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Industry Insights

What are Behavioral Nudges and How Do They Work?

By Akhila Sriram on July 2, 2021

For many people, the idea that we are not in control of our own decisions would seem ludicrous. Most of us consider personal freedom is and always has been a given. Despite this, behavioral nudges have, for more than two decades, used science to provide subtle messaging that helps to ease us into a particular decision. Nudge theory works on the principle that small low-cost interventions can have significant impacts on a person’s behavior and can encourage (not force!) people to make one decision over another.

Some would argue that broadly these nudges, at their simplest and untargeted, are not new at all. We know, for instance, that the aroma of baked breads and pastries in supermarkets encourages us to purchase more food than perhaps we would do otherwise, or that the well-timed imagery of ice-cold beverages close to a commercial break makes us feel thirsty. What has changed, however, is the ability to move from mass generic nudges of this nature to personalized interventions that cut through other messaging and really resonate with consumers.

The History of Behavioral Nudges

The use of nudge theory is not confined to commercial messaging. Back in 2010, the UK government established a “Behavioral Insights Team” to use behavioral science to nudge citizens to behave in more socially responsible ways, such as vote in greater numbers, donate their organs, give to charity, and pay their taxes on time. Although there was criticism of this approach in the media, these interventions were presented as encouraging people to make better choices, rather than forcing their decisions. Similarly, in healthcare, long before the COVID-19 pandemic, nudging was used to encourage better hygiene and more hand washing to improve outcomes for everyone.

For those of you unfamiliar with the baby elephant being nudged by its mother, that imagery is the cover picture of the famous book Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard H. Thaler and Cass R. Sunstein. Their book focuses on the history and science behind behavioral nudges as well as shifting into practical applications of nudges in everyday life, especially when it comes to business and life decisions.

The Science of Behavioral Nudges

Nudge theory works on the principle that our brains operate with two distinctly different ways of thinking. Daniel Kahneman, a social psychologist, outlined System 1 decision-making as the automatic reflex responses we make all the time, without any real thought or evaluation as response to a stimulus. This more instant type of decision-making stems from our evolutionary survival instincts to respond to a stimulus that requires a fast reaction, such as danger, fight or flight. System 2 thinking involves the more careful and rational evaluation of the criteria impacting a decision. The correct behavioral nudge can often push aside the slower System 2 process to encourage quicker, but not always rational, decisions.

An important element in all this is the fact that System 2 decisions require more mental effort and consumers operate on autopilot for much of their time. A good example perhaps would be the decision of whether to purchase discretionary additional products whilst queuing at a retail checkout. This is a decision most consumers would not wish to put a huge amount of evaluation effort into and therefore the correct display and nudge messaging could make a significant difference to their purchase decision.

On the Flip Side of Nudges

Connected to System 2 decisions requiring more effort is the concept of “Extremeness aversion.” This is where consumers, to reduce the amount of thinking required for a decision, often choose the mid-sized or mid-priced option. This avoids the extra System 2 thinking mental effort involved in the evaluation of either the least or most extreme option. An example of this is in food service: when there are three draft beers of the same type being sold, it is typically the mid-priced option that will have the highest sales.

Opponents of nudge theory often argue that nudges can also damage businesses if they are wrong, seen as over-simplistic or even condescending. For example, increasing the prices of certain product ranges in a store to nudge customers towards more realistically priced (but not discounted) alternative options may ultimately fail as a tactic because customers consider this with System 2 thinking and reject it along with the retailer.

Consumers will also not process overly complicated information or respond to nudges that contradict their beliefs.  Nudges work best when they provide the right information at the right time – when the consumer is at their most receptive.

Application of Nudges in Business

Today’s consumers generate a huge footprint of digital data as they research their needs, shop, evaluate and review their purchases. This creates greater opportunities than ever before to microsegment and target them with carefully designed nudges. If these nudges are individualized and timed appropriately to resonate strongly, they can cut through the plethora of promotional messaging that consumers are exposed to daily.

The key to designing content for effective nudges is in understanding, down to the level of each individual consumer, the “why” behind their observed behavior. Only by understanding the motivation for their behavior can we develop the nudge that will resonate best with that individual. OSG accomplishes this by using a unique behavioral analytics algorithm known as ASEMAPTM, embedded within its technology. This was originally developed and validated at Stanford University as the best possible way to understand as many as 50 influences that could potentially impact a consumer’s decision. ASEMAPTM provides the ability to understand, for each respondent, those things that are most important to them, by asking them to rank a series of attributes and then make interactive pairwise comparisons of them, indicating how much more important one is over the other.

How We Use Nudges in Our Solutions

At OSG, we utilize ASEMAPTM through our OSG o360TM technology to capture data on the complete consumer journey, both online and offline, in more granular detail than ever before. This includes the process of need identification and research as well as online and in-store shopping. Using advanced AI-powered analytics, we use this data to provide a complete picture of customers which we can then use to design the best strategy for behavioral nudges, at the right touchpoints, in the customer journey. Using the right nudges in channels such as digital ads, website messaging, in-store messaging, geotargeted text alerts, and countless other forms of interaction, our clients have seen significant competitive advantage and growth.