and subconscious needs.
Behavioural based design entails a very simple but strict process of designing experiences to shape or modify human behaviour. It looks at the customer experience today and how people are currently behaving versus the desired behaviour we want people to have tomorrow. We then design interventions that interrupts people’s current behaviour and guides them towards the behaviour we desire.
The interventions we develop take into account all of the biases and motivational factors that are at play and how you hack or harness those biases. For example, according to the WHO (World Health Organisation), only half of people in developed countries with chronic illnesses take their medicine as prescribed.
If you were to look at this from a purely rational perspective, you would assume that not being sick or reducing the impact of an illness would be enough motivation. However, when examined through the lens of behaviour economics and examining what emotional factors are at play, research revealed that many viewed taking their medication as a drudgery.
To hack the motivational factors at play, a website was developed to gamify the experience of taking one’s medication and therefore remove the drudgery. Patients who signed up to the site are able to collect points for taking their medicine on time and refilling their prescriptions. Patients also get points by completing quizzes, where they can compete with others. They can then exchange these points for discounts.
Remember, your customers are human beings. Their behaviour is driven by their emotions. Understanding why they do the things they do and how they make decisions is critical to designing excellent customer experiences. Behavioural economics provides a framework for building this understanding and insight into the motivations of customers.