Over the years many organisations have started applying behavioural sciences to make their products and services better. OECD’s annual survey found that around 150 countries have some kind of behavioural public sector organisations, and even multiple private companies are launching their own behavioural or decision sciences team. No wonder the U.K.’s Royal Society for the encouragement of Arts, Manufactures and Commerce predicts that “behavioural scientist” will be one the most useful jobs in the 2020s.
Here are two reasons how unleashing behavioural insights can help you make your offerings better:
1. They make use of ‘Mental Shortcuts’ that humans have historically relied on
To survive historically, our brains developed tactics or shortcuts to do tasks. These tactics did only help us to make efficient choices, but also lead us to make predictable choices in our decisions. Take for example, the diagram below: which circle below is bigger?
Image source: Adapted from Predictably Irrational: The Hidden Forces That Shape Our Decisions (2008)
Both orange circles are of the same size, but most people think that the orange circle in the left-side diagram is smaller. This is because one of our mental shortcuts (or bias) is to see things relative to other things.
There are other biases that come into play, and here are a few more examples:
- For instance, using simplicity bias you can make your products simpler. The behavioural unit of the UK’s independent electricity and gas markets regulator, Ofgem BIU, found in its first large-scale RCT that customers were much more likely to switch to a cheaper energy tariff if they received a simple letter telling them about better tariff deals (Refer to the “Cheaper Market Offers Letters” trial).
- Another example: Mood inductions (using music) change customer feelings and affect sales. Loyola University professor Ronald Milliman showed how the tempo of instrumental background music can significantly influence both the speed of in-store traffic flow and the daily gross sales volume purchased. In his study, the average gross sales increased from $12,112 for the fast tempo music to $16,740 for the slow tempo music. This resulted in a mean increase of $4,627.39 per day or a 38.2% increase in sales volume!
- Reciprocity bias dictates that when we are given something we have an innate desire to give back. The Hare Krishna charity in the late 1960s was really struggling financially. But then they changed their tact and started giving gifts to passerby’s and raised millions of dollars.
2. They are small, and inexpensive changes
Nudges are small, inexpensive changes that you can apply to your product or customer journeys to dramatically change user behaviour. Here are a few examples of how small nudges have yielded powerful results.
If not done right, the results ain’t right
Behavioural Insights are a powerful tool. By understanding your customers you can deliver smother service and enticing products. However, like every powerful tool, it needs to be used rightly.
One example of failure comes from United Airlines revamping its bonus system in 2018 from a quarterly, performance-based bonus to a lottery system. United Airlines was keen to motivate their employees by incentivising them with a large vs small bonus (framing), and in the form of a cash prize vs regular bonus (usage of a lottery).
Instead of giving staff their regular bonus, United added up all the bonuses they would payout and introduced a lottery system. A few lucky employees would get a large amount of cash, luxury car or vacation, while the others wouldn’t get anything.
Did this work? No. Staff and unions were furious, and within days management had to revert to the original scheme.
Here’s why: United considered framing and the usage of lotteries but failed to consider loss aversion. Crucially, they neglected the important and well-documented principle that, while people prefer a lottery when they may lose money (i.e. people become risk-taking at losses), they almost always choose a sure bet when they stand to gain. This holds true even if the expected value of winning a bigger cash prize outstrips the value of the smaller sure thing!
In conclusion, taking into account how mind works can be immensely beneficial for your organisation. However, do keep in mind to use this power with care and an expert present. I hope you have found the usage of behavioural science exciting. Please do read more blogs on this site to know more!