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Power up customer experience with behavioural economics insights

03rd December 2019

Author Jana Maia

In the attempt to craft outstanding customer experiences, some organisations assume that customers make rational decisions or perceive their experiences logically. Organisations then proceed to design and build experiences based on those assumptions, which sometimes lead to underperforming (or even failing!) customer experiences.

Research also confirms that, in many scenarios, even the most commonly used standard models of customer decision-making can be inadequate in describing our understanding customer behaviour. Because, as humans, we’re bounded in many dimensions, in particular rationality, willpower and self-interest.

Across scenarios in insurance, savings, health care, for example, and in the behaviours of employees and employers, elements of both rational and irrational behaviours can be seen. In fact, many behavioural economics experiments show that irrational elements exceed rational behaviours.

This means that it’s increasingly important to consider customers’ irrational behaviours when crafting customer experiences. 

Put simply, we can’t rely on the assumption of “rationality” in customer decision making to craft extraordinary experiences for our customers. We need to understand customers and their behaviours thoroughly to ensure organisations invest in what really makes an impact for their customers.

 

Using behavioural economics to understand and address irrational behaviour

Behavioural economics is a field of research that transforms and improves customer experience by removing the friction experienced by the customer when interacting with organisations. It facilitates the application of human behavioural insights to economic decision making, allowing us to design fluid interactions for our customers.

Behavioural economics seeks to understand human behaviour, and how small interventions can influence it significantly. It can provide a compelling toolkit for understanding customers’ mindsets and be used to drive compelling results.

The Lemonade example

One interesting example of how behavioural economics can be used to uplift customer experience is the case of American-based insurance company, Lemonade, which has already disrupted the billion-dollar insurance industry. Lemonade has used the following two behavioural patterns (or insights) to guide their customer experience and drive outstanding results.

  1. Value attribution: We tend to attribute the value, goodness or authenticity of something to its context instead of the thing itself.

Lemonade uses value attribution to influence users to sign up or switch. Lemonade’s insurance product description induces a perception of value by customers by using a familiar slice of pizza to illustrate:

  • That the flat fee is very small (compared to how much is paid back to customers as claims).
  • That what is paid back to customers is quite a lot to be consumed at once (leaving leftovers).
  • That leftovers are quite large (the same size as the flat fee).
  • That the company is socially responsible, donating to worthy causes.

All these things increase the perception of value provided by the company to the users.

2. The priming effect: Access to a particular item of information in memory is enhanced as a result of recent exposure to a related stimulus.

When filing a claim, Lemonade users sign an “honesty claim” as one the first steps when creating a new claim. While most insurance businesses ask customers to sign the form to attest to the truth of a claim at the end of the process, Lemonade does it in the beginning. Behavioural economics human insight that priming people about honesty will encourage honest behaviour, Lemonade was able to approve the claim in just 3 minutes, on the trustability of the information provided by its users.

Therefore, designing experience with these imperfect “human behaviour patterns” and insights in mind will very likely maximise the overall value of the customer experience your organisation delivers, as Lemonade has shown.

 

The BOOST methodology

At Davanti we use the highly acclaimed BOOST (Behaviour, Obstacle, Outline. Study, Tailor) model to apply Behavioural Economics in practice. The methodology is shown in the figure below:

The following activities are performed when we apply the BOOST methodology to design:

Behaviour: Define the desired outcome and most important behaviour to get us there

  • Define the challenge, and make sure the BOOST methodology is the best way to address it; define the target group and make sure key requirements are satisfied such as access to choice architecture. Choice architecture is the design of different ways in which choices can be presented and the impact of that presentation on people’s decision making.
  • Determine the outcomes and behaviours, to define your desired outcome and then understand which individual behaviours will get you there.
  • Narrow down behaviours, to rank and prioritise the behaviours determined in the previous step and select the one to be addressed during the next steps. The most appropriate behaviours to be selected at this stage are not only the most relevant but also the ones that are most fit for this specific approach.

Obstacle: Understand the barriers that inhibit our users from engaging in the desired behaviour

  • Understand the decision-making process, to help you understand your target group’s environment, decision making process, mental state, obstacles, knowledge gaps, and how to bridge those knowledge gaps.
  • Apply cognitive bias. We will map cognitive biases onto the general obstacles identified in the previous activity. We will know why people aren’t doing what we want them to do, but what are the cognitive factors that explain their behaviour.

Outline: Identify potential interventions to promote behaviours based on science

  • Match interventions to barriers. We will match obstacles with suitable interventions to tackle them.

Study: Understand which intervention works best in our context by testing and quantifying the effect

  • Design an intervention based on the previous steps.
  • Design a study to determine if the intervention (or nudge) above has worked.

Tailor:  Adapt the winning intervention and your needs and implement across users and markets

  • Scale. Use the BOOST methodology to determine if the nudge can be scaled up and implemented at a wider scale.

 

The benefits

True understanding of customer’s irrational decision-making processes will guide your organisation to better understand your customers’ rational and irrational behaviours, and find creative and clever solutions to ensure the products and services released by your organisation are successfully adopted. Here are some benefits your organisation can achieve by adopting Behavioural Economics consistently and precisely in your organisation:

Gain competitive advantage to innovate successfully

By mapping your customers’ key behaviours, you will gain invaluable advantage when crafting new solutions and innovating products and services for your customers. While leveraging “non-rational” behaviours and learning how to address them, your solutions are more likely to be adopted.

Gain customer insights to spark relevant ideas 

Observing customers’ rational and irrational behaviours through the lenses of Behavioural Economics and applying patterns to understand their biases will inevitably lead to ideas that solve real world problems or address opportunities. These ideas are more fit for purpose than ideas generated through standard research methods.

Strengthen customer relationships and increased customer loyalty and retention

Research shows that 86% of customers are willing to pay more for the same products and services if they feel the companies are providing better customer experiences. If your organisation is able to understand your customers’  rational and irrational behaviours, you will automatically have strong leverage to craft loyalty and retention programmes that appeal to your customers (consciously and subconsciously), as well as maintain a meaningful relationship with them, thus strengthening loyalty and relationship.

We’d love to talk with you about how our passion and experience can help you leverage behavioural economics to achieve an outstanding experience for your customers. Get in touch!

 

 

 

 

 

Jana Maia is Davanti’s Auckland Head of Design & Experience. With a Ph.D and 20 years of experience, Jana leverages the power of insights and design thinking to help organisations navigate digital complexity to innovate and strengthen their digital and service capabilities.