Nudge your customers wisely

Koos
Jeroen Otte

Reading time
6 min read

Date
Dec 08, 2016

People are lazy in both thought and action. When we face two options, we will most likely choose the path of least resistance. However, as innovators, we struggle with the fact that for consumers most often the path of least resistance is to continue doing what they’ve always been doing instead of trying something new, even though the latter might be an improvement for them.

Fortunately, insights from architecture of choice show opportunities to effortlessly push us “lazy” thinkers into your desired behaviour: by nudging them.

Automatic and reflective thinking

First of all, it is important to understand that people have two distinctive styles of thinking, that they use during the day: automatic thinking and reflective thinking.

  • Automatic thinking is quick, emotional, impulsive, and instinctive.
  • Reflective thinking is slow, rational, effortful and deliberate.

Automatic thinking has worked great for us in the past as it saves time. If I ask you the answer to 2 + 2 you’ll quickly, and automatically, answer 4. If you were asked to answer to 32 x 144, it’s likely that you would need to think differently. You would want to reflect, and put more effort and time into finding the right answer.

These two different methods of thinking and deciding are not bad or good in themselves. For many decision-making situations, the ability to make quick instinctive decisions is a valuable capability. However it can cause people to make irrational unhelpful decisions— influenced by distractions such as advertising and mass media. The choice for one of the two methods depends mainly on whether in the end you want to make a decision that is right for the short- or long-term. This is because one of our main biases in our automatic thinking is that we can’t resist short-term temptations even though they might harm us on the long term.

The insight into this dual way of thinking poses opportunities for you to use when working with service, marketing or policy innovations. First you need to consider whether your customer will make a better decision with their automatic, instinctive thinking or with their reflective, rational thinking. Then either play on the biases and flaws to have customers make use of their automatic thinking, or “shock” them by confronting them with their biases, to lead them towards more reflective thinking.

Powerful nudges

But what should we address to activate people’s automatic thinking? Below you find five key points of interest. These are based on the identified key biases from the bestselling book “Nudge: Improving Decisions About Health, Wealth, and Happiness” (Richard H. Thaler and Cass R. Sunstein, 2008). These can be used to have your customers make decisions with their automatic thinking, which provides a powerful tool to nudge customers towards your desired behaviour:

 

  1. Create a default: We have a natural resistance to change. Therefore make the preferred option the default (e.g. smartphone presets).
  2. Incorporate short-term benefits: We often choose based on short-term gain, often at long-term costs (e.g. spending over saving money).
  3. Show the group’s behaviour: We commonly make choices to conform with the behaviour and expectations of others (e.g. how we decide what to wear).
  4. Make it attractive: We often judge and take action by relying heavily on information that attracts our attention (e.g. an offer is perceived as cheaper when positioned next to more expensive alternatives).
  5. Take action: Costs and benefits that take effect immediately impact us more than those delivered later.

To illustrate how valuable nudging can be one of them will be explained with two examples.

Create a default: donor registration

When trying to stimulate behaviour a strong nudge is to create a default opt-out or opt-in. In other words, people then need to actively deviate from what they perceive as the normal or “usual thing to do” (therefore affecting people’s conformity bias).

By comparing the donor registration rates in European countries, American psychologists Eric Johnson and Dan Goldstein showed in 2003 that the choice of opting in or opting out is a major factor.

Consider the difference in registration rates between two neighbouring countries, Austria and Germany. In Germany, which uses an opt-in system, only 12 percent give their permission to be an organ donor; in Austria, which uses opt-out, nearly everyone (99 percent) does.

Opt-out countries (Denmark, Netherlands, UK, Germany) have significantly lower donor consent or permission rates than neighbouring opt-in countries

Make it attractive: car tax

We are more likely to do something attracts our attention. Powerful ways are through the use of images, colour, combined with personalisation and framing. Highly personalized letters are much more likely to attract your attention than a general version. For example, when letters to non-payers of car tax in the UK included just a simple picture of the offending vehicle, payment rates rose from 40 to 49%. So merely by adding minor personalisation to a letter, one can elicit a much greater response.

There are countless other successful examples of how small nudges steer toward big changes. To find a selection of them make sure to head over to the Nudges blog.

When letters to non-payers of car tax in the UK included a simple picture of the offending vehicle, payment rates rose from 40 to 49%.

Nudging by governments

The ideas in the book “Nudge” proved popular with politicians such as U.S. President Barack Obama and British Prime Minister David Cameron. Following the popularity of the book, the UK government therefore started a Nudge Unit in 2010, officially called the Behavioural Insights Team, to do research on how to nudge civilians towards desired behaviour. Moreover one of “Nudge”-writers, and Harvard academic, Cass Sunstein was appointed Administrator of the White House Office of Information and Regulatory Affairs from 2009 until 2012 in order to streamline, improve and simplify its regulation.

Many more governments and organizations have discovered the powers of nudging, largely driven by its impressive results. This year, by implementing smart nudges in their reminder letters, the Belgian tax office was able to collect 18.7 million euros more when compared to last year.

Nudging gone wrong

There are however also more examples of nudges backfiring to organizations. This is often because they are too visible and steering too overtly towards a certain type of behaviour. This then results in the opposite effect from the group that doesn’t acknowledge this a behaviour that appeals to them. Citizens of California were once addressed with a letter that showed their own energy consumption compared to a certain average, stating there was “room to improve”. The idea was to motivate them to cut down their energy consumption. However, this letter resulted in some rebellious Republicans living in conservative neighborhoods to start consuming even more energy.

Don’t trick or judge

The secret of great nudging is to not to patronize the customer, so to understand that your organization and the customer are on equal footing. When a designed nudge is highly persuasive or judgemental, it can backfire on your organization. Feeling tricked into using your automatic thinking to make a decision, can highly damage your brand image. An infamous example of this is the original website of Irish low-cost carrier Ryanair.

Ryanair has been notorious for nudging people into unwanted extra costs

This company had a horrible reputation for using the opt-out nudge, tricking inattentive customers into booking unwanted insurances, hotels and rental cars with their flights. Customers are lazy, but also smart, and don’t want to feel tricked or talked down on. Therefore, nudge well, but nudge wisely. In the end, nobody likes to hang around with an untrustworthy Mr. Know-it-all, right?

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