Marketers' Breakfast: Behavioural Economics16th Feb 2018
Tuesday 13th February 2018
The Anthologist, 58 Gresham Street, London
Why should marketers care about behavioural economics?
Popular interest in behavioural economics has grown sharply over the last decade, with best-sellers like Daniel Kahneman’s Thinking, Fast and Slow and Dan Ariely’s Predictably Irrational collecting rave reviews. For marketers however, these ideas are a little more than simply interesting. Many of the claims that these writers make about human behaviour have direct applications in many industries, notably finance, but especially and increasingly, marketing.
Many of the guests at our February breakfast were marketers who were a little more than interested in behavioural economics. Take Nick Britton for example, a Marketing Manager in the Innovation department at Diageo, who had always wondered about the difference between how people explain their actions and what actually explains their actions.
Nick had attended Evian focus groups where customers claimed to purchase Evian purely for hydration. He remembered thinking that this didn’t make sense. There were always cheaper options available, not least the tap. Nick could see that these customers were making a calculation they weren’t admitting to, involving an attachment to the Evian brand.
Conundrums like Nick’s Evian focus group are neatly suited to the arguments that behavioural economists make about the blind spots in rational choice theory. In fact, many of the most effective marketing tactics around today reflect popular concepts in behavioural science.
For the unacquainted, behavioural economics generally refers to the convergence of cognitive psychology and neo-classical economic theory. The behavioural economist maintains that neo-classical economic models fail because they are based on the assumption that people make rational decisions in their own self-interest.
Since the 1960s, the work of Daniel Kahneman and Amos Tversky being of particular note, cognitive psychologists have been producing work that can augment neo-classical economic models to account for humans’ irrationality. They argue that while humans are irrational, they are often irrational in consistent and predictable ways. Their irrationality has its own logic, which can be modelled in economic contexts.
In 2010, the UK government set up their own ‘Nudge Unit’. This team was designed to improve government through tactics derived from behavioural economics. In 2017, one of the directors of the ‘Nudge Unit’, behavioural economist Richard Thaler won the Nobel Prize in Economics. Daniel Kahneman had won that same prize in 2002.
We discussed the investment management start-up Wealthfront and the behavioural insights used in their referral campaign. They give customers the opportunity to refer when their product has over-delivered and they know their customers’ likelihood to refer is higher, for Wealthfront this is when tax rebates are processed automatically. These are sometimes called the “Aha!” moments.
Laurence Corps, CRM Manager at carwow, was another marketer at our breakfast who wanted to understand more about how psychological insights can help him improve both short-term conversions and long-term loyalty. He immediately identified a similar “Aha!” moment at carwow, when customers realise they don’t need to visit multiple showrooms or deal with salesmen when purchasing a new car.
There is a lot to be said by behavioural economists on this question of timing. One of the successes of the UK government’s “Nudge Unit” was to increase by thousands the amount of people joining the Organ Donor Register by asking them to do so after they renewed their car tax online. Amigo’s latest campaign with NSPCC also makes use of these sorts of insights in its use of the “time-ask effect,” a concept identified in behavioural studies of charitable giving.
Alongside the “Aha!” moment, many of our guests discussed the uses marketers can make of the concept of social capital. Hannah Taylor, UK Marketing Manager at CMC Markets, discussed how enabling customers to invite friends to special events increased engagement. She found there was social capital in offering a friend the opportunity to attend the event. Attendance also grew when friends created a social obligation to attend on behalf of one another.
Our Managing Director at Amigo, Frederic Kalinke shared a similar example of the Financial Times enabling customers to gift articles to friends. This allows subscribers to give something that has an added perception of value to their friends, while enabling the newspaper to spread its product with a degree of targeting that relies on information that only their customers have, i.e. who amongst their social circle might like certain articles in the Financial Times.
All our guests, with the notable exception of Isobel Thompson (a behavioural research analyst at Swiss Re), admitted to encountering challenges when trying to apply behavioural insights to their work. There was a general sentiment that everyone can read the books, but not everyone can act on them. Amigo solves exactly that problem for many of our clients.
We enable clients to run controlled experiments, which Isobel described as essential to the application of behavioural research in marketing. In her view, its only with clean experiments that you can identify causation and maintain the validity you need to uncover counter-intuitive truths.
Simone Cesco, Head of Planning at Aimia Inc, noted the importance of identifying which behavioural phenomena to look for in different contexts, giving the example of Nectar. Customers accrue points for activities like grocery shopping and, as this tends to be a solitary activity, it isn’t necessary to consider the effects on customer behaviour of concepts like “social proof.” Few customers are trying to signal their personality through whether they consume broccoli or cucumber.
One of the things that testing can uncover is how behaviour differs between different groups of people. One of the clearest examples of this was provided by Tamsin Anastasi-Pace, Global Head of Operational Change at The Economist. Tamsin discussed how some geographies respond better to advertising than others.
Tamsin argued that in some Asian territories digital marketing had not reached the saturation point that it has in most Western markets because she had seen Asian users generally be more responsive to ads. Behavioural studies have tended to find evidence supporting this idea that too many nudges lead to plummeting returns.
Tristan Summerscale, Product Development Manager at The Economist, mentioned that data ethics can be a challenge for marketers trying to test campaigns with behavioural insights involved. If customers can see that they are being tested on and their data is being used to give them a better online experience (rather than simply to sell them stuff), then everything becomes much easier.
Head of CRM for UK & Europe at Merlin Entertainments, Ulf Tiedemann also expressed concerns about GDPR’s effects on customer profiling. One way of improving the online experience is to tailor it according to personal information about users. However, behavioural economics can be used to establish general rules that will improve the online experience for everyone regardless of the differences defined by their personal data.
P.s. The Choice Factory
At the end of our breakfast, we gave our guests copies of Richard Shotton’s advertising bestseller, The Choice Factory: 25 behavioural biases that influence what we buy. A nice use of the peak-end rule you might say, but also a good enough reason to want to attend an Amigo breakfast.
If you’re a marketer who wants to start applying behavioural economics in your work, get in touch.
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