Nudging customers towards better decisions

Using insights from behavioural economics to improve customer experience

We can list all the harmful consequences that smoking has, yet many of us continue to smoke anyway. We decide to go on a diet with a cupboard full of sweets, convinced that we won’t even touch them. We feel a sense of unease every time our plane takes off, but feel completely calm sitting in a car, even though a car is much more likely to crash than a plane. This behavior falls under the umbrella of behavioral economics. This discipline was first brought to the attention of the general public by Daniel Kahneman and Amon Tversky’s book titled Thinking Fast and Slow (2011). The authors argue that human behaviour is largely influenced by the environment and by cognitive biases – shortcuts our brains take in order to make faster decisions. While relying on environmental clues and cognitive biases is often helpful, it can sometimes lead to irrational decisions.

This line of thinking has been further developed by the 2017 Economics Noble Prize winner Richard Thaler and his colleague Cass Sunstein, who popularised the concept of “nudging”. In short, nudging is a way of influencing people’s behaviour in a predictable way, without restricting any of their options or significantly changing their economic incentives. It is based on the idea that our behaviour is often a result of the environment we are in, which means that by creating better environments, we can “nudge ourselves” into making better choices.

In the past decade, nudging has primarily been applied in public policy making. For example, in a 2010 study, Paul Dolan and Robert Metcalfe used nudging to encourage energy-saving behaviour among UK households. Alongside the usual energy statements, households received additional information about the energy consumption of similar sized homes in their neighbourhood and information on how to change their own energy use. Households provided with the neighbourhood norm and information on how to change their consumption reduced their consumption by 9%.

The same principles and methods can be used when improving customer experience. The insights from behavioural economics can help identify the “irrational” behaviours that are worsening the experience of customers and the nudging tools can be used to help improve it. Below are two examples of how nudging can be used to improve the customer experience:

1. Improving the feedback process

One way that nudging can be used is to encourage customers to give feedback. For example, many airports and shops have already introduced the “smiley feedback buttons”, nudging customers to push the smiley face that represents how they feel about their experience. These types of nudges awaken our inner child that finds pressing buttons to be a fun activity, but also consider the principle that people respond well to quick and simple surveying methods, which are straight-forward and do not take up too much of their time.

Fig. 1 – Feedback terminal

Another example would be a feedback request that emphasizes a particular social norm. If we request feedback from a customer by pointing out the widely approved behaviour in their social group, it is much more likely that they will respond to the request. A possible way to do this is by sending a personalised reminder to those who haven’t filled out a feedback form, for instance:

Hi Ana! You are among the 15% of people who still haven’t filled out the survey we sent you ☹. We would greatly appreciate it if you could take the time to do so, as it truly helps us understand how we can improve our service!

Letting the customer know they are in the 15% bracket signals that most people in their social group are behaving differently to them, while the sad smiley lets them know that not filling in the survey is a disapproved behaviour within their group. There are many ways the principle of social norms can be used in gathering feedback, but it is generally most effective when the social norm is used in combination with an approving or a disapproving message (in this case, the sad smiley).

2. Helping customers make better choices

The array of options today’s customers have in front of them can often be overwhelming and make decision making difficult. By creating a nudge, which gently highlights the best option, a company can guide the customer in a desired direction, while ultimately leaving the choice up to them.

For instance, a well-known concept in behavioural economics is the “status quo bias” – a tendency to stick with the current situation as it is. This translates into people tending to stick with the default option that is offered to them, regardless of whether it is the best choice for them. A company should always anticipate this to be the case and set the best option for the customer as the default option. For example, a bank notices that millennials are not expressing an interest in opening a savings account, even though it would be greatly beneficial for them and their futures if they did. The bank can thus set a savings account as a default option that comes with the standard account, while still giving them the choice to opt-out of it.

Another concept widely talked about in behavioural economics is “salience”– in order to nudge people towards a behaviour, we can make an idea salient in their minds. In the photo below, an independent conservation organisation WWF wanted to reduce the amount of paper towels people use. They printed transparent images of South America on paper towel dispensers, which slowly become less and less green as customers take out more towels, making the idea of rainforests dying out due to paper waste salient. This way a customer is free to take as many towels as they want, but being reminded of rainforest preservation is likely to make them more mindful of their paper consumption.

Fig. 2 – Paper towels nudge, WWF initiative

Nudging tools were designed with the intention of making people’s lives better. Research in public policy shows that people are largely in favour of nudges and do not perceive them to be manipulative, provided they are encouraging people towards making objectively better decisions, such as being healthier. However, if people doubt the motives behind the nudge or do not think its purpose is to do good, they will most likely reject it. It is generally a good idea for a company to be transparent about the nudge, explain why they are nudging the customer and how the nudge could benefit them. Nudges are just as effective when they are disclosed, and the customers highly value the transparency aspect.

These are just a few examples of the many ways nudging and insights from behavioural economics can be used to encourage customers to adopt specific behaviours. For customer centric organisations, gaining a deeper understanding of their customers and helping them make better decisions can be an excellent way to improve their customer experience.