Consumer behaviour – Page 4 – Behavioural Design

Why we hate losing more than we love gaining

Published May 16, 2016April 19, 2016 by Anand Damani

The tendency to be more sensitive to possible losses than to possible gains is one of the best-supported findings in behavioural science. Nobel laureate Daniel Kahneman and his colleague Amos Tversky were the first to test and document the notion of ‘loss aversion’ – the idea that we are more motivated to avoid losses than we are to acquire gains.

Loss aversion affects a lot of our decisions, in finance, negotiation, persuasion, etc. One consequence of loss aversion is that it makes inexperienced investors to prematurely sell stocks that have gained in value because they simply don’t want to lose what they’ve already gained. (We had also written about it in ‘Why we sell the wrong stocks’) Similarly, the desire to avoid any potential for a loss also makes investors to hold on to stocks that have lost value since the date of purchase. Because selling the stock would mean taking a loss on the investment, which most investors are reluctant to do, a decision that often precedes further stock price decline.

Another popular example of loss aversion is the debacle of New Coke. From 1981 to 1984, Coca-Cola company tested its new and old formulas in taste tests amongst two hundred thousand people across twenty-five cities. 55% of people preferred New Coke versus 45% who preferred the Old Coke. Though most of the tests were blind, in some of the tests people were told which was the New and Old Coke. Under those conditions, preference for New Coke increased by an additional 6%. Why did New Coke fail inspite of such extensive research?

Says Robert Cialdini, Professor of Psychology and Marketing at Arizona State University and advisor to Obama “During taste tests, it was New Coke that was unavailable to people for purchase, when they knew which sample was which. So they showed an especially strong preference for what they couldn’t purchase otherwise. People at the Coca-Cola company might have said, “Oh this means that when people know that they’re getting something new, their desire for it will shoot up.” But, in fact, what the 6% really meant was that when people know what it is they can’t buy, their desire for it will shoot up. Later when the company replaced Old Coke for New Coke, it was Old Coke that people couldn’t have, and it became the favorite.”

For people losing Old Coke was more valuable than gaining New Coke. What this means is that to make messages more persuasive they should be framed to avoid losses more than acquire gains. So a message like ‘Shop till you drop at 30% discount’ could be more persuasive if framed as, ‘Don’t miss the chance to shop at 30% discount’. The latter implies that the deal is scarce in some way (e.g. limited time) and that people could be losing the opportunity to get a good deal.

Sources: Daniel Kahneman and Nathan Novemsky – The Boundaries of Loss Aversion – Journal of Marketing Research 42:119-128 (2005)

Ziv Carmon and Dan Ariely – Focusing on the Forgone: How value can appear so different to buyers and sellers – Journal of Consumer Research (2000)

G.R. Shell – Bargaining for advantage (1999)

All’s well that begins well

Published April 5, 2016 by Anand Damani

Any event that has a good ending is good even if some things went wrong along the way. That’s why ‘All’s well that ends well’. But ‘All’s well that begins well’ can be true too. Especially in the case of customer loyalty programs. Every retailer looks to increasing customer loyalty by offering incentive programs like frequent flyer programs or a club membership program. But amongst so many kind of programs which ones manage to perform better?

Behavioural researchers Joseph Nunes and Xavier Dreze conducted a research to find out. They handed loyalty cards to 300 customers of a local car wash. Every time the car was washed the loyalty card was stamped. There were two types of cards: one required 8 stamps to receive a free car wash and the other required 10 stamps, but 2 stamps were already affixed to the loyalty card. So both cards required 8 washes to get the free car wash.

After several months of the researched program, the researchers found only 19% of customers in the 8-stamp group made enough visits to claim their free wash compared to 34% of the 10-stamp, All’s-well-that-begins-well group. The latter group also took less time to complete their 8^th wash, taking an average of 2.9 fewer days between car washes.

According to Nunes and Dreze, reframing the program as one that’s been started but not completed, rather than one that’s not yet begun, motivated people to complete it. Additional findings from research suggested that the closer people got to complete a goal, the more effort they exerted to achieve that goal. Data revealed that the amount of time between visits decreased by about half a day on average with every additional car wash that was purchased.

Now we know when to ask people for help on a project. One that’s already underway but incomplete, rather than one that has to start from scratch, is likely to be the project that gets help. So get started, help will be on its way.

Source: Joseph Nunes and Xavier Dreze: The endowed progress effort: How artificial advancement increases effort: Journal of consumer research 32: 504-12.

Why focus groups cannot be relied upon

Published September 2, 2015 by Anand Damani

Marketers rely a lot on traditional research like focus groups to understand consumer’s motivations toward their brand, product and category. Researchers ask people for their opinion about their product, packaging or concepts to pick insights about their appeal, and get wonderful feedback that is sincere, detailed, and emphatic but has little relation to the truth.

Imagine you’re coming back from a party that was at a lavish penthouse of an industrialist. You say you had a lovely time and I ask you what you liked about it. You say “the drinks”. But did your joy really come from talking to the attractive woman who wrote the latest fictional best seller? Or was it something you really relished like the food? Or was it something subtler, like the quality of the music? Or the scent of citrus that filled the house? Or was it the fact that you got to network with influential people?

Leonard Mlodinow, author of many books including ‘Subliminal’ says, when we come up with an explanation for our feelings and behaviour, our brain searches our mental database of cultural norms and picks something plausible. In the above case, your brain might have asked ‘Why do people enjoy parties?’ and chosen ‘the drinks’ as the most likely hypothesis, if ‘drinks’ happen to conform to a set of standard reasons, expectations, cultural and societal explanations for a given preference.

In a study mentioned in ‘Subliminal’, women were shown four pairs of silk stockings that were absolutely identical, except that each had a different and very faint scent applied to it. The women were asked to choose their favourite and they found no difficulty in telling why one pair was better than the other. They spoke of perceived differences in texture, weave, feel, sheen and weight. Everything but the scent. In reality, stockings with one particular scent were rated the highest, much more often than the others, but the women denied using scent as a criterion. In fact only 6 out of the 250 women even noticed that the stockings had been perfumed.

Truth is we most often don’t understand our own preferences. Despite that, we usually think that we do. And when asked to explain why we feel a certain way, most of us, after giving it some thought, have no trouble supplying many reasons that sound plausible.

It’s a market researchers nightmare – you can’t even trust people to know what they prefer, leave alone why. That’s why we rely on the knowledge of the human brain, human physiology, cognitive neuroscience, behavioural economics and proven experiments conducted by the best in the world to understand human behaviour and create Behavioural Design solutions.

Small ideas make a big difference

Published May 5, 2015 by Anand Damani

There are lots of small everyday things that could benefit from being designed better. Things we take for granted in everyday life. But when designed well, things just work, leading to enhanced experience, satisfied customers, appropriate actionability, increased sales, etc. This post is about few of such small everyday ideas.

Like handles on doors. If there is a handle on the door, the tendency is to pull it. But almost all doors have a handle on the side it says push, too. If the door needs to be pushed, why have a handle? Simply keep it flat and we’ll push it.

When composing emails, wish there was a reminder to attach our files, when words like ‘attached’ or ‘attachment’ were found in the composed email.

‘No Parking on Odd dates 1 3 5’ and ‘No Parking on Even dates 2 4 6’ tend to be so cumbersome. We need to first think about what date it is today, then figure that its ‘No Parking’ on that side, which means we can park on the opposite side. Instead what if we had ‘Parking on Odd dates only’ and ‘Parking on Even dates only’.

Because there are two traffic signals in view at all times, one after the zebra crossing and one much ahead on the other side of the junction, we Indians always push ahead wanting to be first (in whichever race that is) therefore not stopping at the zebra crossing and not allowing pedestrians to cross. So to get cars to stop at the zebra crossing, only one traffic signal needs to be there, placed just before the stripes begin.

Instead of having to choose from financial retirement plans with complicated numbers, what if we could choose, by looking at pictures of different homes (1, 2, 3, 4 BHK) that could be bought with different levels of retirement income.

I often get asked about what mega-pixel camera on the phone is good. Fact is that we don’t understand what mega-pixels mean. What will be useful to us is the information of what mega-pixel matched what size of print. But we know this one won’t happen, else phone and camera manufacturers won’t be able to convince us to mindlessly upgrade.

Remember using the plastic card key in your hotel room to start and switch off the power. Wouldn’t it be convenient to have one in our home, so that we could start/switch off the power with one stroke and do away with the nagging feeling of not having turned off the geyser or gas or some other appliance after leaving home?

The tendency is to think of these design ideas as small (insignificant) ideas, but they are the ones that make for the most awesome product, service experiences and of course get us to behave.

The way a restaurant bill gets split affects what’s ordered

Published March 31, 2015March 31, 2015 by Anand Damani

How do you split the bill while eating out at a restaurant with friends? Equally? Or depending on whose had what?

In Germany diners usually figure out the price of their individual bills and no one feels bothered. But in Israel or US or India for that matter, such behaviour may be considered rude. Irrespective, the interesting part is how splitting the bill affects ordering behaviour.

Behavioural economist Uri Gneezy and colleagues divided students who didn’t know each other, into 3 groups of diners, based on how they paid the bill. In the first group, six diners (three men and three women) paid individually. In the second, they split the bill evenly. In the third, the researchers paid for the whole meal.

Turns out, the way you split the bill affects what you order. Of course people ate the most when the researchers paid. But when it came to the equal bill-splitting group, people tended to order more expensive items, than they did when each person paid for his or her own meal. Because for every rupee/dollar they ordered, they had to pay only one-sixth of the cost. So why not order the most expensive dishes? It’s about the incentives, not about individual personalities.

Uri Gneezy, says, “This is an example of negative externality – someone else’s behaviour affects your well-being. Let’s say you are a non-smoker, and a smoker sitting next to you decides to light up. He enjoys his cigarette, but you are also ‘consuming’ his smoke. The guy smoking has bestowed a negative externality on you. The party consuming the goods is not paying all of its cost. In the bill-splitting situation, the person enjoying the large, expensive lunch is doing the same thing. People simply react to the incentives they are facing.”

Source: Uri Gneezy, Ernan Haruvy and Hadas Yafe – The inefficiency of splitting the bill – Economic Journal 114, no. 495: 265-280 (April 2004)

Talk on Investor behaviour (Franklin Templeton)

Published November 8, 2017December 29, 2014 by Anand Damani

We spoke on Investor Behaviour at Franklin Templeton’s Independent Financial Advisor convention in Bali on 12th December.

Our presentation was about investor’s biases, heuristics and rules of thumbs. We also conducted a live auction that brought alive our irrational behaviour amongst the audience who participated in it.

The rest again is confidential material. But we will be posting many articles on behaviour – consumer, employee, shopper, investor, public that we promise.

Have an awesome year.

Behavioural Design for The Economist

Published February 11, 2015December 9, 2014 by Anand Damani

In a pilot for The Economist India, Briefcase demonstrated 20% savings of the customer retention budget.

In the challenging environment of magazine subscription renewals, Briefcase achieved similar subscription renewals as existing levels, but at 20% lesser cost. Thus demonstrating a 20% savings in the customer retention budget.

The rest of course is confidential.

The science behind Facebook’s experiment

Published December 9, 2014August 4, 2014 by Anand Damani

Read about Facebook’s experiment? The one in which they manipulated which posts showed up on the news feeds of 6,89,003 Facebook users. For one week, some users saw fewer posts with negative emotional words than usual, while others saw fewer posts with positive ones. People were more likely to use positive words in Facebook posts if they had been exposed to fewer negative posts throughout the week, and vice versa. Read about it here.

Love it or hate it, here’s the science behind the experiment.

Our behaviour is often influenced by sub-conscious cues. Priming shows that people’s behaviour may be altered if they are first exposed to certain sights, words or sensations. In other words, people behave differently if they have been ‘primed’ by certain cues beforehand. Priming seems to act outside of conscious awareness, which means it is different from simply remembering things.

Here are few other fascinating priming-related researches. Social psychologist John Bargh et al got participants in the first group to unscramble five words like ‘he it hides finds instantly’. For this group the random words were just to keep them busy, but for the second group, the sentences had lots of words, which were stereotypically associated with old people – old, lonely, grey, careful, wise, stubborn, courteous, etc. Then the two groups of people were made to walk a 9.75-metre strip. Those who’d been fed old-related words took a full second longer to cover the distance, than those who hadn’t.

Those primed were reminded about the idea of being old. Because we have habitual ways of thinking about old people – this idea got activated subconsciously and they acted in line with these stereotypes without even realizing it.

But we can improve people’s performance by just the same method. In another research, Asian-American participants were invited to take a test. Before they did, some were primed with the words that would activate stereotypes about Asian people, namely superiority at maths. This was done by flashing words on a screen for less than a tenth of a second: too quick to be perceived consciously, but slow enough for the subconscious to register.

Asian-Americans who had been primed with the stereotype got almost twice as many of the questions right as the other group. When researchers saw the data closely they found that after bring subliminally primed with an Asian-American stereotype, Asian-Americans attempted more questions. As if the stereotype made them try harder – a habit of persistence.

In another research asking participants to make a sentence out of scrambled words such as fit, lean, active, athletic made them significantly more likely to use the stairs, instead of lifts.

Says Jeremy Dean of www.psyblog.co.uk, “Everyday we are bombarded with subtle and not so subtle cues of how to behave. We process these automatically and subconsciously, and over time these impulses emerge as our habits, which we start performing without conscious thought.”

Feel like sipping some cocktail by the beach?

Sources: John Barg, M. Chen, L. Burrows – Automaticity of social behavior: Direct effects of trait construct and stereotype activation action – Journal of Personality and Social Psychology 71, no. 2 (1996): 230

M. Shih, N. Ambady, J.A. Richeson, K. Fujita, H.M. Gray – Stereotype performance boosts: the impact of self-relevance and the manner of stereotype activation – Journal of Personality and Social Pyschology 83, no.3 (2002): 638

Wryobeck and Chen (2003) Using priming techniques to facilitate health behaviours. Clinical Psychologist 7:105–108.

Think you can predict your own behaviour?

Published December 9, 2014June 2, 2014 by Anand Damani

Your answer is most probably a yes, right? You may even be saying how stupid it would be, if I couldn’t even predict my own behavior. But as with most posts on behavior, you may be surprised to know the difference between intention and behavior.

One of the studies by Ji and Wood titled ‘Purchase and consumption habits: Not necessarily what you intend’ tested if participants could predict their own consumption of fast food, how much they watched TV news, and how often they took the bus over a week. Each person was asked how much he or she intended to carry out each of these three behaviors over the coming week (intention). They were also asked how often they had performed each behavior in the past (habit). Importantly, over the next 7 days their actual behavior was recorded.

The results showed that when the habits were weak, the intentions tended to predict behavior. So if you didn’t watch TV news that much, your intention for the coming week, was likely to be accurate (whether the intention was to watch more, less or the same). So far we seem to be right in predicting our own behavior.

Here’s the interesting part. When the habits were strong, the intentions tended to predict behavior less. So if you were in the habit of visiting fast food restaurants, it didn’t matter much whether you intended to cut down or not. Chances are that your habit would continue irrespective of your intention.

It gets worse. Participants, who had the strongest habits and were the most confident in their predictions, were the least successful at predicting their behavior. Ouch. So much for our perception of self-control.

Says Jeremy Dean, author of popular blog www.psyblog.co.uk, “When we perform an action repeatedly, its familiarity seems to bleed back into our judgments about their behavior. We end up feeling we have more control over precisely the behaviors that, in reality we have the least control over.”

When you think about the things you might do on a weekly basis in the same context – visiting a restaurant or meeting up with friends – it feels as if these decisions are highly intentional. But the research suggests that we have less intentional, conscious control over these types of behaviors than we would like to think. That’s why our intentions fall weak in the face of habits, and need Behavioural Design to change them, rather than campaigns aimed at increasing motivation.

Source: M.F. Ji and W. Wood titled ‘Purchase and consumption habits: Not necessarily what you intend’ – Journal of Consumer Psychology 17, no. 4 (2007): 261

Ads aimed at changing behaviour are a waste of money

Published December 9, 2014May 5, 2014 by Anand Damani

What an ad. Funny. Entertaining. Beautifully scripted. Well directed. Brilliantly acted. Excellent choice of music. Award-winning. And totally ineffective.

The ad not only acknowledges that bullying happens, but it also reinforces that bullying will continue to happen. Just that those who get bullied will get their revenge, even though its after 30 years.

Leave alone the fact that it got the psychology completely wrong, how exactly are such ad campaigns that get produced in hundreds every year in every country supposed to work? In this case, do the ad makers expect the bullies to remember (at the time of bullying) that their targets may seek revenge after 30 years and therefore not indulge in bullying now?

Or another example of an award winning ad seen by millions of people around the world – Smoking Kid. How many people do you think have quit smoking after viewing this ad?

Ever wondered why we hear so much talk around us, but see little change happening? So many promises, agendas, quotes, speeches, videos, ads, so much inspiration (gas) which seems powerful and emotional in the spur of the moment, but eventually leads to nothing. It’s because mere awareness rarely leads to action. We’re ruled by something that’s far more powerful than the inspirational or entertaining or factual messages we’re exposed to – habits.

But billions of money still gets spent on messaging and education to change behavior – not just by the government but also by the private sector. Such communication may succeed in creating an illusion of efficacy by changing attitude/intention, but has proven to be a highly ineffective way of changing behavior – whether of consumer, shopper, employee or public behavior. Truly, old habits die hard.

In the UK, for example, in the 1970s and 80s, the government spent millions on ads educating people to wear seat belts on TV, radio and billboards. Streff and Geller estimated that by the end of the 80s, 80-90% of British people saw these ads 8-9 times each. One would assume that showing people being launched head-first through their windscreens would make people respond. Turned out that most of the people weren’t responding, until in 1983 when the law changed along with strict policing, that most people started wearing them.

In India too, billions are wasted on behaviour-change advertising, whether it’s the ‘Swatch Bharat’ campaign or ‘Save fuel, save money’ campaign or tax payment campaigns. Regards public behavior the government has the option of making certain behaviors compulsory and punishable by law. But even when it is compulsory by law, we in India find ways of overcoming them for several reasons. For example we don’t wear helmets, seat belts, break traffic signals, sit on top of running trains, evade taxes, etc. Advertising isn’t making any difference.

The private sector does not have such legal recourse. So companies use awareness and education to change behavior, which meets with the similar ineffective outcomes. Take for example billions being spent on advertising to get Indians to change behavior and adopt products like mutual funds, breakfast cereal, mouthwash, etc. Or take the example of Colgate wanting Indians to brush at night. How many hundreds of crores and number of years do you think Colgate will take to get Indians to brush at night if it relies on advertising? While advertising is a time and money draining solution, Behavioural Design is about simple, scalable, small tweaks/nudges that make a big difference to big problems. Eg. Bleep – horn reduction system and so many other examples you would find on this blog.

It’s time for CEOs, marketers and policy makers to shed their old habit of relying on ineffective solutions like advertising and awareness-based campaigns and adopt Behavioural Design to change behavior effectively. It‘s the scientific way to change human behaviour.

Source for UK numbers – F.M. Streff and E.S. Geller – Strategies for motivating safety belt use: The application of applied behavior analysis – Health Education Research 1, no. 1 (1986): 47-59

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