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When customers don't act rationally v1.2

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Paul Laughlin
Paul Laughlin
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When Customers don’t act rationally Applying Behavioural Economics Paul Laughlin, Managing Director, Laughlin Consultancy © Laughlin Consultancy Ltd, not to be used without permission.
My background Customer Insight & Behavioural Economics © Laughlin Consultancy Ltd, not to be used without permission.
It’s not fair!
Behavioural Economics (BE)
A quick thought experiment Would you rather… A B Take a 50% chance of gaining £1,000 and a 50% chance of gaining nothing? OR Gain £500 for certain?
A quick thought experiment Would you rather… A B Take a 50% chance of losing £1,000 and a 50% chance of losing nothing? OR Lose £500 for certain?
10 irrational biases (FCA)
Present Bias
Reference Dependence and Loss Aversion
Emotional Drivers
Overconfidence
Over-extrapolation
Projection Bias
Framing, Salience & Limited Attention
Mental Accounting & Narrow Framing
Decision Making Rules of Thumb
Persuasion and Social Influence
Why is this relevant to you? Even when you treat them as individuals & target them accurately, your digital customers could be vulnerable to making poor decisions due to these biases. Do your customers… 1. …find your products complex & boring? 2. …need to make decisions based on assessing risk or uncertainty? 3. …need to make trade-offs between the present and the future? 4. …find these decisions emotional or fearful? 5. …lack opportunities to learn by making these decisions?
Spotting the ‘Dark Side’ FCA have stated they will use these as early warnings: • Rip-offs: Uncompetitively high margins • Suckers: Concentrated profits in small customer group • Bargains: Innovative products that appear very cheap • Traps: Contract features that often target BE biases • Regret: Reported or potential regret • Folly: Choices out of line with common sense • Confusion: Observed or likely confusion
Start with customer insight Customer Data Customer Research Customer Analysis Database Marketing Feel Experiences Test Hypotheses Converge Evidence © Laughlin Consultancy Ltd, not to be used without permission.
The power of eye tracking research
Generating & testing hypotheses Rational Choice Bias 1? Research Customer Need Analyse Actual Behaviour Bias 3? Bias 2? Test Mitigations Experimental Design Hypothesise Biases at work Hypothesise Biases at work
Can I help you? customerinsightleader.co m laughlinconsultancy.com @LaughlinPaul linkedin.com/in/paullaughlin paul@laughlinconsultancy.co m +44 (0)7446 958061 © Laughlin Consultancy Ltd, not to be used without permission.

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When customers don't act rationally v1.2

  • 1. When Customers don’t act rationally Applying Behavioural Economics Paul Laughlin, Managing Director, Laughlin Consultancy © Laughlin Consultancy Ltd, not to be used without permission.
  • 2. My background Customer Insight & Behavioural Economics © Laughlin Consultancy Ltd, not to be used without permission.
  • 5. A quick thought experiment Would you rather… A B Take a 50% chance of gaining £1,000 and a 50% chance of gaining nothing? OR Gain £500 for certain?
  • 6. A quick thought experiment Would you rather… A B Take a 50% chance of losing £1,000 and a 50% chance of losing nothing? OR Lose £500 for certain?
  • 9. Reference Dependence and Loss Aversion
  • 14. Framing, Salience & Limited Attention
  • 15. Mental Accounting & Narrow Framing
  • 18. Why is this relevant to you? Even when you treat them as individuals & target them accurately, your digital customers could be vulnerable to making poor decisions due to these biases. Do your customers… 1. …find your products complex & boring? 2. …need to make decisions based on assessing risk or uncertainty? 3. …need to make trade-offs between the present and the future? 4. …find these decisions emotional or fearful? 5. …lack opportunities to learn by making these decisions?
  • 19. Spotting the ‘Dark Side’ FCA have stated they will use these as early warnings: • Rip-offs: Uncompetitively high margins • Suckers: Concentrated profits in small customer group • Bargains: Innovative products that appear very cheap • Traps: Contract features that often target BE biases • Regret: Reported or potential regret • Folly: Choices out of line with common sense • Confusion: Observed or likely confusion
  • 20. Start with customer insight Customer Data Customer Research Customer Analysis Database Marketing Feel Experiences Test Hypotheses Converge Evidence © Laughlin Consultancy Ltd, not to be used without permission.
  • 21. The power of eye tracking research
  • 22. Generating & testing hypotheses Rational Choice Bias 1? Research Customer Need Analyse Actual Behaviour Bias 3? Bias 2? Test Mitigations Experimental Design Hypothesise Biases at work Hypothesise Biases at work
  • 23. Can I help you? customerinsightleader.co m laughlinconsultancy.com @LaughlinPaul linkedin.com/in/paullaughlin paul@laughlinconsultancy.co m +44 (0)7446 958061 © Laughlin Consultancy Ltd, not to be used without permission.