Why implementing behavioural science and economics is critical for success

Behavioural science and economics, while being a relatively new discipline, has gained tremendous traction among businesses over a short time.

Samantha Booth, manager of applied behavioural economics at Genesis Analytics, told a GIBS Forum that many businesses have begun to integrate behavioural economics into their strategies.

The interventions, which influence end user behaviour, can be implemented through small tweaks or adjustments at low cost and low risk, and don’t require an endless number of applications.

These can quickly demonstrate meaningful results: “Companies can apply changes and test them with their own customer bases to see what is effective.”

Booth said the discipline has gone mainstream from the realm of academia in the past decade since University of Chicago economist Richard Thaler and Harvard Law School Professor Cass Sunstein published Nudge in 2008.

Many national governments have now developed their own nudge units, using science-based principles combined with effective communication to encourage action.

Leigh Crymble, behavioural linguist, a doctoral student and founder of behavioural linguistics firm BreadCrumbs, explained that the concept of nudge as a combination of behavioural economics, political theory and behavioural science.

“Actions can be nudged through compelling content to encourage a specific end goal,” Crymble said.

“Essentially, it uses language to compel people to make a purchasing decision or to change their behaviour.”

Behavioural economics and linguistics can also be used by businesses that aren’t customer facing for internal employee engagement and motivation. “Design around the humans in your organisation and you are likely to be more successful,” Booth said.

Business applications for behavioural economics

Firoze Bhorat, the chief marketing officer at financial services firm Discovery, said the group’s Vitality programme and newly launched behavioural bank were based on the core purpose of the company to make people healthier: “Whatever we do as a business has to fulfil that higher order.”

“As humans we are creatures of immediate gratification, with controllable behaviours. If we start to control these behaviours now, we will have improved health outcomes both now and into the future,” Bhorat said.

The key to successful intervention was making hurdles as low as possible; as humans like positive reinforcement.

Targeted communications for customer engagement and loyalty

Mateboho Malope, executive head of rewards and loyalty at mobile operator Vodacom, said message framing was critical in the crowded and competitive telecoms space.

“We have to overcome customer inertia and personalise all messages to customer needs.”

Ryan Bacher, founder of Netflorist, said the pioneering e-commerce platform uses targeted communications to cleverly craft nudges.

“E-commerce has the benefit of real-time data, which we can use to nudge the conversion rate from website visitor to customer.”

This data means they are able to measure, track and incentivise customers to convert website visits into sales.

Loyalty programmes also provide valuable opportunities for retailers to incentivise customers and influence their buying behaviour. Zandile Manana, divisional executive of loyalty and rewards at Edcon, said the group’s Thank U Rewards programme has been among to the top four loyalty programmes in the country.

However, there are plans to introduce changes so as to strengthen the scheme’s value proposition from a one dimensional points-based system.

“Customers aren’t one dimensional. We have points savers and others who value immediate gratification.”

Manana said the Thank U programme would start offering customers opportunities to earn points elsewhere and the ability to use their loyalty currency widely.

“Engagement with customers is essential to make sure your loyalty proposition is relevant and timely,” he added.

Loss aversion: Nudging vs manipulation and ethical considerations

As the principles of behavioural economics become more popular, companies need develop an awareness of the discipline’s ethical considerations, Booth cautioned.

“There is a fine line between nudging and manipulation and certain concepts can have very powerful effects.”

Crymble used the example of British consulting firm Cambridge Analytica, which used data analysis and strategic communications to influence electoral processes, and warned: “In the wrong hands, nudging can be a very grey area. It is possible to manipulate people using behavioural linguistics and to nudge them to buy particular products or subscribe to specific world views.”

The behavioural economics concept of loss aversion, or scarcity, has a particularly powerful impact on behaviour, Booth said.

However, it can also produce anxiety in customers and have unintended consequences such as the loss of repeat business.

Bhorat said loss aversion can also be used for positive outcomes. For example, Discovery’s Apple Watch incentive does by imposing payments on customers if they don’t achieve their monthly exercise target.

“The benefit is offered upfront, so customers have immediate gratification, but this is predicated on certain behaviours.”

Any attempts to influence behaviour must be closely linked to the company’s core intention, he reiterated: “Our core purpose, to make people healthier, governs everything we do. We have built our business on the shared value model, which means we share value with the customer, and it is not just for the benefit of Discovery.”

Booth said there was a likelihood of increased regulation to encourage ethical, responsible nudging as behavioural economics becomes more mainstream. “We are not there yet, but are headed in that direction.”

She explained that Genesis Analytics applies an ethical framework to determine which projects the consulting firm takes on. They also use Thaler’s three principles to guide the use of nudging: nudges must be transparent and never misleading; it should be easy to opt out of the nudge and the behaviour being encouraged should improve the welfare of the person being nudged.

“These criteria eliminate a whole lot of problematic nudges and make sure we are nudging for good – for that of the business and of the individual.”

. City Press is a media partner of the GIBS Forums.

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