Empowering People through Behavioral Science

How to give customers a nudge

By Harvey Schachter -- The Globe and Mail

A lawyer, an economist, a marketer, and a behavioural scientist walk into a bar.

This isn’t a joke but a way that University of Toronto professor Dilip Soman helps illuminate important changes in recent years in marketing.

The bartender, he continues, shares a serious problem: “If I want to get people to move from Option A to Option B, how can I do that?” The shift might be anything from an attempt to dissuade individuals from drinking large-sized soda drinks or to get them to order a more profitable beer at the bar.

The lawyer has a quick answer: Make it illegal to choose Option A. Assuming no other alternatives, Option B will be picked. That’s valid, Prof. Soman notes, even for companies selling products: They could make Option A unavailable, assuming they control it.

The economist doesn’t believe we need to ban anything. Incentives can do the trick, with some kind of economic tax on choosing A or economic benefit for choosing B. Companies, for example, could offer a discount or some loyalty points for buying B.

The marketer instinctively is inclined to suggest another approach: Advertising. People probably aren’t choosing Option B as they don’t know about it or understand why it’s superior. The advertising industry is framed around the premise that if you provide the public with the right information and a compelling reason to buy Option B, it will succeed.

Finally, it is the behavioural scientist’s turn. His recommendation is simply to make it easy for people to choose Option B. Create a world in which it’s harder to choose Option A than B. Give people a nudge.

The story elaborates on an incident a few years ago, when Prof. Soman, who teaches a behavioural science course to his marketing students, was in a bar with an economist, discussing choice.

He uses it in his new book, The Last Mile, because it illuminates the struggles that corporations, governments and social agencies face when persuading people to pick the preferred option.

In the past, economics and marketing ruled (with governments, of course, resorting to bans at times). Universities taught that “rational economic man” would make sound choices based on information and price. But now we know that simply isn’t true. First, the number of choices before us can sometimes be bewildering. When Prof. Soman was a kid, he had two choices of bread at the grocery store; now he faces about 60 alternatives. As well, human beings are irrational. We can be nudged, as many behavioural studies show.

If you’re selling an eight-ounce cup of coffee and a 12-ounce cup, for example, and want to increase sales of the latter, just add a third choice, 16-ounce. When three choices are offered, studies show people prefer the middle one. Context matters.

Prof. Soman says that we need to be alert to behavioural research and figure out how to use it effectively. He calls it the last mile problem. The first mile for organizations are their many activities to get a product to the marketplace, such as R&D and organizational processes. The last mile is when consumers make contact with the product or service – how it is presented in stores or online to them. “We have spent way too much time thinking about the first mile and not enough on the last mile,” he said in an interview.

He believes there are three pillars of human decision-making. One is how context influences our decision-making, whether the three sizes of coffee cups, putting healthy foods at eye level, or using smaller plates to encourage less food consumption. The second is explained by Isaac Newton’s laws of motion: A body at rest will continue to be at rest unless it is given an external push, and a body that is moving continues until some external force slows it down. People will continue with their default behaviour – what they prefer – unless pushed to do something differently.

The third pillar for understanding behaviour is intertemporal choice – how choice at one period of time influences choice at another time. For Prof. Soman, it is tied to a comment in one of his favourite books, Magical Thinking, by Augusten Burroughs: “I myself am made entirely of flaws stitched together with good intentions.” Or as Prof. Soman puts it in his own book: “Everyone intends to be good, everybody intends to eat healthy food, everybody intends to save more for the future. It is just that life gets in the way and they don’t act on their good intentions.”

If you intend to follow the advice of the behavioural scientist in the bar, Prof. Soman urges you to run tests in order to understand what is influencing your clients. “In the last mile, everything in the context matters – the displays in the store, the sequence in which the choices are seen – everything. It’s critically important to test, and keep testing,” he said in the interview. Keep in mind that much of the success of a new product or policy comes in that last mile, the land of behavioural choice.

 

Link to article.

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