Behavioral Nudges Can Drive Sales for Your Business

The government of UK had been struggling with declining pension saving rates among those that were employed in the private sector. To counter this, they adopted the UK pension policy in 2012, which mandated all employers to create “automatic enrolment” to the pension scheme. This meant that a portion of every employee’s compensation would be deducted month on month, unless they voluntarily requested to be exempted from this scheme and added to their pension fund.

Was this successful? Yes! Since the new pension policy was introduced, active membership of the private sector pension schemes has grown from 2.7 million in 2012 to 7.7 million in 2016.

The theory behind this is simple. People did want to save money for their old age, however, they used to put these decisions off for fear of procedural complications and decision-making. Auto-enrolment made savings easier for people to do what they truly wanted to do, and thus push up savings rates.

This logic was also applied by the Obama administration in USA through the White House’s Social and Behavioral Science Team (SBST), which attempted to bring in behavioral science research into the policymaking process. “Adopting the insights of behavioral science will help bring our government into the 21st century in a wide range of ways,” Mr Obama said. A classic example is the decision to require people to opt out of being organ donors, instead of opting in, when they sign up for a drivers’ license. The use of behavioral science in US public policy also improved compliance with court fines, increased the number of people sending in tax returns on time, as well as changed the way that job centres worked resulting in people finding work faster.

This brings me to a very important point – human behavior can be changed. In fact, changing consumer behavior is critical to the success of many businesses. In the case of insurance companies, for example, getting customers to develop healthier lifestyles will reduce claims and hence, impact business.

Enter Richard Thaler’s Nudge Theory. The Nudge Theory essentially uses findings from psychology and behavioral economics to design “nudges” that prompt people to make decisions that are consistent with their long-term goals. For example, we saw that retirement savings programs are more effective when the default is set to “opt-in” rather than “opt-out”.

How do organizations learn from this and go about designing nudges to change customer behavior? Behaviors are easy to change, but only when you know what gets people to change them.

Because different consumers respond differently to these nudges, organizations must “personalize” nudges to elicit the right response. Behavioral and cognitive analytics helps us identify the right nudges for every customer, and the impact these will have on the business. Cognitive analytics looks at customer decision making in the past, at the individual and group level. Likewise, behavioral analytics is all about understanding every customers’ decision making in the future – the “what”, “how” and “why” behind their choices. A combination of these helps organizations segment customers based on their behaviors and preferences. This gives a clearer picture of the jobs, needs and outcomes customers expect fulfilled along their journey. By identifying unmet needs for all customers, organizations can design new products, and modify features, communication, pricing and other factors, essentially personalized “nudges”, that facilitate behavioral change. Thus, what has been achieved now is a natural affiliation to the organization’s product or service, leading to better customer experience, and thus higher engagement with the brand.

OSG’s behavioral analytics platform helps identify what matters to customers. We guide clients on how to change customer behavior by giving them what matters most, in other words, shaping personalized nudges that will work wonders for their business.

We hope this information has been interesting and valuable to you. Please, feel free to share it with colleagues and other people in your network. We welcome discussing this topic further with you and understanding your specific challenges.