BackHow Zara, Sensodyne, others use behavioural science to unlock value
Why customers behave the way they do and what you can do to influence their behaviour
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Are you able to influence your customers to behave the way you want them to? The answer for most of us would be in the negative.
There’s a solution to this vexing problem: embed principles of behavioural science into your business.
Behavioural science seeks to understand why customers behave the way they do and, more importantly, what influences their behaviour. Once we gain an understanding into this, we can get our customers to behave the way we want them to—of their own volition and at near-zero cost.
Leading enterprises like Zara, The Economist, OnePlus, Sensodyne, several retail stores, Bagpiper whisky, Amazon and Starbucks have embedded the principles of behavioural science into their business.
l Zara introduced the world to “fast fashion". It launches hundreds of designs every year, but manufactures each of them in limited quantity so that they sell out fast. Since the prices are extremely attractive and the designs awe-inspiring, there is always a rush to buy its designs. If a customer postpones buying a design, it is unlikely to be available later. Zara has put the behavioural science principle of “loss aversion" into play—we fear losses twice as much as we covet a similar gain. Loss aversion is built into our DNA through the evolutionary process. When our forefathers lived in the jungle, survival, not prosperity, was their main focus. That instinct continues to drive us today. Result: in a Zara store, a buying decision is unlikely to be postponed.
l The Economist is arguably regarded as an intelligent person’s best companion. It offers potential subscribers three subscription options:
l Digital: 12 weeks for ₹ 750
l Print + Digital: 12 weeks for ₹ 900
l Print: 12 weeks for ₹ 750
What is the purpose of putting the digital subscription offer? It is a decoy to make subscribers believe that the combined “print + digital" offer at ₹ 900 is a good deal—the price should be ₹ 1,500, but the combined offer is available for only ₹ 900! And when you see a good deal, can you refuse it? Of course not!
l OnePlus is one of the most exciting brands to emerge in the smartphone market from China. It has an easy-to-say Western name, unlike Xiaomi, and is focused on getting customers from outside China. Unlike other smartphones, which are available in retail stores or online, OnePlus is sold only through invites. With this strategy, OnePlus is putting into play the principle of “scarcity effect". When something is scarce, it automatically becomes desirable. Since OnePlus is available by invitation only, it is scarce and, therefore, has the potential of becoming desirable. Potential users are asking their friends for an invite. Now instead of the company running after customers, the customers are running after the brand.
l Sensodyne has made inroads into the toothpaste market. It has a real doctor recommending the brand. By following this strategy, Sensodyne has put into play the principle of “expert bias": we tend to be persuaded more by an expert than by a layperson. In this case, because a doctor is recommending it, we are persuaded by their recommendation and end up buying the brand.
l E-commerce companies come up with tantalizing offers promising the moon to their customers. But next to these offers they put a starburst that says, “Only for one day". Or take airlines selling seats online. Next to the attractive offer they inform the fliers, “Only two seats left". Words like “only", “just", “limited", “sale", “now" are referred to as hot buttons in behavioural science and are used to evoke the “fear of regret". When a customer sees an attractive deal, she is compelled to buy immediately for fear of regretting it later, as the deal may not be available then. But if she goes to the site two days later, she will still find that there are “only two seats left". Hot buttons make us behave irrationally and we end up buying brands we do not need.
l Bagpiper was India’s largest-selling whisky when I was entrusted with the responsibility of nurturing it. With great pride we advertised it as “India’s largest-selling whisky". The reason behind making this claim was to evoke in drinkers the principle of “social proof". When potential drinkers are informed that Bagpiper is India’s largest-selling whisky, they feel that a large number of people must be patronizing it and so many people cannot be wrong in their choice. Therefore, it must be a good product. Buoyed by this confidence, more and more customers end up trying it.
l Amazon introduced Prime, an annual membership programme for a fee of $99, which entitles its subscribers to free two-day shipping. Prime became one of Amazon’s key drivers of revenue growth. Why? The answer lies in the concept of “sunk cost fallacy". A customer who has paid the $99 to become a member feels that the expense has become a sunk cost—a cost that has been incurred by her and is now a dead investment. This triggers her to behave irrationally. Anytime she has to buy anything, she opts to buy from Amazon merely to recover the sunk cost. Result: Much to Amazon’s delight, it notices that a Prime member spends two times more than a non-Prime member.
l Starbucks introduced its range of coffees at absolute luxury pricing. To ensure that customers do not get a shock, they de-anchored the price. Here’s how it goes. Customers have a price band in mind for the three sizes in which coffee is normally available in stores—small, medium and large. Now if Starbucks had also called its three sizes of offering small, medium and large but charged “Starbucks price" (read super premium price), it would have caused enormous pain to its customers and many would have walked away. So, Starbucks decided to refer to the three sizes as:
a. Tall for small
b. Grande for medium
c. Venti for large
When a customer looked at the menu and opted for Venti, she had no idea what size of coffee she was ordering. And, therefore, she had no idea what she had to pay for it. Being totally de-anchored, she accepted the price asked for Venti.
A caveat: There are ethical and moral issues associated with deploying principles of behavioural science, because we are seeking to influence people’s behaviour without them being aware of it. It may happen that we make them buy products they do not need! So, exercise caution and take a pledge that you will not manipulate your customers’ behaviour merely for personal gain.
A longer version of this article is available at www.foundingfuel.com.
Rajesh Srivastava is a corporate consultant, entrepreneur and academic.
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