• Bianca Goott, Management Consultant |
4 min read

Standard economic models suggest that people are always rational, but this is a faulty assumption according to behavioural economists. Instead our use of heuristics lead to errors in judgment and biases often undermine rational decision making. So how can we apply behaviour economics to better understand customer decision making and customer insight research?

1. When it comes to brand perception we need to be conscious of the difference between measuring experience versus memory

Customer experience researchers often measure the quality of an experience through the customers stated level of satisfaction. Yet the customer always has two perspectives when making a decision – how we feel during the experience and how we remember it afterward. These ‘two selves’ are often in conflict because what is good for the now might not be the best choice for the memory.

For example, buying an expensive designer bag may be a great experience but, when it is over, the remembering self will assess whether the bag was worth the cost and time to purchase and how it compared to competing brand experiences. Both ‘selves’ responses are valid, it is just about being conscious of designing research to measure what we mean to – live experiences versus lasting impressions. For experience designers, this means thinking about the timing of when customer feedback is elicited and considering how to optimise both the purchase and post-purchase experience to positively reinforce perceptions of the brand at all stages of the buyer journey.

2. It’s important to understand the role of loss aversion in customer loyalty

Even when the odds of winning and losing are the same, we tend to have a cognitive bias toward loss aversion. The principle of loss aversion suggests that the positioning of avoiding a loss over making a gain impacts how customers react (3). Understanding loss aversion, and how to overcome it, is an important principle in customer loyalty. This is because framing has the potential to help brands either keep their customers disinclined to break away or help them overcome the fear of the unknown that prevents them from switching to your brand. 

For example, imagine bank A offers you £100 to switch to their bank. Despite the offer to gain £100 you would most likely pass up on the offer because you would rather avoid the loss of time, the admin that switching banks involves and avoid losing any benefits you have accrued with your existing bank. This example illustrates how the success or failure of a banks ‘client acquisition campaign’ can be influenced by the marketing teams ability to consider how to frame the offer in a way that emphasizes what the potential customer stands to loose (e.g. better interest rates), rather than purely emphasizing what they stand to gain (e.g. £100 switching reward).

3. Keep front of mind that cognitive ease is key to building habits

The human brain operates as if it has a slightly dual personality. We have two cognitive systems - ‘system 1’ which makes many of our decisions instinctively by following heuristics or rules of thumb and ‘system 2’ which makes slower, more considered decisions.  And both have their benefits - without that quick, instinctive ‘system 1’ we would probably all still be lying in bed deciding what to wear today. 

What this means for companies is that their customers will often behave as creatures of habit particularly when it comes to everyday small purchasing decisions – customers won’t spend time agonising over which soap to buy, they’ll just buy the one they always have. Similarly, if an experience matches expectations, customers are unlikely to really notice it. It is only when experience differs to expectations that customers ‘switch on’. This is in line with studies which have found that we tend to remember negative experiences more easily than positive experiences, otherwise known as ‘negativity bias’. This tendency for consumers to place more significance on negative experiences than neutral or positive ones is an important concept to be mindful of in customer experience management.

Continuing with the soap example, if the soap passed its expiration date resulting in the customer getting a rash, and the customer received bad customer support in attempting to resolve this complaint, they will then consider switching brands. Whereas if their experience met expectations (i.e. they had a bath using the soap and came out with soft, beautifully scented skin) they would not think twice about which soap to purchase next week.

A key part of understanding customer retention is understanding that purchasing habits can be overcome, but it takes time and repetitive positive experiences (i.e. desirable product results, good customer support teams etc) to build memories and thereby purchasing habits.

Conclusion

The better one understands the heuristics and biases that underpin judgement and decision making, the better one can design experiences, transform customer journeys and tailor marketing and sales processes to optimise consumer engagement. With this said, there is always an ethical element to leveraging such understandings to sway consumer behaviour – but that is a topic for another time! I hope you enjoyed this read, if you would like to find out more about our behavioural science insights you can do so here and if you’d like to hear more about our customer journey design or transformation propositions within our customer consulting practice – you can do so here