Understanding your customers
Understanding your customers

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Understanding your customers

Key insights from behavioural economics

  • Loss aversion: Research shows that people tend to prefer to hang on to what they already have, such as existing patterns of behaviour, even when faced with incentives to change for the better for example, to lose weight. The fear of losing whatever benefit their existing behaviour carries is more powerful than the incentive they are being offered to change.
  • Norms: As social beings, we are influenced by what we see others doing. Norms are the informal but widely accepted rules of behaviour. If we get the impression that other people are doing something, such as reusing their hotel towels rather than leaving them in the bath for the laundry, we are likely to do likewise.
  • Defaults: The default setting on a computer or smartphone is the one it comes with from the factory. Default behaviour is a similar idea – behaviour that goes with the flow, requiring no further action. The example of a pension scheme from which you have to opt out is a classic example of using a default to influence choice. Organ donation is another case in point. Rates of registration to donate organs are higher in countries where people must opt out of organ donation registration than in those where people have to opt in (though other ethical controls apply in all cases). For example, Wales, which adopted an opt-out system in 2015, has seen a significant increase in registrations (NHS Blood and Transplant, n.d.).
  • Priming: As human beings, we have complex psychological makeups. Our moods, and therefore our dispositions to act in certain ways, are influenced by environmental factors we may not be conscious of at the time. For example, if as is often the case, you pass large photographs of fresh produce on your way into the supermarket, you are more likely to emerge with fruit and vegetables in your trolley. Szmigin and Piacentini (2015, p. 49) cite research studies which demonstrate that when exposed to language containing words relating to old age, such as ‘wrinkles’, research participants’ behaviour took on some of the characteristics of old age such as slower movement and poorer recall (Dijksterhuis and Bargh, 2001). This is a remarkable reflection of the subtleties of interpersonal influence.

Activity 6 Test your understanding of behavioural economics

Timing: Allow 15 minutes for this activity

Test your understanding of the meaning of these terms by dragging each term next to the correct scenario listed below.

Using the following two lists, match each numbered item with the correct letter.

  1. Loss aversion

  2. Norms

  3. Defaults

  4. Priming

  • a.d. A charity fundraiser in the street fixes you with a bright smile and asks you how you are feeling this morning.

  • b.a. Dieters are given a fashion catalogue from which they can select £200 worth of new clothes when they achieve their target weight, with the warning that this offer will be withdrawn if the target weight is not reached by a stated date.

  • c.b. An associate lecturer emails her students that 90 per cent of the tutor group have submitted their assignment a week ahead of schedule.

  • d.c. Members of a museum friends’ association are offered a 10 per cent discount on their first year’s subscription if they pay by direct debit which automatically renews each year.

The correct answers are:
  • 1 = b
  • 2 = c
  • 3 = d
  • 4 = a

Discussion

Did you find it straightforward to identify the approaches being used in each scenario? You may find it useful to read the explanations below.

  • Loss aversion: By offering the incentive ‘up front’ the campaign works on the participants’ natural reluctance to lose what they are already entitled to.
  • Norms: The remaining 10 per cent of students may feel shamed into submitting their assignments early next time.
  • Defaults: When the time to renew comes around, members will be sent a communication advising them that there is nothing they need to do to renew. While this could act as a prompt to cancel for those who wish to end their subscription, the vast majority are likely to accept the default setting of renewal.
  • Priming: Once you have smiled back and said you feel fine, it is very hard not to spend some more time talking, and possibly signing up as a regular donor.
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