Behavioral Economics Is Key to Customer Experiences

Understanding How Customers Make Decisions Helps Brands Curate Memorable Interactions

By Rob Duboff, and Sharon Mowen
Man sitting on couch writting

What do your customers think of when your brand comes to mind? How do your customers feel at the end of their experience? Are your marketers and experience managers aligned?

In a related article on behavioral economics, we discussed the impact that behavioral economics can have on marketing and research practices. In our conversations with marketers and researchers, one of the key questions they keep asking is how behavioral economics impacts customer experiences. Today, in a world where products and services are often easily replicated, marketers are turning to shaping customers’ experiences as a way to differentiate themselves.

Much of what behavioral economists have discovered is what the smartest retailers have been doing for years. Grocery stores put impulse items that taste good at checkout, liquor stores place brands they want to sell at eye level and shoe stores place socks as far away from the sneakers as possible, so shoppers have to walk by attractive pairs of chukka boots or sandals as they pick up must-have items.

The Key to Effective Experiences is to Keep the End in Mind

The key to effective experiences management is to start by understanding what a customer thinks of when your brand comes to mind. In the book Thinking Fast & Slow, Kahneman describes how people recall peaks and valleys of experiences and – in the absence of an extreme – tend to call to mind the end of the most recent encounter if it was noteworthy. For brands, it means that the end of each experience is likely more impactful than the middle, as is the beginning which primes the experience.

Consider hotels, one of the most experiential businesses. Within different prize tiers, the products are pretty similar. If guests receive a warm smile from friendly staff, an efficient check-in (electronic or personal, depending on preference), an overview of the amenities (if desired); and have a clean room with a welcoming smell, the guest is primed to enjoy their stay. The best provide a special greeting (e.g., a glass of champagne and/or hot towel), especially if there is a line.

Now think about checkout. It can now be a low-touch electronic experience. While we know that most guests just want to get home, hotels should consider ways to personalize the last touchpoints – perhaps a goodbye gift, easy transport or even a follow-up call from management. Why not offer to mail any heavy items so the guest need not carry them home? All of these touches personalize the final encounter, which is what will likely be called to mind when the guest thinks about that hotel brand in the future.

Even vaunted retailers, who instinctively excel at using behavioral economics in the layout of spaces, have additional opportunities. Take Walmart: the visit may start with a friendly welcome from a greeter, but what about the experience when departing? The visit may end with a wait at checkout and a departure with little fanfare… perhaps, there’s a better way.

Richard Thayer, the other Nobel prize winner in the field and co-father of the “nudge,” has also contributed many findings pertinent to customer experience. By knowing how people think, nudging is a way to steer consumers toward behaviors you want them to choose. Effective nudges are educative, such as informing customers about the number of calories or fat content, or when you try to more directly impact decisions by changing the “default” option. In the latter case, tactics may incentivize the desired action or make life simpler for customers. Exhibit A shows the different categories of nudging/influencing.

Regardless of which principles you apply, leveraging behavioral economics to influence customer experience ensures that customers are left with a positive feeling from the experience (or “available” association in behavioral economics’ terminology). Marketers and experience managers need to ally so that marketing messages align with customer experiences and leave the customer desiring their next experience with the brand.

Exhibit A: Categories of Influence

  • Make Your Product and Offer Easy
  • Attractive
  • Social
  • Timely
  • The Nudge Can be to Inform, Incent or Increase Ease or Fluidity of the Decision.

Reach out to Rob Duboff and Sharon Mowen to discuss the impact behavioral economics has on experiences