My previous blog post, ' Behavioural economics vs data analytics', introduced the topic of behavioural economics and explained how it differs from analytics. Both allow you a greater understanding of the motivations and inclinations of a customer, but each relies on a different approach, necessitated by the transition from interpreting content towards interpreting context. A little knowledge, however, can be considered a dangerous thing.

Suppose you sell a product which expires after a particular term and discover that asking customers whether they wish to "opt in?" or "opt out?" of an auto-renewal mechanism produces significantly different take-up rates. Which of the two questions would you decide to ask? It's certainly not as easy as saying "whichever produces the most sales". By changing the question, are you actively playing on behavioural biases of certain customers, at the expense of what might be termed "a free and fair choice"? Are you creating a sales tool which works only because we understand the mistakes a customer is likely to make?

It's a really good question and one which is practically impossible to answer. In the above example, you have to ask the question in one of the two ways, so to try and understand what would be the "true preference" of the customer in a world free of context is simply not possible. This does explain, however, why some firms might be nervous to consider behavioural economics as an approach to learn more about their customers and the decisions they take. The natural perception is that the only reason you'd want to learn about the biases of customers is to take advantage of them, to their own detriment.

There are firms, on the other hand, who are incredibly excited about behavioural economics. They typically understand two key truths about why this perception is misguided, and that, in reality, knowledge of behavioural economics can be successfully implemented to build a better firm which is highly customer centric.

First, they understand that ignorance is no longer a viable option. Taking the financial services industry as a case study, the recent FCA behavioural economics paper signifies a shift towards firms needing to actively demonstrate that they are aware of how their processes may interact with the biases of customers. This requires a deep analysis of existing marketing, sales and service methodologies, through the lens of behavioural economics, to discover potential problem areas, and develop recommendations which will make the landscape more transparent. Increased regulatory interest in the topic necessitates a smart and sophisticated approach.

Second, they understand that whilst you may not possess sufficient data which allows you to easily mine for behavioural economic insight (as you would do with analytics); you certainly do have data which records poor customer experience. If you're not sure where to start with behavioural economics, try investigating the biases and customer behaviours which lead to complaints and negative experiences. There may be simple changes to processes and presentation of information which can significantly improve the overall customer experience, simply by understanding the common mistakes which will ultimately lead to a negative outcome.

Few people associate behavioural economics with the notion of customer centricity within an organisation. Most will assume it's all about manipulation and exploitation of customers. Those who choose to embrace it to enhance the customer experience will reap the benefits, and be in a strong starting position as regulatory interest increases in the coming months and years. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.