Your customers are irrational. They may like to think they are logical, but they are not. This applies in both the consumer and business to business environments. For years people have fought against this irrationality and assumed customers make rational decisions, but they don’t.
You have a choice; you can either stick your head in the sand or embrace this change.
Let’s first take a closer look at what each of these provides to the marketer:
Behavioral Economics can be defined as the new marketer’s science of choice. In basic terms, it looks at people’s behavior and the effect this behavior has on money/revenue. The study of behavioral economics explores why people make the decisions they do as customers, especially when the decisions they make aren’t in their best interest. It looks at the systemic biases we share as humans that are influenced by our cognitive processes and emotional influences. Some experts have described it as blending “insights of psychology and economics.”
Consumer Psychology studies why people buy things. Using psychological principles, consumer psychology seeks to understand why people choose what they do and how marketing influences those decisions. It also explores how external stimuli convince people to purchase products and services. Using research on consumer behavior, consumer psychology examines how marketing messages work with an individual’s sense of identity, social status, and decision-making influences. Most experts agree that we are irrational beings, especially when we shop, so consumer psychology wants to analyze the causes of this behavior, both internal and external.
Customers Are Irrational
Customers make irrational decisions all the time. From what brand of toothpaste they buy, to the car they drive, to the restaurants they choose, we buy emotionally and then justify with rationality afterwards.
Whenever I talk about this concept, I think of buying my Lincoln Navigator a few years back. I liked the car and wanted to buy it. However, since it was a significant purchase, I figured I should spend extra time weighing my options to arrive at the best decision. I made a spreadsheet, as all good rational-thinking people do. I had items like cost, maintenance, lease options, and even resale value included in the spreadsheet. I compared different makes and models I was considering. In an amazing coincidence, the Lincoln Navigator won the comparison! Sure, I had gone through the motions of rationality, but the fact is, I wanted the Navigator. The spreadsheet merely justified my emotional (and irrational) purchase for me.
Maybe you disagree. Maybe you think I am an anomaly and that we make rational decisions most of the time. However, if this was true, if we always made rational buying decisions, then how do you explain this?
Clearly, not a lot of rational thought processes went behind each of these purchases!
Of course, I’m being silly, but only to make my point. Rationality does not drive our behavior as customers. As it turns out, economists noticed this fact, too.
Success In Customer Experience Requires New Thinking
For many years, the field of economics assumed that people always make rational decisions as customers. However, as time passed, it became clear that this assumption of rational customer decision-making wasn’t true. Moreover, if people were irrational, then it also was evident that influences for their behavior must also exist. It was from these realizations that the fields of behavioral economics and consumer psychology emerged.
Today, we know to be successful with our customer experience, we need new thinking. This new thinking can be summarized in the following three foundational concepts to today’s customer experience efforts:
- People’s decisions as customers are driven by emotions, even if they appear to be rational.
- To better understand why people do things, we need to understand the psychology of their decisions, especially if we want to improve their customer experience.
- Buying decisions are far more complicated than we thought; believing that customers buy based only on price is a fallacy that can destroy your customer experience.
Behavioral economics takes the analysis of customer behavior past the surface attributes of price, product, placement, and promotion to a new level of depth and detail. However, this level is necessary to understand a customer’s rational, emotional, subconscious, and psychological experience. Consumer psychology adds to this an extensive analysis of how internal and external influences further affect the outcome. Together, they provide a robust understanding of all that contributed to the buying decision.
There is a bonus here, too: When you know why people do what they do, you can predict what they will do next, which has astonishing implications for your bottom line. Once you understand why customers do what they do, you can provide an experience path that leads them to buy what feels natural. You can also predict how they will behave in future scenarios based on their past behavior, making it easier to design future successful experiences. You could also train your customer-facing team to identify how customers feel so the team can direct the customer back to the emotional path that leads to an intuitive buying decision.
The Next Competitive Battleground? Most Assuredly
I have been working in customer experience since before it was a thing. When I founded my global customer experience consultancy in 2002, the concept didn’t have the widespread acceptance or the significance it has today. As a result, even the smallest customer experience efforts in the early days produced dramatic improvements for about any metric you could choose.
Today, however, that is not the case. The easy bits have been done. In fact, some of my long-time clients – and even some new clients that have been long-time advocates of customer experience – have called me to say that their meteoric climbs in Net Promoter Scores (NPS) have slowed and they don’t know what to do next.
In many ways, the fields of behavioral economics and consumer psychology will reveal the next competitive battleground for customer experience excellence. They will explain why people do what they do as customers and facilitate anticipation of what they will do next. The two fields will provide the framework for customer experience design that accommodates these principles, supplies the new way of thinking about customer behavior, and produces the results we need to take customer experience to the next level.
Some of you are skeptical, I realize. Business philosophy entrenched the idea that consumers are rational for many years. Many of my clients don’t believe me at first, either. However, the organizations that have moved past their skepticism and embraced the fact that our buying decisions are primarily irrational, driven by emotions, influenced by both internal and external factors have enjoyed enormous success with their customer experience results. The ones who haven’t? Not so much.
The question becomes to which group do you want to belong?