Tapping a lucrative segment: the non-rational consumer

By Marty Carroll

Economics has not fared well in the current financial crisis. Economists placed too much of an emphasis on people’s likelihood to act rationally when making decisions. People do not always act in their own self interest and this is largely a consequence of biases that affect our ability to make decisions.

Economists and psychologists have been exploring our perceptual biases since the 70′s, but these biases have come to assume a new prominence in the most recent crisis because of the writings of behavioural economists such as Richard Thaler, Dan Ariely and Robert Shiller. They argue that, as consumers, we are subject to a whole host of biases that distort our thinking and decision making processes. We have a tendency to accept evidence that confirms our preconceptions over evidence that contradicts them (confirmation bias), to weave concurring facts into one single causal narrative (narrative bias), and to attribute our own successes to skill while suggesting the success of others may be down to luck (fundamental attribution error).

Why are these biases so prevalent? Quite simply our brains evolved to accommodate a world that is far less complex than it is today. We use these biases as shortcuts that enable us to navigate a complex world. These biases may seem efficient but at times they frequently work against us. With brand and product choice proliferating there is evidence the people are being influenced by these biases more than ever before. Our view is that brands can play an important role in simplifying and aiding consumer decision making. By doing so they can benefit from greater brand equity and customer loyalty.

Let’s consider one of these in the context of customer experience: the framing effect. This says that presenting people with the same choices but in different formats affects how people make decisions. Some of the organisations we are working with are paying more attention to the concept of ‘choice architecture’ in customer service decisions – carefully nudging people towards the right choices. Not in a manipulative way I might add but in ways in which both the brand and consumers benefit. One of these companies has previously struggled to move customers from high cost / high touch service channels to self-serve channels.

Rational economics would suggest that people would use the self-serve channel as it is quicker and cheaper for customers. But as I’ve said people aren’t very rational. An understanding of the choice architecture and consumer behaviour, along with its inherent biases, will lead to better customer strategies.

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