Cost Savings – Page 2 – Behavioural Design

Organizations have bad habits too (and they can be changed)

Published December 1, 2015 by Anand Damani

“Individuals have habits; groups have routines. Routines are the organizational analogue of habits”, wrote Geoffrey Hodgson, who spent a career examining organizational patterns. And as we know habits can be good or bad. Not just that, they can be dangerous, because while performing routines, employees yield decision-making to a process that occurs without actually thinking, automatically – habit.

Paul O’Neill who is known to have turned around the fortunes of a company called Alcoa – Aluminum Company of America understood this really well. Alcoa was going through troubled times when it hired Paul O’Neill as CEO. Investors, executives and workers were unhappy. Quality was suffering. And competitors were stealing customers and profits.

O’Neill believed that some habits have the power to start a chain reaction, changing other habits as they move through an organization. These are keystone habits. The habits that matter the most. These are the ones that, when they start to shift, dislodge and remake other patterns.

So O’Neill figured he needed a focus that everybody – unions and executives – could agree as being important, so that he could bring people together. He said, “So I thought everyone deserves to leave work as safely as they arrive, right? You shouldn’t be scared that feeding your family is going to kill you. That’s why I decided to focus on: changing everyone’s safety habits.” So he made SAFETY his top priority and set an audacious goal for a manufacturing company of that size: zero injuries.

The approach was brilliant because unions had been fighting for safety rules for years. And managers were happy since injuries meant low productivity and low morale. What most people didn’t realize was that O’Neill’s plan for getting zero injuries entailed the most radical realignment in Alcoa’s history.

According to O’Neill’s safety plan, any time someone was injured, the unit president had to report it to him within 24 hours and present a plan for making sure the injury never happened again. The reward: people who got promoted, were those who embraced and cracked this system.

If unit presidents had to contact O’Neill within 24 hours with a plan, they needed to hear about the accident from their vice presidents as soon as it happened. So vice presidents had to be in constant communication with floor managers, who in turn needed to get workers to raise warnings as soon as they saw the problem. Meanwhile in those 24 hours everyone in the chain had to generate a list of suggestions for their immediate superior, so that there was an idea box full of possibilities for the unit president to choose from. This changed the company’s rigid hierarchy as communication had to make it easy for the lowliest worker to get an idea to the loftiest executive, as fast as possible.

As Alcoa’s safety patterns shifted, productivity skyrocketed, quality improved, costs came down and autonomy improved. If molten metal was injuring workers when it splashed, then the pouring system was redesigned, which led to fewer injuries. It also saved money because Alcoa lost less raw materials in spills. If a machine kept breaking down, it was replaced, which meant there was less risk of broken gear snagging an employees arm. It also meant higher quality products because, as Alcoa discovered, equipment malfunctions were a chief cause of subpar aluminum.

By the time O’Neill retired after 13 years, Alcoa’s annual income was five times larger than before he arrived. Its market capitalization had risen by $27 billion. Alcoa became one of the safest companies in the world – the keystone habit that changed it all.

Source: The Power of Habit by Charles Duhigg

There’s a big difference between Rs. 499 and Rs. 500

Published May 16, 2016October 6, 2015 by Anand Damani

Even though you know on a conscious level that there is no important difference between those two numbers, our perception of them is radically different because our brain is not very good at equating those digits with a real world quantity. One study suggests it’s because our brain is reading the price like it reads everything else: left to right. It puts a higher value on the first thing we see so no matter what comes after that, we still wind up relating it to the first digit. No matter how much you tell yourself otherwise, Rs.499 still registers as “in the Rs.400 range” rather than “essentially Rs.500.” Or $4.99 still registers in the 4 range than 5.

In one of the most telling experiments, Rutgers University professor Dr. Robert Schindler and his colleagues did a real-life test with a women’s clothing catalog few years ago. The clothing line normally advertised items ending in 99 cents. For the experiment, the researchers divided the 90,000 customers into three groups. One group got catalogs with the traditional prices, one got prices ending in .00 and one got prices ending in .99. The 99-cent catalog significantly outperformed the .00 one, Dr. Schindler said, recording 8 percent higher sales even though the average price decrease was only three-hundredths of a percent.

A 99-cent ending “makes the price ‘feel’ less,” Dr. Schindler said, “and it goes deeper than just appearances. If you give people two ads for a blouse, one priced at $22 and one at $21.99, people are more likely to judge the $21.99 item as being on sale. “And there’s an emotional kick to getting a discount that makes a difference to consumers.”

Retailers also look at 99-cent pricing from the opposite direction, said Britt Beemer, chairman of America’s Research Group, which interviews up to 15,000 people a week to gauge consumer behavior and marketing techniques. “Let’s say your item is $49.99 vs. $49,” Mr. Beemer said.

“There is no perceived difference for most consumers between the two. The consumer looks at the dollar number and forgets the right-hand digits.” From the seller’s standpoint, then, the $49.99 price can yield them almost one extra dollar for each item, with no perceived difference in the price on the part of the buyer. Pretty handy for the US economy, I must say.

Having said that I think that premium retailers and brands, that don’t wish to be associated as a discount label, should have their prices end in round numbers because that will perhaps speak of ‘quality’ more than ‘discount’. What do you think?

How to get men to wash hands post using the toilet

Published June 10, 2020June 17, 2015 by Anand Damani

A study by Carl P. Borchgrevink, an associate professor at Michigan State University found that only half used soap and 15 percent didn’t wash their hands at all after using the toilet. This study was done in US. Imagine the situation in countries like India! Another study found that compliance rates for hand washing in American hospitals amongst doctors and nurses are only around 40 percent, and years of awareness programs urging doctors to wash up or use disinfectant gels have had little effect.

Not surprising. Men are inherently lazy and forgetful. Washing hands with soap takes more effort than doing nothing. Leave alone the time duration required for washing hands with soap for it to be effective. And the act of peeing is so easy for men that it may not register as a way of spreading germs.

But here’s a solution that’s likely to get men to wash their hands after relieving themselves. A designer named Kaspars Jursons from Latvia, has come up with a simple and beautiful Behavioural Design called ‘Stand’ that’s a sink cum urinal. Men can relieve themselves and wash hands conveniently standing right there, save water by not requiring to flush separately, save time by not heading to the basin which in many restrooms is on the other side and save more time by not waiting in queue to use the wash basin. It also saves space. The tap is hands-free activated by sensors, so there’s no effort required there as well. A built-in soap dispenser also activated by a sensor would make the design complete.

Is it a little too close for comfort? Well we’d prefer to shake hands with men with clean hands.

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)

When more choice leads to lower sales

Published January 13, 2015 by Anand Damani

You may be thinking what a crazy thing to say. After all, which marketer doesn’t benefit from more choices? Take a look at ice-cream parlors. When we visit them we’re often faced with varieties of flavors from chocolates to mint to fruits to natural essences to dry fruits, with so many variants within each flavor depending on the parlor we visit. And the more extensive the varieties of flavors, the better publicity the parlor could generate and could even make it a unique feature of the brand. Moreover the consumers also get to enjoy sampling and choosing the flavors they would like to try. Offering such an extensive choice is helpful when consumers are likely to know exactly what they want and are simply looking for a store or business that supplies it.

But few product categories and companies find themselves in the position of having hordes of consumers salivating at the opportunity to choose from their wide selection of goods and services. More prevalent is the case, that consumers don’t know precisely what they want until they have surveyed what’s available. Take the example of mutual funds in India. There are more than 40 companies providing them with over 4000 schemes to choose from. Now imagine the error-laden short cuts that consumers must be taking to make their choice, if they haven’t already been overwhelmed in the first place.

Behavioural scientist Sheena Iyengar and colleagues Huberman and Jiang analyzed retirement programs of 8,00,000 workers in the US and found that the more choices that were offered, the less likely the employees were to enroll in the program at all. To mention one specific comparison, they found that when only 2 funds were offered, the rate of participation was around 75%, but when the 59 funds were offered, the participation rate dropped to about 60%.

When so many choices are made available, to consumers who don’t know exactly what they are looking for, they find decision-making frustrating due to the burden to having to differentiate so many options to be able to make the best decision. This results in disengagement from the task at hand, leading to an overall reduction in motivation and interest in the product.

In another experiment Sheena Iyengar and Mark Lepper set up a display at a supermarket in which passersby could sample a variety of jams that were made by a single manufacturer. Either 6 or 24 flavors were featured at the display at any given time. Results – only 3% of those who approached the 24-choice display actually purchased any jam. In comparison 30% bought when the choice was between 6 flavors.

If you are in a similar situation or sell many variations of your product, you may want to consider a reduction in the number of options provided by your business in order to increase your sales. Other healthy side-effects could also include reduction in marketing spends that support a smaller portfolio, reduced spending on raw materials, more storage space, etc.

Sources: S.S. Iyengar, G. Huberman and W. Jiang – How much choice is too much? Contributions to 401(k) retirement plans – Pension design and structure: New lessons from Behavioural Finance, Oxford University Press: 83-94 (2004)

S.S. Iyengar and M.R. Lepper – When choice is demotivating: Can one desire be too much of a good thing – Journal of Personality and Social Psychology, 79:995-1006 (2000)

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.

People Power video (2min)

Published February 11, 2015November 7, 2014 by Anand Damani

Our experiment People Power in which we got people to reduce power consumption at no cost, explained in under 2 minutes. To know about the power crises in India and the details about the experiment please click here.

People Power has been featured in Fast Company, The Times of India, DNA and has got more than 1,50,000 views on The Logical Indian.

People Power – Our second behaviour change experiment

Published February 11, 2015August 26, 2014 by Anand Damani

Power Crisis in India

India currently suffers from a major shortage of electricity generation capacity, though it is the world’s fourth largest energy consumer after United States, China and Russia*. A 2012 report by the IEA estimated that nearly 25 percent of the population lacks basic access to electricity, while electrified areas suffer from rolling electricity blackouts.

McKinsey reports that the residential consumption will grow at 14% over the next 10 years, requiring India to generate power five to ten fold compared to what was generated in the last 10 years, putting a huge strain on power generation in India.

While increasing power generation faces many issues, one way we can reduce the power gap is through conservation.

Ineffective education-based campaigns

Many educational energy conservation campaigns and messaging like ‘Keep your AC at 24°C’, ‘Switch off appliances when not in use’, ‘Save electricity, Save money’ or ‘Be a good citizen’ or ‘Save the planet’ are being tried by different organizations and people across India, but none have proved to be successful at getting people’s to reduce their electricity consumption. Educational campaigns often don’t lead to action because they rely on an outside entity that warns you of the dire consequences of your behavior or tells you what is the ideal way of behaving. And that often makes people defensive, because we never see ourselves as the ‘bad’ people who waste electricity. Moreover several scientific studies have proven that we humans are often not aware of our own behaviour. Its like we know that we should not overeat, but we do so quite often.

The 6-month long experiment

So instead of relying on traditional thinking, we implemented a study (with modifications) done in California by Schultz and colleagues. We conducted our 6 month long experiment amongst 98 households across posh residential societies in Bandra-Khar, Mumbai, India. Permission of the Secretary of each residential society was taken to conduct the experiment. We collected the households’ electricity bills before they reached each member’s house. We then calculated the average bill amount in that particular society. Lets say the average was 1022 rupees. For all above average users, we put a stamp stating that the average in that society is 1022 rupees. Next to their above average amount, we put a frownie indicating that they could do better. The bills that were below average were delivered without any intervention. The households were not informed about this experiment.

The results of the experiment

The units consumed by the household in the month was taken as the measurement of electricity consumption. And reduction in electricity consumption was a measure of units consumed in the month compared to units consumed in the same month last year.

Over a period of 6 months, the average reduction in unit consumption by above-average users was 1.33% compared to an average increase of 6.02% in unit consumption by non-stamped users.

1.33% reduction on a national scale can power 17,465 villages for one year.

Over this period of 6 months, we found an average of 50% of above-average users (stamp intervention group) reducing their electricity consumption, compared to an average of only 39% of non-stamped users (no intervention group) reducing their electricity consumption. The base rate for above-average users was lower before the experiment began.

The behavioural science behind the effectiveness of People Power

Human behaviour is contagious. We often look at how others around us are behaving and act accordingly. We go along with the crowd to avoid social exclusion. Though we may not be aware of the degree to which we’re socially influenced.

In fact we people don’t see ourselves as easily influenced by those around us. If we were to ask people what would make them change, we suppose they will rank “what others are doing” last. But when we tested what really works, following the herd has proven to be very persuasive.

In the experiment, we didn’t tell anybody what to do. We just told them what people like them were doing.

And when we check out the typical electricity bill, we see that it’s a disaster of line items. So we contextualized information in a way that was motivating for people to conserve power. The information provided by the stamp let the above average users know how much their neighbors were consuming. That set the social norm and got them to reduce their power consumption.

People Power – A simple intervention that gives people the power to make a big difference at no cost.

People Power has got featured in Fast Company, The Times of India, DNA and has 1,50,000+ views on The Logical Indian.

Sources:

People Power is based on the study by Schultz, P. Wesley, Jessica M. Nolan, Robert B. Cialdini, Noah J. Goldstein and Vladas Griskevicius, “The Constructive, Destructive, and Reconstructive Power of Social Norms”, Psychological Science 18 (2007): 429-34

*EIA – U.S. Energy Information Administration Report updated March 18, 2013; Wall Street Journal 2 Jan 2012 and McKinsey’s report, ‘Powering India – The road to 2017’

Calculation of 1.33% on a national scale can power 17,465 villages – [Total energy (in GWh) consumed in India = 852903 (as per Govt. of India, CEA, July 2013). 1 Gwh = 10,00,000 kwh.Total energy (in kWh) consumed in India = 852903000000. Per capita consumption of energy (in kWh) in rural India (y) = 100 (Ministry of New and Renewable Energy, Govt. of India 2012 and World Energy Outlook 2011, IEA). 1.33% of Total energy (in kWh) consumed in India (x) = 11343609900. Total rural population that can be served with 1.33% of energy savings (x/y) = 113436099. Divide the result by 5 and we get number of rural households = 22687219. According to the 2011 census of India, 68.84% of Indians, around 833.1 million people live in 640,867 different villages. So average population per village comes to 1299. Divide the above result (22687219) by 1299, we get number of villages = 17,465.]

Bonus: Check out one of the most famous experiments in studying conformity under group pressure – the Solomon Ash experiment here.

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

Get more work done from home

Published February 21, 2014February 17, 2014 by Anand Damani

Working from home means no pressure of deciding what to wear to work, no skipping breakfast due to hurrying up, no traffic jams, no wasting fuel, no pollution, no wasting time, no wasting money, no late-punching into office, no unnecessary meetings, no pointless brainstorms, no fake smiles, no sucking up, no monkey business. On the contrary working from home means having personal space, being at ease, improved focus and concentration, better ideation and greater creativity.

Christine Durst, founder and CEO of Staffcentrix and author of two books on the subject of telework, says the benefits start with basic cost savings from travel, real estate and utilities to areas such as recruiting and retention — and, yes, productivity. (Since 1999, Staffcentrix has designed and delivered a variety of training programs for such clients as the US Department of State, Air Force, and Army).

Durst says that telework programs can reduce absenteeism and tardiness, and even curb stress-related illnesses. But the one thing she hears again and again from remote employees is that they simply get more done.

Yet very few companies encourage their employees to work from home. We understand its natural for employers and bosses to wonder if you are really working or dozing off at home. But as long as you deliver quality output in the timeframe agreed, should it matter?

However like any other change, it’s going to be met with resistance by your company. So in order to lower the resistance, we think companies could do with 3 helpful interventions. One, companies need to have a clear formal policy on remote working, so that all employees know what’s appropriate and what’s not. Two, they need to provide employees with proper tools for remote working (laptop, internet connection & mobile) not just to ensure smooth work, but also so that managers can communicate with employees in a variety of ways and three; they could start a pilot by choosing result-driven individuals with good communication skills (and perhaps no kids), working remotely for 1 day per week and test it, rather than rely on conventional ways of decision-making i.e. over-analyzing whether it’s a good idea or not and not testing it.

Do also read Richard Branson’s take on it here.

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