Nudged: How Brands Can Create a Difference by Using Behavioural Economics

Professor Richard Thaler, University of Chicago, the Nobel Memorial Prize Winner in Economics (2017) for his contribution to Behavioral Economics. Together with his co-author, Professor Cass Sunstein (Harvard Law School) is responsible for developing and popularizing the concept of “Nudging.”

WHAT IS NUDGING?

“A nudge is an aspect of the choice architecture that alters people’s Behaviour in a predictable way without forbidding any options or significantly changing their economic incentives. To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not mandates. Putting fruit at eye level counts as a nudge. Banning junk food does not.” (Thaler & Sunstein 2008, page 6)

 

WHY I LOVE NUDGING?

To me, nudging is a compelling idea of doing small & yet powerful tweaks to assist people to make the right choices (which is right for your brand to gain the competitive advantage). I had started using Nudging when I was working for Asian Paints Ltd (Forbes 10 most innovative & leading home-décor companies in the world), a part of my job was to convenience distributors that why we offer the best deals (despite being the most complicated calculations we had in our sale promotions). To re-arrange the offerings most simply and to calculate it in a way a distributor can understand without changing the overall cost. Reference to my experience, I feel that it is one of the most robust processes a person or organisation can use to get the job done. Notably, for marketing and sales people it is an excellent opportunity to learn and put into action. Nowadays, nudging has recently even proven popular with governments around the world. Relying on insights from behavioural science, nudging seeks to improve people’s decisions by changing the way options are presented to them. Interestingly, it does not change the options themselves nor the costs and benefits associated with these options.

HOW WE “NUDGE” IN DAILY LIFE?

Nudging is a widespread phenomenon, and we are tempted to nudge under various circumstances. For instance, I repeatedly noticed many times that whenever I jaywalk in streets (needlessly when vehicles are either at a distance or no traffic), it tempts people to follow the same, even though they were patiently waiting before. In such a way I benchmark a kind of behaviour under given circumstances that people feel nudged to adapt. Moreover, in our daily lives we come across the stigma of too many choices, and thus, it makes us confuse to choose the best for ourselves. Now a day, even choosing a bottle of water is a difficult job, provided the number of choices. But having assisted at various level to make a right decision is nudging.

I, also, wish to share an experiment that I have carried out during my Master at  IE Business School. One of my classmates was so shy to speak in the class, and she was on the verge of losing her participation marks which consist of roughly 30% of the total weight. I spent so much time to motivate her to speak so that she could score better as she was hard-working but very shy to talk most of the times. In one of  CONSUMER BEHAVIOUR classes, I wrote “30%” on a piece of paper and inserted in the back of her “name-plate”. By doing this little thing, I noticed something unusual; she spoke three times in the same class. It never happened before, I have never been able to convince her vocally to talk even once in any class. Eventually, she ended up being one of the best presenters in the class.

 

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HOW NUDGING WORKS?

The fundamental principle of Nudge is that of “liberal paternalism.” The idea that it is both possible and legitimate for institutions to affect Behaviour while also respecting freedom of choice of the consumer, as well as the implementation of that idea. It has the following two key attributes:

  • Firstly, that individuals should be allowed to do what they “like.”
  • Secondly, that the public and private sectors should also be encouraged “to steer people’s choices in directions that will improve their lives”.

For example: “Putting the book at eye level counts as a nudge. Banning mobile phone does not” (just in case parents want their children to use less technology). This is because it will increase the likelihood of children to grab a book to read- for their benefit- but they should be allowed to choose the either.

Nudge works more in a subtle way, and while this may appear inconsequential when compared to more forceful forms of communication, Professor Thaler argues the fact people can be “greatly influenced by small changes in the context”, and, as such, relatively minor alterations to the status quo can “move people in a direction that will make their lives better”.

HOW TO CONSTRUCT AN EFFECTIVE NUDGE?

While nudge is a great tool to change the behaviour of consumers. It is even more critical to constructing it efficiently to maximise its benefits. Following are points that should be taken into consideration while forming the effective nudge.

Incentives: It is essential to know who is benefitted and accordingly whom to be targeted to nudge by offering specific incentives. For instance, consumers do not always notice gradual increases in the prices of their energy bills as a means of attempting them to reduce energy use but may pay more attention if a thermostat told them how much money they would save by turning it down.

Understanding Offering: Understand the type of product or service an organisation is offering and map it in a clear and comprehensive for customers.

Defaults: Setting a default eases the course of action, it helps consumers to choose well among many choices. For instance, setting a default amount to add in the wallet-app help consumers to make a decision easily.

Give feedback: Tell people when they are doing it right or not. For instance, a red-sign on battery indicator in the laptop means to plug the charging, and a green sign on the dashboard of the car is an indicator of the efficient driving skills. People will eventually start taking it a default course of actions, and it can change their habits dramatically.

Expect error: As humans are prone to commit mistakes, an all-around composed framework “anticipates that its clients will blunder and is as excusing as would be prudent.”

HOW CAN BRANDS NUDGE?

Brands now call it “Nudge Marketing.” Compelling consumer to desired in a certain manner by “nudging” them with a market message that straddles the sensitive adjust of not being too delicate and inconspicuous nor being too blundering and strong. In the times when consumers are living in an era in which if overflowed of information, it is getting increasingly difficult for marketers to communicate in such a manner that it would not perceive as “too much” at the customer end, such brands lose their relevance and trust of the consumer. Also, to ensure that consumers can understand the product well and find it easy to use is the most prominent challenge due to time-factor and wide availability of choices.

A brand that can nudge well can win the race. Not just regarding communicating well but being involved with consumers in their decision-making process. Such brands enjoy the high level of loyalty and trust of the consumers. Apple is an excellent example in the context of nudging. The extremely high success of the iPhone and iPad is far dependent on the fact that they are highly user-friendly that both simplify and enhance the consumer experience.  Apple doesn’t rely on the fewer choices but also ensures that the offering should desirably delight the consumer. Thus, consumers place higher trust in their offering and perceive it as a highly aspirational choice. Also, Apple nudges its customer by offering a new highly innovative and fundamentally different device every year, even without being communicated to upgrade (for example from iPhone 8 to iPhone X), customers feel nudged to grab the latest.

The prospect of nudging can also play, a broader role when it comes to corporate social responsibility. With the growing demand for health-conscious and environment-friendly products, brands can potentially nudge their consumers using consumer insights, to change behaviour or habit and to adopt healthier and more sustainable products. It can be ranged from self-hygiene to responsible use of natural resources. In an era when the world is talking about sustainability and customers are looking for healthy substitutes, brands are in a privileged position to be actors of change in society thanks to their daily relationship with consumers in the home and elsewhere.

 

 

 

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