The Power of Behavioural Economics
- Outsource Magazine
- On April 5, 2012
This article originally appeared in Outsource Magazine Issue #27 Spring 2012
From the shop checkout assistant who wishes you a good day whilst looking right into your eyes, to the online support that informs you “55 per cent of customers use this service”, to the contact centre agent who offers you a price and then tries to better it, the world is replete with examples of scripts leveraging Behavioural Economics concepts – or, put another way, playing to how your brain is wired.
Behavioural Economics: a background
The behavioural sciences – and in particular Behavioural Economics (BE) have exponentially evolved our understanding of how consumers’ brains work and why they behave and think as they do. There is now a large and growing body of evidence from behavioural experiments explaining how and why people behave in irrational ways. These studies illustrate and explain our decision-making and behaviour, defining the mental constructs, cognitive biases and choice architecture that guide and influence us. Buyers of outsourced services need to work with their providers to ensure they deliver BE effectively, especially in areas of customer satisfaction and sales. The methodologies can be used by providers to ensure significant advantages are achieved.
The on-going downturn in US and European markets has put pressure on outsourcers to deliver value to clients. Behavioural Economics is a new area building value in customer contact, through changes that are simple and easy to make, that don’t cost much to either buyers or providers of outsourced services. BE shows us that behind every decision there is a choice architecture activated by a context, and a set of conscious and unconscious influences that guide decisions. Consumers use gut feelings, intuition and rules of thumb. They make relative decisions (the majority taking place below the conscious radar), which are tied to anchors and prone to a plethora of biases. And consumers react completely differently depending on how information is presented.
BE and outsourced customer contact: a framework
Some of the BE constructs and biases are already being leveraged by outsourced customer contact providers. The buyers are looking for providers who can compete with their in-house services. Often properties and labour costs are similar and improving scripts, customer journeys, customer satisfaction, sales, refining voice self-service, IVR architecture, speech and text analytics is what delivers the necessary competitive advantage.
We will provide a few examples of BE concepts, bringing them to life in real-world examples, applicable offshore and locally, and explain how BE is being leveraged by outsourcers. Outsourcers add value to sales and customer engagement using choice architecture, anchors, loss aversion, frames, social norms and the big finish.
Searching for anchors to solve customers’ problems
One of the core BE constructs is anchoring; simply put, people search for a point of familiarity or comfort and anchor on this point (or points) and navigate or adjust from it.
A simple application could be to offer a customer a less attractive or more expensive option first (or just the standard default package) and then add to it or knock the price down. If you want to make customers feel even more confident that they are making the right choices add in a social norm such as: “This is the most popular offer by far at the moment”.
Anchoring could also be used in a conflict situation in which you provide a potential solution and then try to better it: “The standard solution (that we and our competitors offer) for your problem is X, but I’m going to see if we can go one better and do Y.”
Social norms or “birds of a feather flock together”
One of the most powerful BE concepts is the social norm. In general, we feel reassured when we know others have done the same thing or are in the same boat – or put another way, behaviour is influenced by what we believe others do.
For example, when customers are offered an opportunity to renew an insurance policy online, if given the fact that “70 per cent of our customers choose this option”, it can help manage demand experienced by outsource providers.
The frame changes the picture
Another core BE area is called framing which shows how the way the same information is presented or ordered can lead to radically different results – which tends to be pretty critical, of course, in the outsourced customer contact business.
One recent study finding showed that we should follow the “price first, item second” mantra if the package is easy to calculate e.g. £30 for 60 hours. But if the package is larger and/or difficult to calculate it should be item first, then price e.g. 60 hours for £289.50. We tend to anchor to the piece of information which comes first in order, and navigate from there.
What becomes even more interesting is when you bring together a number of BE concepts, for instance framing and loss aversion. The bias of loss aversion shows that people dislike losses much more than they like gains, so if you want to nudge or steer someone to do something it might be more powerful to frame something as a loss rather than a gain. Price increases have twice the effect
on customer switching that price decreases do.
Making the bridge from a customer service issue to a sales or retention pitch often fails. It may be the case that the agent hurriedly says: “While you’re on the line can I interest you in…?” In this instance, behavioural economics can be used to re-shape scripts and phrases for a powerful impact.
Choice architecture – there is no such thing as a neutral choice
The key in any outsourced customer contact is to understand that there is no such thing as a neutral or unbiased context. How a choice is presented is known as choice architecture and can operate on two levels: 1) to make a choice easier in complex situations eg choosing a phone; or 2) to steering someone towards the desired choice we want them to make.
Never underestimate the importance of the big finish
The cognitive bias known as the peak-end rule states that we have a tendency to remember an event by the emotional memorable point (peak) and end point (end). Other information is not lost, but it is not used.
One could conceptualise a conversation with a customer as having two main points – one during and one at the end. The end is a huge influencer of the whole – hence why Hollywood is master of the big finish!
In the future, outsourced buyers will expect providers to deliver Behavioural Economic concepts in scripts to influence customer satisfaction, upselling, or making someone feel comfortable using live chat etc. The result is to make what sometimes occurs intuitively much more structured and underpinned by scientific rigour.
About the Authors
Crawford Hollingworth is Founder at The Behavioural Architects, aiming to reinvigorate traditional research methodologies alongside pioneering new ways to deliver fresh insights.
Jo Davies is Director at Davies Hickman Partners, providing research and consultancy services to marketing and customer contact executives.