Behavioral economics questions the underlying premise that people are inherently rational decision-makers. Based on research by Nobel Prize winners Robert Shiller and Daniel Kahneman, it states that our decisions are largely driven by range of factors (such as impulses, habits and social norms) that operate beneath our consciousness. And, to paraphrase author Dan Ariely, these non-rational forces are both consistent and predictable, which suggests that they can be studied, understood and leveraged.
Behavioral economics is now having a major influence on both marketing and insights. Increasingly, marketers and agencies are focused on System 1 communication, while research agencies are integrating non-conscious measurement (via neuro, facial coding, implicit measures, etc.) within their studies. At our firm, we’re focused on taking behavioral economics a step further, by applying its principles to actively influence consumer habits and shopper decisions. In this article, we’ll introduce the concept of “nudge marketing” and share some of what we’ve learned so far.
So, what is a nudge? A nudge is defined as an “effective little help” that leads people to adopt a desired behavior either consciously or subconsciously.
This concept was first popularized by Richard Thaler and Cass Sunstein in their book Nudge: Improving Decisions About Health, Wealth and Happiness. As the title implies, their primary focus was on public policy – and how behavioral economics principles could be applied to nudge people toward making better choices.
Their fundamental idea was that people can be encouraged (“nudged”) to act in a certain manner by leveraging subconscious drivers (such as salience, social norms and framing) or by simply making a desired behavior easier than an alternative path. For example, we’ve consistently seen hat forcing people to opt out (of, say, organ donation or charitable donations) leads to dramatically higher rates of participation than forcing them to opt in.
Clearly, these forces also apply at the first moment of truth (FMOT), when people are making purchase decisions.
- In one well-known study, the addition of a small sign (“No more than 12 cans per customer”) actually doubled shoppers’ average quantity of soup purchases, by effectively anchoring their decision process.
- In another case, employing reciprocity (by changing the structure of a frequent user rewards program) increased the program enrollment by over 80 percent.
- Time and again, we find that how choices are framed impacts purchase decisions. When shown product lines, shoppers consistently gravitate towards middle options (medium sizes, the second higher priced item, etc.).
None of these cases involved actively persuading, convincing or changing people’s beliefs. Instead, they centered on seemingly minor changes that had a dramatic impact on shoppers’ decisions.
In his book, Nudge Marketing: Winning at Behavioral Change, Eric Singler of PRS IN VIVO introduced two frameworks:
The Drivers of Influence: The drivers are distillation of approximately 20 of the most powerful and prevalent behavioral economics forces acting upon human decision-making, including relatively familiar concepts (such as framing, loss aversion and reciprocity). Collectively, these drivers provide a foundation for analyzing and influencing behavior.
The NudgeLab Process: NudgeLab is a four-step process for identifying and executing nudge opportunities, rooted in a behavioral economics-driven approach to ethnography and ideation. This process won several ESOMAR awards (upon its introduction and piloting in 2014) and has been applied across over 50 nudge initiatives.
Over the past three years, Singler and our “Nudge Unit” have worked with marketers across a variety of industries. Recent initiatives have included: nudging to facilitate purchase and adoption of a new form of pest control (in India); nudging shampoo buyers in the Philippines to also purchase conditioner (“system” purchasing); nudging to promote new usage occasions for a familiar food product (in France); and nudging buyers of dry dog food in the U.S. to also visit and shop from the wet food aisle.
Through these experiences, we’ve learned a great deal about applying behavioral economics principles in a marketing context. In particular, we can share three underlying principles, which are critical to using nudge successfully:
Nudge is a complement to (not a replacement for) traditional marketing. While some people speak of behavioral science as the opposite of traditional economics, it is best viewed as an additional dimension. Similarly, nudge is not a replacement for traditional marketing. Certainly, there’s a need to create the desire, by speaking to shoppers’ aspirations and conveying product features and benefits. In fact, we’ve found that it is nearly impossible to nudge people towards actions that they don’t want to take. Therefore, marketing is needed to persuade – and then nudge can be valuable in facilitating the follow-through (helping people to take action).
Nudge is about creating positive “habits.” An important underlying truth of behavioral economics is that many human behaviors are a function of our ingrained habits. These daily habits serve as triggers to certain activities, while simultaneously creating micro-barriers to adopting new behaviors. For example, many of us truly want to eat healthier. But our ingrained habits (such as picking up fast food on the way home or buying a candy bar from the checkout line) often overcome our desired behavior, resulting in low compliance.
In our experience, the true strength of nudge lies in applying drivers of influence to help overcome inertia and establish new habits. For example, in several recent cases, we’ve helped companies develop habit loops (cycles of cue/routine/reward) to reinforce desired behaviors.
Given that nudges often work in this manner, we’ve found that they are best-suited to impact category-level behavior – such as adopting a new product form or driving incremental purchases – rather than driving brand preference. To put it another way, a nudge may encourage someone to cook at home – or perhaps to visit a store aisle – but marketing is needed to drive them to your brand of spaghetti sauce.
Nudging for good. Consistently, we’ve found that the best nudge opportunities come at the intersection of what’s good for both companies and individuals. In other words, they promote healthy or desirable behaviors that are also financially beneficial for marketers. And these intersections are actually quite common, as we’ve seen successful cases of: nudging people to drink more water (via packaging with built-in reminder systems); and nudging to encourage positive personal health behaviors, including more frequent hand-washing and tooth-brushing.
Interestingly, we’ve also found win-win opportunities in less obvious situations: For example, portion control (for snacks, candies, beverages, etc.) is potentially desirable for consumers and more profitable for marketers.
Certainly, nudge techniques can also be used to promote excess consumption – and perhaps towards purchases that are beyond their means. But as noted above, these tools are most effective when supporting behaviors that people want to do; tricking people into misguided purchases is neither ethical nor in the long-term interest of most companies.
Three emerging opportunities
Clearly, we are still only beginning our efforts to apply behavioral economics to shopper marketing. However, based on our learning to date, we see three emerging opportunities to nudge fundamental behavioral changes.
- Nudging shoppers in the store. First and foremost, we know that there is a significant opportunity to apply behavioral economics thinking to develop more effective packaging, pricing and shopper marketing. For example, we recently conducted a nudge initiative in Thailand to help a company reassure (and retain) its loyal users in the midst of major packaging change.
Beyond these more tactical applications, we also see an opportunity to apply a new lens to address two key challenges common to nearly all retailers: driving cross-purchasing (within product categories) and nudging shoppers to visit additional store aisles.
- Nudging digital adoption. As a society, we are in the midst of a massive transition from physical to digital across nearly all areas of our lives. And in many ways, the digital transition is ideally-suited for nudge approaches: it provides benefits (of convenience, cost, etc.) for both consumers and marketers and it is a transition that many people want to make, yet some are held back by inertia and their ingrained habits.
Thus, we’ve been working with companies to help consumers create new habits in the digital realm such as promoting Web-based shopping for financial services (as opposed to working through a broker or insurance agent). In a recent initiative, we identified opportunities to apply behavioral economics levers to influence duty-free shoppers, both at the planning stage (via social media) and within airports (during the shopping experience).
- Educating marketers. Finally, perhaps the largest opportunity lies in moving beyond individual nudge initiatives and toward the broader education of the marketing community. Increasingly, we are teaching marketers the basic tenets of behavioral economics and training them on applying the nudges as a complement to traditional marketing efforts. In a recent European workshop, managers created their “first little nudge” as an important step to immersing them in a new way of thinking. And ultimately, we envision that nudging will join the toolbox alongside the 4 Ps and other levers for impacting shopper behavior.
Exploring new ways
In a world of overwhelming choice and increasing product parity, marketers are recognizing that they cannot differentiate effectively through traditional features, benefits and claims – and that persuasion (via advertising) does not necessarily lead to action (in the store).
Instead, many are exploring new ways to grow and they are finding it easier to help people follow through on their existing intentions (vs. trying to change their underlying beliefs). As importantly, they are finding it more profitable to help people create new habits and drive category growth rather than fighting for brand share in declining markets.
Nudge holds the potential to shift the paradigm, by helping companies to think beyond marketing and to systematically apply a new way of thinking – and a more effective way of changing shopper behavior.
About the Author: Scott Young is a Global CEO of research firm PRS IN VIVO. He can be reached at firstname.lastname@example.org.