Published: September 17th 2016
Written By : Ronak Pol
If you are a consumer in today’s world, chances are you are being nudged into purchasing products and taking decisions that you would otherwise not have. These nudges can come from governments who use inherent behavioural biases to aid better policy acceptance or corporates who use visual cues to effectively sell their products. Behavioural research in past has also been used to influence political outcomes – during the 2012 American Presidential Election effective last mile strategy was used by President Obama to target undecided voters who were likely to be persuaded into voting for him.
A lot of economic problems are behavioural in nature, consumer theory with its rational decision-making consumer is filled with shortcomings when applied directly to formulate policy. Over the years we have tried to solve the problem through a supply sided approach hoping that providing facilities would help solve problems. But time and again policies have failed to address the key behavioural issues that stop people from using the infrastructure provided. While corporates have been able to exploit all the data that is generated every day and formulate strategies that help them sell their product better.
This is a two-part series where we first cover how Corporates are using behavioural research in the form of big data to influence your purchasing decision and in the second part, we will talk about how Government will use your behavioural biases to make more effective policy.
Corporates and their big data.
If you are an individual who is into sales, marketing or Big Data chances are you already know what I am talking about. Companies are using their informational advantage to formulate marketing and sales strategies that help target customers who are more likely to purchase their product & this is how they do it.
There is a simple experiment I would want all of you to do with me to understand the entire process better.
Step 1: Open any of your online shopping app/website (preferably amazon) and find a product that you like,
Step 2: Add the product to your shopping bag/cart and now proceed to check out. But stop- don’t pay! I don’t want you all buying the new iPhone yet so stop just before the payment page.
Step 3: Exit the app and wait for big data and algorithms to work their magic.
Chances are in the next 10 minutes you will receive and email asking to complete the payment you just left half way (This is strike 1 ) ignore the email.
The next nudge is going to come in anytime in the next 24 hours,chances are you get an email that sends you a curated list of products similar to the one you were just going to buy (This is strike 2).
Some services will go a step further and send you a limited period 10-50% off coupon that you can use while you complete your order (This is strike 3).
Most people are sold by this point, but if you have resisted then things will start getting interesting depending on how big of a company you are dealing with. Suddenly you will find a curated list of items very similar to the one in your cart compiled for you and waiting when you open the website again. Chances are your list will have products highlighted in a way that they pop, this is called using colour psychology.
If you want to have more fun just hang in tight and don’t buy. Open your Facebook or Instagram account and keep scrolling till you come across an advertisement from Amazon. If your online shopping account (eg. Amazon) and your Facebook account are linked you are going to find amazon adds curated according to the item in your cart waiting for you in one of those adds suggestions (Don’t trust me? – try it!).
This just a small example to show you how Big data is being used to effectively nudge you into buying more. An increasing amount of consumer data is generated every day that is used to create your digital image that algorithms can use to curate choices for you, every online purchase you make from books to movies helps create a digital image of you. Even the pages that you like on Facebook dictate what feed you receive on your wall; hence liking the EconPolitics facebook page is an amazing idea! – it will help make you a part of a larger community (CLICK HERE TO LIKE).
More information is always good for the company, it helps them curate better offers to nudge people into buying a product. As the article by Alain Samson on Behavioraleconomics.com points out, knowing the exact reason for stopping a step before you buy the product can help the seller strategize in one of these three ways.
- If the deferral is mainly the result of simple procrastination or inertia, use scarcity appeals, such as limited time offers.
- If it’s about fear of making the wrong choice (regret aversion), offer a guarantee.
- If the deferral is due to confusion or choice overload, help customers by simplifying their decision-making.
If you closely look at the 3 points mentioned they roughly translate into the offers we received, the 1st email we get is trying to tackle consumer procrastination. The curated list that is part of the second email is an attempt to simplify your decision-making problems while giving you a coupon that’s valid for next few hours is using scarcity to encourage you to buy now!
Companies having all this data is not necessarily a bad thing. They use this data to create products that are better suited for you, they curate a list of products that compliment your purchase so that it is easier for you to navigate and help make your life easy.
Companies having all this data is not necessarily a bad thing
But this is where things get sketchy, chances are the news that you read is also curated for your opinion. Only articles and viewpoints that you are leaning towards make their way to your news feed because the system knows what you like based on your viewership history. Based on the topics you choose when you signed into your account and people you follow the website designs a set of articles that you would like to read and excludes everything else. This translates into news that panders to our views and takes away the holistic view from the topic. You are fed with articles that reaffirm your bias as you will never be exposed to the other view. This is serious problem, but not in the scope of today’s article
Finally, I would like to end by saying – make sure you are aware of these nudges and are able to use them effectively for personal benefit. Try to avoid falling prey to such nudges and avoid wasteful purchases. But even if you do end up buying wasteful stuff, you don’t need then don’t worry, ebay is ready to nudge you into selling!
In the next article, we will explore how government can use these behavioural nudges to make more effective policy.