What business are you in?

If I asked you what business you are in, what would you say?  Consulting, retail, manufacture, accounting, health...Well you're wrong, kind of. You see I think you are in the business of behavioural change because everyday you are influencing people to do something.  Buy, sell, read, write, talk, type, click, swipe, walk, run, turn up.  Each of us everyday has the task of influencing others to move from one state to another, and that's why behavioural economics is such an opportunity; it's a playbook on what you need to do.


Lessons from the fitness industry
Let's take some guidance then from one of the most challenging behavioural changes that we can make - getting ourselves or others into shape. The difficulty has always been sustaining the change once initial enthusiasm has worn off, and this is due to the potency of the outcome (looking better, feeling better) not being as forceful as the immediate attraction of other choices (lazing on the couch, staying in bed or eating the wrong foods).  After all, you can experience the benefits of the chocolate now, but the benefits of not eating the chocolate are distant and ambiguous. 


Given this challenge it is therefore no surprise that a range of websites and Apps have been developed to help people sustain the behavioural change of a healthier lifestyle.

GymPact App

One that garnered a lot of attention last year was GymPact because it charges you if you don't follow through on your commitment.  The concept is that our desire to avoid a penalty will be enough to push us towards fronting up at the gym when we would otherwise have been able to talk ourselves out of it. The App is clever because it creates activities in the short term to keep us on track as we inch toward to longer term benefit.

Another site that works for any type of personal commitment is StickK. Here you are required to make public your commitment contract and even put money on the line that goes to a recipient of your choice if you fail.  

A more recent example is SlimKicker.  I first heard about the concept last year when it's creator got in touch to discuss how behavioural economics could be incorporated to help keep people motivated and accountable.  


According to SlimKicker developer Christine Chu, the site is designed to maintain motivation and emotional engagement by rewarding and reinforcing progress.

"I think the main problem with being healthy is motivation. It's an abstract, overwhelming goal. I think the best way to counter this is to turn it into winnable games and small victories.

 So... my app makes living healthy, and fitness into a RPG game, where users earn points, and "level up' as they accomplish their health goals.

Everytime they add something healthy like veggies to their diet, they earn points. Everytime they complete a workout, they earn points. As they achieve more and more, they'll level up and unlock badges, and discounts/coupons to  rewards like spas, health foods, etc."

A few of the clever elements of SlimKicker include;

• Levels - people move through different fitness levels, collecting points and rewards along the way which breaks the task of 'getting fit' down to goals that are attainable. (Overcoming behavioural short-term bias.)
• Progress -  Throughout each level the user can see how far they have come and have to go. (Using behavioural principle of completion to secure continuation once started.)
• Inspiration feed - a sense of community has been created through users sharing how they are feeling about their successes and slip ups. (Uses social norming to influence behaviour.)

By far my favourite part of SlimKicker is the Challenges section. You can sign up to participate in challenge (for instance, no snacks after dinner) and be rewarded with points upon completion.  What's great about this is that you can see at a glance "who's in" and how many others are giving the challenge a go.

SlimKicker's Challenge

There are some areas of SlimKicker that can be further improved, for instance showing how many points are needed to complete a level, clearly stating that the website is free to join and explaining
how the site is financially supported but I think they are doing a great job of tackling behavioural change.

Applications for your business
Getting people to exercise and eat healthier is really no different to the challenge of getting people to buy something today when the benefit is not immediate.  Examples include building a house, securing investors for your proposal, ordering something online where you have to await delivery, signing up for a course, contracting a consultant and paying insurance. You need to overcome the pain of now whilst keeping your customer's 'eye on the prize'.

• Make the benefit vivid:  Draw it, mock it up, make a model...do something that ensures the customer can see what they are working towards.
• Use milestones: stage the process so that your customer feels like things are progressing.  Think of it like FedEx parcel tracking where your customer can see how far the parcel has travelled and how far it has to go.
• Keep the connection: communicate with your customer throughout the process so they feel comfortable that things are progressing.  I ordered a new iPhone cover through a Kickstarter project in December last year for expected delivery in January. Today I received project update number 18 advising me where they were up to in production, so whilst it's a long time to wait, I have been taken on their journey throughout thanks to their frequent and transparent communications.

It's easy to think we are  simply in whatever business we spruik on our business card or website, but always remember we are behavioural change experts and it is up to us to support our customers going from one state to another.  What better guide than Behavioural Economics?


PS Why not join the People Patterns mailing list?  Every month you'll receive a short wrap-up of top news from the behavioural sciences and other nuggets of goodness from me. Click here to sign-up.

PPS A short presentation I have put together on why every business should know about behavioural economics is available on this website and has been viewed over 1,200 times since being posted.

"From-To" image from http://www.rachel-levy.com/wp-includes/wp-content/uploads/From_To.jpg

The Top 10 Slap Down: Why you need Behavioural Economics

Strap yourself in for my top ten reasons why you need to know about Behavioural Economics.  More slap down than count down, prepare to be insulted!

You need Behavioural Economics because...

1. You're arrogant
You think other people succeed because of the situation but you succeed because you're ace.  But when things go wrong, it's the situation for you but a deep personal flaw in others.  After all, you never cut people off in traffic, but get cut off all the time.   (a.k.a. Actor Observer bias)

2. You're lazy
When you don't know what to do, you do nothing.  Inertia is your friend and default is your home. The easiest position is to stay with what you know. That's why you haven't changed banks...car insurance...partners yet.  (a.k.a Status Quo)

3. You take short cuts
Who can be bothered with all that thinking? Do what you've done before or just make some assumptions.  If you remember seeing that brand advertised, then it must be reputable.  If one product is more expensive than another, it must be better.  You'll order wine from the middle of the price range because you don't want to look stingy.  (a.k.a. Heuristics or Rules of Thumb)


4. You delude yourself
You love your thinking so much that whenever you look for evidence to support your point of view you can find it easily. (a.k.a Confirmation bias)

But when someone else puts forward an idea, it always seems to have more down sides. (a.k.a. Not Invented Here Bias).

5. You're a sheep
When you don't know what to do you follow what other people are doing.  Ever lined up in a queue without knowing what it was for?  Gone to a restaurant because it always seemed busy? Bought ill-fitting fashion?  An SUV?  (a.k.a Herding)

6. You're scared
Losing is scarier than winning. Bird in the hand and all that.  Safer to do nothing (as per point 2) or demand over the top guarantees before you'll make a move.  Stayed in a job too long?  Held on to an investment even though it was tanking?  Gone to a petrol station out of your way because you want to  save $2 with your shopper docket? (a.k.a. Loss aversion)

7. You're superficial
You operate most of the time at a superficial, top of mind level.  Listing 3-5 reasons you like or dislike something is easy because but beyond that gets tricky. It causes you a bit of mental anguish because you start to second guess your 'gut' feeling.  (a.k.a. Availability bias)

And you want rewards NOW!  Just like Veronica Salt in Willy Wonka (I want it now Daddy!) you hate to wait because you are not very good at imagining what the future will be.  (a.k.a. Short term bias)

8. You're not in control of your own mind
You set the alarm and then hit snooze. You intend to go to the gym but stay glued to the couch watching the Big Bang Theory.  You know superannuation is important but somehow can't find 10 minutes to read the brochure.  You are constantly fighting with yourself as your mind processes intent and actual behaviour.  This inner turmoil exhausts you so you revert to short-cuts (see point 3) and status quo (see point 2). (a.k.a. System 1 and System 2 thinking)

9. You fall for obvious tricks
You buy the yogurt that is 97% fat free instead of the yogurt that has 3% fat.  You pay for broadband plans with data quantities you will never reach.  You buy the shirt because it is marked down to half price.  You know you know that you are being tricked by the way something is communicated, but you can't help falling for it.  (a.k.a. Framing)

So that is you.  But don't worry, it's you and me and everyone else because we are beautifully complex, emotional and cognitive beings and being irrational is what we do.  The important lesson for anyone in business is that you need strategies and systems geared around this irrationality so you can best meet the needs of your market.  It's pretty clear that many businesses have not yet come to terms with the opportunity Behavioural Economics presents, so it's your chance to shake off your status quo bias, squash your fear of losing and instead grab on to a field that can deliver significant competitive advantage.

Oh. I almost forgot.


10. You need completion
You see a gap and you need to fill it.  A list of 10 with only 9 items becomes annoyingly distressing.  Failing to finish means you miss out on the entirety of the experience, so you go through with it even if there is no point.  (a.k.a. Completion)

Happy irrationality.

PS If you like my blog, I'd love you to consider supporting my fundraising trek of the Larapinta trail. Every bit helps so to find out more, visithttps://www.gofundraise.com.au/page/BriforICV Thank you!

Should you charge customers an 'explanation fee'?

Retailers are doing it tough. Shoppers are coming in, speaking at length with the shop assistant about what the widget does and does not do, only to then leave the store and buy the widget cheaper online.  What's a retailer to do? How do they provide customer service but not lose the sale?

In his Fairfax piece last week, Terry Lane wrote that JB Hi-Fi has introduced a $30 "explanation fee" to recoup some of the cost of providing expertise to potential customers.  Think it will work?  Before you are tempted to follow in JB's footsteps, here are some behavioural elements to consider.

Customers are just doing what's smart
People do not believe they are doing anything wrong by speaking with one shop's assistant before buying from elsewhere; this is the very nature of shopper research and a deeply ingrained social construct.  It used to be hitting the pavement and going shop to shop.  Now it's research online, visiting a physical store if you need to sight, handle or try on the product, and then back to online to purchase.

Do customers feel guilty about wasting the shop's time? No way. In fact they are more likely to feel they deserve the better online price because they have worked for it through their research efforts.

Further, the customer does not consciously think about the overhead costs to that business.  I don't know about you, but when I wander into a store I do not calculate the cost of the assistant's salary, the electricity, merchandise and marketing that have gone into opening the store that day.  These are all lumped into the mental bucket of "sunk costs" that will have to be paid whether I buy from that store or not, and this protects me from any guilt associated with chewing up the shop's time.

So JB has a bit of an issue. They are introducing a fee for something people don't think of as a service. Now if JB's intent is simply to reduce 'tyre kickers', it may work because the fee most certainly will stop people seeking out their staff.  But in my view, disenfranchising potential customers is not a great move.


How to recoup payment for staff time  
As the nature of retail moves from in-store to online, and shops become more service rather than sales-centric, here are four thoughts about what businesses like JB might do;

1. Promote the benefits of buying in-store
Bricks and mortar stores have one massive advantage over online - stock.  "Take it home today!" should be the mantra because people hate to wait.  By the time they have come to the shop they have likely been thinking about the widget, so talking to them about taking it home and showing their loved ones tonight is a way of closing the gap between shops and online.  Make sure they are handling the widget to encourage ownership as you say "Mr Customer, whilst you might save a few dollars buying online, you can take this widget home right now and get on with things".

2. Spook them about invalid warranties 
As mentioned in Lane's article, people who buy goods from overseas often overlook the fact that the warranty may not extend to their country.  Shops like JB have a great opportunity to use people's aversion to loss to maximum effect by playing on our imagined distress if our widget breaks down.  We succumb to concepts like 'extended warranty' because peace of mind is worth paying a bit extra for.


3. Provide a value-add service 
Rather than calling the consultation an "explanation fee" that sounds condescending and a cost rather than benefit, call the service something like "expert consultation", "widget instruction session" or "how to widget".  Remember that people don't perceive shop assistant service as one that should be paid, so expectations of the service need to be interrupted.  Go to the extent of putting expert staff in a different uniform, position them in a different area of the store and even consider bookings.

The shop may suddenly find it has a whole new income stream generated by tutorial services which may also grow rather than disenfranchise its customer base.


4. Rebate service 
Offer the customer's who use the expert consultation the opportunity to rebate their fee against a product purchase.  So the $30 effectively becomes a voucher for their next purchase.  This will work in a number of ways. First, it will help overcome the objection to the upfront fee because it will feel less like the business is getting the money - it's more like they are just getting a deposit.  Second it will be hard for people to forgo their 'free' $30 so they will be more likely to buy something in store. And third, it means the business has an ongoing relationship with the customer and is more likely to get repeat business.

No doubt retailers like JB Hi-Fi are fed up with customers who take without giving, and in so doing provide online retailers with an even greater advantage through lower overheads and higher margins.  But this is the new world. I think it's great that we are seeing new models like JB's "explanation fee" popping up because it marks an attempt by bricks and mortar retailers to challenge the new online purchase cycle, and whilst this model may not quite succeed, it will at least make the retail sector consider new ways of balancing personal service with fair return.

Image from virtuallyyoursjb.com

Slapping the post; our need for completion

Slapping the post, tapping the fence, smacking the wall...I've seen runners do them all.  On Saturday a lady jogged up to the fence post, patted it once, and turned for home.  I've caught myself doing this when visiting a scenic location - walking to and touching some part of the landscape before leaving.  What does this have to do with business and Behavioural Economics?

We are geared for completion.  Humans like to finish, to see things through. In the case of running, it can mean physically marking your progress by slapping the post.  In a business context,

- If you manage staff, this means that when they resign or are reassigned from a project mid-stream, you would do well to have them conclude their contribution in the form of a presentation to you or other staff.  A handover session is not the same thing - ask them to formally present what the project is, what they did, and what is left to do. Why? Psychological closure for you and them.  Motivation will take a hit it you do not take steps to close-off the work.

- If you provide a loyalty program (like a coffee card) for customers, start them with points/stamps because they will be more compelled to finish the card.
- If you provide merchandise, offer things in collector's sets to compel people to attain them all. (You can look to fast food outlets for examples of this)

So when next devising a project or marketing activity, remember to include the compelling nature of completion to your thinking, making the most of our need to slap the post.


Picture from http://gpblogs.typepad.com/.a/6a00d83455b5de69e2010536a81da7970c-800wi

Headcount freeze: How behavioural economics can help

Inevitably at some stage or another you won't have, or cannot have the level of team resourcing you believe you need. You catch your team muttering about "being two heads down" and morale's on the slide.  As many Australian businesses inch towards the end of financial year, deferring recruitment of staff to maximise financial results, what lessons can we draw from Behavioural Economics to improve matters?

Behavioural Principles to Apply

Social contract - it can be tempting to ask staff to work above and beyond for the good of the team, applying social norms to a work relationship. But you can't have it both ways - if you expect staff to go above and beyond, they'll expect you to protect them. Any cuts will breach the social exchange and further impact morale.

Completion - we innately seek to complete tasks. If you have to stop projects, reallocate priorities make sure you give your staff the opportunity to close-out the activity. Get them to do a final status report even if the project is pulled mid-stream because scrapping the project in front of their eyes is deeply disheartening.

Framing - due to the strong sense of "loss" of staff, you will need to reframe the team. Shake off the absence of these resources by changing the physical surrounds so that the empty desks are not a reminder. And do more team driven activities to make the sum of parts a greater whole.

Case studies

Have you ever noticed when someone leaves, parts of the job they used to do just fall away? Even when two people are doing the same job they will focus on different aspects.

In a headcount freeze scenario, you want to have the non-essential elements of the jobs people get busy doing, fall away. That means bringing to a conclusion some 'pet' projects that people invariably develop.

Now, it's easier said than done to stop a staff member working on something they enjoy, particularly when it will generate benefits for the business. You'll need to be aware of the Ikea effect (discussed by Dan Ariely in both Predictably Irrational and Upside of Irrationality), where we overvalue something because of the effort we have contributed. It means that the project that your staff member has worked so hard on will come with significant emotional attachment.

Use your knowledge of completion (our drive to see things through) to have the staff member provide a final status report even if the job is midstream so at least in their eyes, their work has been acknowledged and concluded.

This post is an extract from "22 Minutes to a Better Business, How behavioural economics can help you tackle everyday business issues", by Bri Williams.

Image from http://www.bizydeal.com/wordpress/wp-content/uploads/2011/04/empty-desk_5.jpg