money

Turn customer insights into improvements

I love to share the lessons we learned. The Behavioural Design Sprint we did on ourselves is an excellent illustration of how outside-in thinking helped us turn our understanding of our customers into a dramatic improvement of our offering.

In the brief case study below, I will walk you through the key psychological insights, and how these insights inspired us to re-designed our processes to serve our customer’s needs better.

I will use the SUE | Influence Framework terminology to describe the most significant insights into how our customers think, feel, and behave. You can learn everything about the framework in the article “The SUE Influence Framework Explained“.

The Behavioural Insights

The opportunity

Based on the insights I described above, we realized we had to update our offering for the first time in 10 years. The new offering needs to provide a better answer the following behavioural opportunities:

• Piggy-bag on Comforts: How can we provide behavioural design value without interfering with our clients processes?
• Take away Anxieties: How can we lower the barrier to hire Behavioural Design Expertise? How can we provide value without deep effort or time investment from our client and their team?
• Solve Pains: How can we help our clients with understanding their customers, prototyping, testing their ideas, and add the magic layer of behavioural science onto their communication and marketing?
• Experience Gains: How can we get our clients to experience breakthroughs and success as quick as possible?
• Achieve Jobs-to-be-Done: How can we assist our clients into translating a deep understanding of their target audience into fast and clear improvements of their products, services, marketing, or policies?

The Key Behavioural Insight is that we learned that we needed to find ways to provide behavioural intelligence and value inside our customer’s projects and their way of working.

The solution

We came up with four simple new products. All of them aim to leverage Behavioural Design at the right time, at the right place inside the processes of our customers:

1. Behavioural Insights: Get a SUE Behavioural Design Expert to conduct in-depth interviews with your customers, prospects, or employees. Get the best interviewers to find the killer psychological insights into how your market things, feels and behaves. Get help when needed, or get monthly Behavioural insights updates on threats, opportunities, and low hanging fruit on what your customer needs and how you can help them
2. Behavioural Design Scan: Get a SUE Behavioural Design expert do a scan of your customer journey, communication, and competitors and get a hands-on-advice on how to make your communication much more compelling and persuasive
3. Prototype and test and refine your strategy: Get a SUE Behavioural Design expert to prototype, test and validate your strategy, campaigns, and innovations, and learn fast what works and how to get people excited.
4. Successful Implementation: Get a SUE Behavioural Design Expert to optimize and supercharge your marketing communication, using behavioural science as their tool.

Conclusion: Design for the problem

If we hadn’t done our interviews with our customers, we would never have understood that the biggest opportunity for SUE was to find a way to lower the barrier for getting Behavioural Design expertise. Understanding that the biggest barrier is that our customers have internal processes that can’t be overruled easily, was the key to rethinking how we can provide value without interfering with these processes.

We’re constantly learning, improving, and adapting, and we still have a long journey ahead of us. But I’m convinced it’s going to be a fun journey.

Tom De Bruyne

Behavioural Design Domains

The other day someone asked me for a proper definition of Behavioural Design. This is the best one I could come up with:

Behavioural Design is a structured method for turning deep human understanding into experiments for behavioural change. 

You can apply this method to basically every domain involving humans: customer behaviour, citizen behaviour, company behaviour, employee behaviour, market behaviour, family behaviour, etc…

If there’s one thing that 2021 taught us, it would be the total underappreciated importance of  understanding behavioural change. Governments around the globe have been struggling to find the right interventions to motivate their citizens into collective action to beat the virus. So many well-intended measures to ban COVID are being met with deep hostility or sheer indifference.

The behavioural design challenge of triggering collective action to beat the virus is the biggest behavioural design challenge of the year. But there are many more fascinating areas that could benefit greatly from Behavioural Design Thinking. Here is our list of 8 domains where behavioural designers can make a profound mark in 2022. In random order:

Challenge 1: Redesign Policy-Making and policy implementation.

The goal of policy-making is to influence the behaviour of stakeholders in society, from companies to citizens. However, the problem with many policies is that they are based on a poor understanding of how people actually behave. Quite often, bad policies are born out of moral judgements (e.g. ‘unemployed people are lazy’, or ‘deregulate companies and leave everything to the job creators’, or ‘you are guilty unless you can prove otherwise’ ).

Behavioural Design could both help in the design process of policies, as well as in the implementation phase. In the design phase, behavioural designers could advise policy-makers which interventions they should choose. More importantly, they can reveal both the intended and unintended consequences of each intervention and the perverse incentives that are often invisible to the policy-maker. In the implementation phase, behavioural designers could set up multiple pilots to determine which combination of interventions yields the highest results.

Challenge 2: Redesign Housing

We’re in the midst of a housing crisis. Abundant access to cheap capital, combined with high demand and tight rules for building, sparked a perfect storm on the housing market. Add to this the growing need for migrant workers and the resistance in many communities to build houses for them.

One of the biggest solutions is to think outside of the box: How can we re-think the way we build communities? How can we design flexible housing concepts that offer not only a roof and a bed, but also a sense of belonging and community? We urgently need to re-think the idea of home and inspire people to embrace these new ideas.

Challenge 3: Redesign Marketing and Sales

I think there are two major opportunities for behavioural designers in marketing and sales. The first one is to challenge the “customer-centric” mantra and replace it with “human-centred” thinking. Companies that aim to innovate in a customer-centric way could greatly benefit from Behavioural Design Thinking for having a far more granular understanding of the goals, barriers and problems of the user.

The second opportunity is to improve digital marketing. Digital marketing is obsessed with tactics and not with psychology. A better understanding of how the psychology of influence works could dramatically improve the quality of digital marketing.

Challenge 4: Productivity and Creativity

The Behavioural Design Method is a highly structured creative process to facilitate the seamless transition from insight to strategy to execution. By integrating research, strategizing, prototyping and testing in a step-by-step process, we are able to make meaningful processes at speeds that most teams are unfamiliar with. The Behavioural Design Sprint yields a 10x faster and 10x better result than a regular innovation process, where research, strategy, concepting and execution are seperate processes. Furthermore, the Behavioural Design Sprint contains rules and tactics that are deliberately designed to yield the highest levels of creative output from of a group.

Challenge 5: Redesign Finance

Regulators put more and more pressure on financial companies to use behavioural science for helping their clients make better financial decisions. Behavioural Science applied to finance is hot. Both our saving and our investing behaviours are deeply flawed and biased. And, by simply looking at the crypto ads at sports events, exploiting our irrational desires for easy money is a great business model. The business model of banks are also under attack by new digital disruptors. This fuels a lot their appetite for behavioural intelligence on how to attract and retain customer. 

Challenge 6: Redesign Healthcare:

Healthcare is booming. Parallel with radical innovation in biotech; we are also witnessing a boom in preventive healthcare. Helping people build exercise habits, healthy eating habits, losing weight habits, mindfulness habits, and the list of smart apps and services that promise salvation are endless. The holy grail of design and innovation in healthcare is to figure out how to help people overcome bad habits. And the number one behavioural challenge is to help them stick to the new routine. 

Challenge 7: Redesign Sustainability & Climate Action

We have been writing a lot about this topic lately. We all want to live on a healthy, sustainable, green planet. We all feel we need to do something, but we collectively don’t change our behaviour for the simple reason that we look around and don’t see other people changing theirs. This is what behavioural scientists call a coordination problem. There are many opportunities for behavioural designers to develop ways to nudge people into positive green choices. And to frame the sustainable option is the most attractive one. Our favorite example is the Beyond Burger. It doesn’t say: “We are a vegetarian hamburger”. It says: “We have created the juiciest burger ever. It’s beyond meat. Oh and by the way: It’s plant-based”.  

Challenge 8. Redesign Personal Wellbeing and Happiness 

We suck at doing the things that actually make us happy. We think we will get happiness from buying stuff, fulfilling our dreams and desires, and achieving success. But the science of happiness reveals something different. We increase our overall happiness levels from things like learning and experimenting, from having deep and meaningful relationships, from being surrounded by people who challenge us to become better, and from getting genuinely good at something. Happiness is mainly the effect of behaviour and context. We get happier by pursuing our curiosity. We get happier from surrounding ourselves with the right people. The science of happiness holds many promises for Behavioural Designers to set up experiments to explore and re-ignite their curiosity.

Summary

Tom De Bruyne

Wealth and status signaling

It’s always interesting to start our search for insights by looking at the behaviour of “extreme users“. Extreme users are people on both ends of the spectrum: One exciting category is people with modest incomes who became financially independent at age 32. An opposite group of extreme users are the investment bankers, with huge salaries who personally went bankrupt only two months after losing their jobs.

There’s only a slight correlation between how much you earn and how wealthy you can become.

Being rich is not the same as being wealthy.

Five behaviours that differentiate wealthy people from others. 

1. Spend less on stuff.

3. They understand compound interest. 

Albert Einstein once called compound interest the Eighth Wonder of the World. It’s pretty hard for people to understand the magic of compound interest. Still, the simple idea is that if you wait long enough, the accumulated interest on your interest grows exponentially. If you put 100 dollars per month on your investment account at an average of 5% interest and do this for five years, you will have invested 6000 dollars, but the compound interest would be 7573 dollars on top of that 6000 dollars.

That’s why having money in your savings account is such a terrible idea. Inflation decreases the value of that money over time, while low-interest rates don’t get the compounding effects to kick in. The most intelligent strategy is to maintain a savings account for unnecessary expenses and put everything you don’t need today in a long term investment fund.

4. They understand the power of default options.

Most people – like me – hate to think about money or get to deal with cash. Smart people set rules that would directly transfer the money they have left at the end of the month into their investment fund. This way, they don’t need to spend the mental energy to do the right thing. If the money’s there, it will be invested. If you had spent more money on other things, your investment contribution would be lower for a month.

5. They are hyper-rational in times of stress.

Being hyper-rational means, you will have to learn to get comfortable with loss. Morgan Housel from ‘The Psychology of Money” wrote:

The S&P 500 increased 119-fold in the 50 years ending 2018. All you had to do was sit back and let your money compound. But of course, successful investing looks easy when you’re not the one doing it.

“Hold stocks for the long run,” you’ll hear. It’s good advice. But do you know how hard it is to maintain a long-term outlook when stocks are collapsing? Like everything else worthwhile, successful investing demands a price. But its currency is not dollars and cents. It’s volatility, doubt, uncertainty, and regret – all of which are easy to overlook until you’re dealing with them in real-time.

The market is performing lower than a previous all-time high peak most of the time. In that period, you are losing money. But if you wait long enough, you will have outlived enough market peaks to make a great return. All you need to do is to keep your nerves and stay patient.

One of the worst ideas is to look at the performance daily through all these new apps. They will make you nervous, and you’ll be inclined to act and make terrible financial decisions.

Tom De Bruyne

Cover visual by Executium on Unsplash

1. The macro forces: What are the trends I can tap into?

The world is changing at an accelerating speed. It took only 66 years between the first flight of the Wright brothers and Neil Armstrong, setting the first step on the moon in 1969. It only took 30 years for China to transform from a developing country into the biggest economy in the world. The iPhone is only 14 years old, kickstarting an era of ubiquitous access to knowledge, services, social capital and radical new ideas for commerce, creating companies like Uber, Netflix and Amazon.com. Over the past few decades, China alone has lifted hundreds of millions of citizens to become part of the middle class. And middle-class people want stability and want to consume, travel and be entertained. 

These macro forces have an enormous impact on behaviour change.

If you want to introduce an innovative offering into the market, it matters a lot if you’re able to tap into these trends.

If you are Carsharing company Sharenow, it matters a lot if you can tap into a big inner-city market of people who don’t own a car and feel perfectly comfortable hiring and unlocking one with their smartphone. What seemed unfamiliar five years makes perfect sense today. We’ve seen an interesting trend in the Netherlands during COVID of families leaving the metropolitan cities and moving into the countryside or smaller communities. This trend is an exciting opportunity to tap into e-bikes and electric cars. Another emerging trend that COVID accelerates is that every entrepreneur is thinking hard about designing the optimal environment for combining physical presence with distributed working. 

When you think about introducing a new product or service into the market, it’s vital to understand the trends. Successful innovators understand that demographic, technological, cultural and economic trends generate new opportunities.  

2. Meso-Forces: What are the needs I can tap into?

The second category of forces that shape behaviour are needs and motivations. They drive behaviour in unconscious yet essential ways. All of us have deeply rooted desires: The desire for love, recognition, competence, social status, belonging, adventure, purpose, protection and excitement. Every brand in the world taps into these deeper needs: 

• BMW taps into the desire to project masculinity and social status
• Volvo taps into the desire for security and protection
• Beer brands all tap into the desire for friendship and connection
• Business schools tap into the desire for competence and social status.

There’s a saying in Silicon valley that every successful tech company taps into one of the seven deadly sins. Understanding these drivers, motivations or Jobs-to-be-Done is essential for designing interventions for behavioural change. If you can’t tap into an existing desire, your intervention will probably fail. The Behavioural Design Canvas is a great tool to uncover these forces. 

3. Micro-Forces: What are the biases I can tap into? 

The third category of behavioural forces is micro-forces. Let’s suppose you uncovered a behavioural trend (say: middle classes flock to cities in hordes and can’t afford a car). You also crafted a proposition that taps into a deep desire (e.g. you offer luxury electric vans to go on weekend trips in the countryside to fulfil the desire for adventure and social status).

The big question from a behavioural change perspective is now: How do I trigger people to buy what I’m offering?

To become successful, you will need to find ways to get people to see the message, boost the motivation to try it, reduce doubts and uncertainties and make it as easy and frictionless as possible to order it. In the case of our electric van, you will boost motivation through social proof, reduce anxiety by demonstrating the comfort of sleeping in the vehicle in a demo video or guaranteeing 24/7 support, including insurance. You might want to look for hot trigger moments and advertise on billboards near busy roads, where traffic jams increase people’s motivation for escapism.

For this layer, a great tool to think about designing interventions is our SWAC-tool. In the SWAC-model you will find many principles from the science of influence to spark behaviour (S), to boost the desire to want (W) something, to help people to be able, so they can do it (C), and make them do it again and again (A).

Summary

Tom De Bruyne

Cover visual by Kelly Sikkema on Unsplash.

Mental accounting: How humans violate the economic theory

Why mental accounting is so fascinating is that it simply explains why 1 euro isn’t always 1 euro. From an economic theory perspective, this might sound foolish. The value of 1 euro and another euro on the same day is equal. We have a whole international money rate system in place that can tell you the exact worth of your euro at any precise point in time. In four digits. Also, economists believe that it shouldn’t matter if you have a 100-euro banknote or five 20-euro banknotes. It is the same amount of money, and you will spend it the same way; after all, they are exchangeable. However, psychological research has shown that humans often violate this rational approach to money. 

This works may be easiest explained by an example described in the landmark paper of Richard Thaler (1), the author of the influential book ‘Nudge‘ and a Nobel prize laureate. Let’s say you have bought a ticket to a concert and it cost you 50 euros. You made your way to the concert venue, you have dressed up nicely, you have arranged a babysitter, and if you say so yourself: you look good. You are more than ready for the evening out that you have anticipated for weeks. You get to the entrance, reach into your pocket to find out that you have seemed to have lost your ticket. After going through all the stages of grief: denial, pain, anger, depression, acceptance, finally, hope kicks in as you see the ticket booth is still open. You quickly head over to the ticket booth to find out you don’t get your ticket reimbursed but have to pay another 50-euro for a new ticket, which is luckily still available.

Okay, same scenario, but just a bit different. You want to see that same concert, again you dress up nicely, sprayed on a bit of cologne because it is a special night out, after all, the same babysitter is there to attend to your kids, and you head over to the concert venue. When you go over to the ticket booth to buy yourself a ticket, you realise the 50-euro banknote you had put in your pocket to pay for the ticket fell out. After almost panicky going through all your pockets, reality sinks in. The 50 euros are gone. Luckily, the time tickets are still available; you have to get out another 50 euros to buy the ticket. 

The interesting question is would you do so in both situations? From an economist perspective, the exact same situation: You have lost 50 euros, and you have to pay another 50 euros to attend the concert. So, there shouldn’t be a difference in the decision you make. However, Thaler’s research found that people in the first scenario are far more likely not to buy a second ticket, whereas people in the second scenario do. 

If you lose cash, it turns out you’re willing to buy a ticket. If you lose a ticket, you do not want to buy a second ticket.

Mental accounting: What is it, and how do people do it?

Mental accounting explains this story. What is mental accounting? It is the idea that people tend to label money. And the moment you label money differently, it gets spent differently. 

People tend to label money. And the moment you label money differently, it gets spent differently.

 So, how do people mentally account? Well, there are several different ways in which people put money into different psychological categories: 

1. You could mentally account by purpose. You can allocate money to a specific product or service, or objective. This is what happened with the concert ticket. It was assigned to the concert, losing the ticket felt we had lost out on the concert in our mental account. You think you are already in the ‘red’. You are not going to make it worse by spending even more money on the same product. But allocating money to savings is another way to mentally account by purpose.
2. You could mentally account by time. You could say I will spend X amount per week or budget that many euros each month.
3. You could mentally account as a function of how you have earned money. If you have put in many hours of hard work to make your money, you will spend it differently if you have earned it by winning a lottery. 

Mental accounting: The sunk cost effect

Let’s take a look at another way mental accounting influences our behaviour. Let’s get back to the concert. Let’s say you have the ticket, only this time there is a difference in how you acquired that ticket. In the first scenario, you have prepaid for it; in the second scenario, the ticket was a gift. Imagine this situation, on the evening of the concert, there is this raging blizzard storm, and the concert is a two-hour drive away from your home. Would you go to the concert in both scenarios? If you would rationally think about it, you wouldn’t go in both situations. It is much safer to snuggle up comfortably on your couch. However, most people who have prepaid the ticket will make an effort to drive a few hours through a blizzard storm to attend a concert that they (only) paid $20 for. This is caused by a phenomenon known as sunk cost fallacy. 

If people have spent effort, time or money on something, they will commit to the behaviour related to it; otherwise, they feel they lose out.

The moment you spend money to consume something in the future, our sunk cost effect of mental accounting kicks in. The moment you prepay, you have a deficit in your account. If you cannot consume, then you have to close your account in red. It’s like making a loss. People don’t like making losses, so they rather get what they paid for than perhaps make a better decision not to consume something. For example, if people spent 60 euros on a four-course dinner, but they are already full at the third course, most of them will eat dessert anyway. I paid for it! It feels like a loss not to go or not finish all your plates.

Another example made famous by Richard Thaler is about a man who joined a tennis club and paid a $300 membership fee for the year. After just two weeks of playing, he develops a case of tennis elbow. Despite being in pain, the man continues to play, saying: ‘I don’t want to waste the $300.’ (2)

The sunk cost effect becomes a huge motivator of consumer behaviour.

However, the intensity of the sunk cost effect isn’t always the same; it depends on how closely the cost and benefit are connected. Let me give you an example of how this works. Let’s say you love skiing and you have booked yourself a trip to the French Alps. You got yourself a four-day ski pass giving you access to all the ski lifts for the four days at the costs of € 160. You enjoyed the first three days, and then all of a sudden, the weather conditions change dramatically: Big snows, fog, heavy winds. No skiing conditions that will bring joy. The same scenario, but now you have bought four separate tickets of € 40 with which you can hit the slopes for four days. In which situation would you go out skiing on the fourth day?

This was researched (3), and it showed that people who bought the one ticket would be more prone to stay in. However, the people who had four separate tickets were far more inclined to go out and ski anyway. They felt the €40 burn in their pocket (cost) and want to experience the benefit (skiing). The all-inclusive ticket is, in fact, a form of price bundling. This leads to a ‘decoupling’ of costs and benefits. The effect being it reduces someone’s attention to sunk costs and decreasing a consumer’s likelihood of consuming a paid-for service. In other words,

Price bundling affects the decision to consume.

Now, it becomes interesting how we can use these insights to design for better choice and positive behaviour.

Mental accounting: Using it for better decision-making

Being aware of the human tendency to engage in mental accounting and being affected by the related sunk costs effect can help us develop behavioural interventions that can help people make better decisions. I want to end this blog post with an example of how this might work. 

A lot of people find it challenging to spend less money than intended. You can make this easier for them by partitioning. How does it work? Let me illustrate this with a real-life example that took place in India. In India, there are quite some low-income households with very little spare cash. Salaries are often paid in cash, making it very easy for family providers to spend it, for instance, in the bar, after a hard days’ work. Still, people also needed money for the children’s upbringing, for example. 

Those households typically earned 670 rupees per week (£6,60 or $11,20), and most families only managed to put aside 5 rupees per week (0,75%) (4). The intervention they did is divide the money into envelopes before handing it over to the beneficiary and partitioning it beforehand. It increased the savings rates to 4% (27 rupees per week)(5). What made it even more successful is putting a visual reminder on the envelopes. So, for example, a picture of their children on the envelope contained money for their upbringing.

You could also use this for yourself. We are also more reluctant to spend money we have already mentally allocated for savings. You can distribute very physically, like the envelopes, but think about labelled jars in which you divide your household money. Viviana Zelizer, a sociologist at Princeton, calls this ‘Tin Can Accounting’ (6). The more digitally savvy translation of this is the digital saving buckets many banks offer nowadays, in which you can allocate your savings to specific goals. It will be harder to withdraw money from an ‘ultimate wedding dress’ or ‘summer family holiday’ bucket than from a general savings account.

Summary

We, as humans, often make very emotional decisions when it comes to money. It largely depends on how we have earned, labelled or how our money is kept, how we will treat money and how we value what we bought with the money. This largely influences our behaviour. A euro isn’t always a euro, and a dollar not always a dollar. It may sound illogical, but it will make perfect sense once you understand the concepts of mental accounting and the sunk cost effect. We need to take these psychological phenomena into account if we want to help people make better decisions.

Astrid Groenewegen

Cover visual by Kelly Sikkema on Unsplash.

References:

Thaler, R. H., & Sunstein, C. R. (2008). Nudge: Improving decisions about health, wealth, and happiness. Yale University Press.

(1) Thaler, R. H. (1999). Mental accounting matters. Journal of Behavioral Decision Making, 12, 183-206.

(2) http://www.eief.it/butler/files/2009/11/thaler80.pdf

(3) Soman D, Gourville JT. Transaction Decoupling: How Price Bundling Affects the Decision to Consume. Journal of Marketing Research. 2001;38(1):30-44.

(4 & 5) Soman, D., & Cheema, A. (2011). Earmarking and Partitioning: Increasing Saving by Low-Income Households. Journal of Marketing Research, 48(SPL), S14–S22.

(6) Bandelj, Nina, Wherry, Frederik, Zelizer, Viviana (2017). Money talks, Explaining how money really works. Princeton University Press.

Photo by Fabian Blank