Why bother with behavioural economics?
That was the subtext of an interesting discussion I had recently during a podcast with industry leaders Kevin Gray and Dave McCaughan.
Why should businesses bother with behavioural economics when they are already awash with data and research? Why should market researchers bother with behavioural economics when they can do what they’ve been doing and get paid well for it?
Where behavioural economics fits in the customer insight landscape
There are two ways you can understand your customers: you can ask them and you can watch them.
Asking them is what I call “self-reported” behaviour because people give you their interpretation of why they did, or will do, something. This is what you get whenever you run a survey, conduct a focus group or interview your customers, and it is the domain of qualitative and quantitative research.
Self-reported behaviour is compelling – I mean, what’s better than hearing from your customers directly? It’s a great way to hear what they think and have them explain why they do what they do.
Except it’s often wrong.
You see, your customers (and you) switch between two types of thinking throughout the day: system one and system two.
- System two is the slow, deliberative, rational thinking they use sporadically (for example, when driving somewhere unfamiliar); whereas
- System one is the fast, intuitive, emotional thinking they rely on most of the time (driving somewhere familiar, for instance).
When we ask customers why they did or will do something they are likely to respond using their “this is an important and unusual question” system two, whereas in their natural state of making decisions about your product or service they are more likely to use their system one.
In other words, system two answers the question but system one actually makes the decision.
So if asking customers is not going to give us accurate answers, what can we do?
The second way of getting answers about customer behaviour is watching what they do: “observed” behaviour. Scan or click data are examples because they are a record of what they actually did rather than thought or reported.
The problem with data is it is historical, and past behaviour is sometimes, but not always a predictor of future behaviour. Just because I used to buy cereal X doesn’t mean I will again.
And that’s what’s so frustrating about customer insights, isn’t it? We want to know what people will actually do rather than say they’ll do, in the future rather than the past.
For me, this is where behavioural economics fits in; it fills a void in what businesses need to know about customer behaviour.
Image source: www.briwilliams.com.au
The biases and heuristics identified through behavioural economics are based on observed rather than self-reported behaviour, and these principles can be used to anticipate what customers will do in the future. People’s patterns, if you will.
So if you are a marketer or business owner who is tired of getting research without answers, or a market researcher who wants to move your methodology beyond system two and create the next level of value for your client, behavioural economics might be the answer.
This article was first published by SmartCompany.