Your customers are people and people’s behavior is complicated, especially as customers. Many psychological theories exist to help explain why people do what they do, and when those theories apply to how people behave as customers, they are called Behavioral Economics.
I have been studying Behavioral Economics for a few years now and applying those principles to Customer Experience. However, a colleague pointed out to me that sometimes I forget that everyone else hasn’t necessarily been as engrossed in the topic as me and when I talk about them, it’s a bit like drinking from a firehose for the audience.
My co-host (the aforementioned “colleague”), Professor Ryan Hamilton of Emory University shared a framework he calls the 4 Rs to help explain some of the basics of Behavioral Economics on a recent podcast. He says they are the four basic summaries of human behavior.
The 4 Rs represent the following four concepts:
Reference Points: People compare you to other Customer Experiences they have had.
Reasons: People need a reason to make a purchase, so they might be using a proxy reason that is related to their purchase but not necessarily the real reason.
Resources: People have a limited amount of cognitive reserves, and they don’t like to use them up, so they like for many buying decisions to be easy.
Replacement: People want to complete tasks, including decision-making, so if your experience is complex or the decision is difficult, they might substitute a different choice that is related that they can answer right away.
I have always been surprised by the massive wealth of data in academia that doesn’t get used. The reason, I believe, is the language. The way academic research is written is like a reading a legal brief; it’s impenetrable. You come away from it thinking the person who wrote it is very clever, but don’t understand what he or she said at all.
My co-author and podcast co-host Professor Ryan Hamilton jokes that academic research is not written for a human audience. It would seem sensible to me that we change that. Funny enough, not everyone on the academic side would agree with me. Professor Hamilton explained to me why on our latest podcast, and I wanted to share it with all of you.
I won some money at a Casino recently, an unusual outcome for me. It wasn’t a huge amount, but it was a nice windfall. Did I spend it on something practical? No. Save it? Nope. Give it to charity? Not a chance.
I bought a fancy new fishing reel that I had my eye on but previously had felt was too expensive. It’s excellent, and I couldn’t be happier.
So why did I buy it when I won money but wouldn’t buy it when I would just have to pay for it from my usual funds? The answer is found in the concept of mental accounting, and it might have significant implications for your Customer Experience.
We discussed how our mental accounting affects our behavior as customers in our recent podcast. How your customer mentally budgets for your experience has a significant influence on how happy they are with it.
I am concerned. I recently read two pieces of research about Customer Experience that worried me. The first was from Nunwood, a UK-based research company with a Customer Experience index, and it showed that improvements in Customer Experience were not happening. The second was from Forrester, and it said the same thing: no increases in Customer Experience improvements.
With all the effort that companies are putting into improving their Customer Experience, why are there no improvements?
The C-Suite want to see a return. If this continues, I am sure the investment in resources and money dedicated to the effort will stop—and rightly so. However, if that happens, I worry Customer Experience as a movement will die.
How many words a minute can you type? 40? 60? 90? Now, if the letters, numbers, and symbols were not printed on the keys, how many would you be able to write on the correct key? 100%, right?
You probably don’t know the answer to the second question for sure. However, participants at a study at Vanderbilt University do. The participants typed from 72 to 94 words a minute. When they were handed a blank keyboard printed on a sheet of paper and were asked to write the letters on the appropriate keys in 80 seconds, the participants got less than 60% of them correct. What’s more, the typists left 20% of the keys blank; they couldn’t even guess what went there.
Water and train companies in the U.K. have come under fire recently over their lousy customer service. What do these two seemingly-unrelated industries have in common? Both are monopolies, and a monopoly is almost always bad news for the customer.