3 Customer Experience Lessons From Behavioral Economics

Share This Article

0 0 0 0

Behavioral economics is a fancy way to say “the study of consistent irrationality.” The funny thing about behavioral economics is that everyone who’s worked in customer service knew that customers are irrational well before Predictably Irrational came out. Economists are just now catching up to what people who make a living helping others have known all along.

Customer Experience Lessons

Behavioral economics tries to solve a problem which has plagued economics from the start. People consistently do things that don’t make sense. They make decisions that hurt them overall, despite knowing what the results will be ahead of time.

Customer support agents probably have more to teach behavioral economist than the other way around. However, that doesn’t mean there’s nothing for you to learn from a few decades of research on human behavior. Even the most experienced agents can forget that feelings drive customer loyalty, while thoughts ride in the backseat. Behavioral economists and Gallup researchers have discovered that “emotions inform judgments and behavior even more powerfully than rationality does.”

This research comes in handy in the face of pressure from the C-suite to find the fastest path from point A to point B. If your customers want a fast resolution time, the natural tendency is to find the most efficient way to provide that to them. However, that ignores the other, competing things your customers want, including the feeling of being cared about.

For example, according to McKinsey, many companies push so hard to get average resolution time low that they lose sight of the big picture. What a focus on time can do is encourage agents to quickly end a call or chat once the main issue is handled. Which makes sense if time is the only goal, but it leaves the customer feeling brushed off and with a lingering sense of being treated brusquely.

Understanding behavioral economics will help you better predict how people will behave and set up customer service processes that are more likely to result in the behavior you want.

Here are three ways to use behavioral economic insights to improve your customer service.

1. Remove as many barriers as possible

Every year, dirty drinking water kills hundreds of thousands of children globally. You’d think that, in general, people would be more than willing to buy chlorine tablets and use them when it means a drastically reduced chance their kids will die of completely preventable diarrhea.

But, you’d be wrong. In countries such as Kenya, NGOs make sure fast, effective water treatment methods are widely available and cheap. Yet Harvard researchers found only 10% of families who could buy them did.

So how did researchers get the rates up to 60%?

First, they sought to understand the problem. They realized that financial cost wasn’t the big barrier to adoption, rather it was the energy and attention regular water treatment required.

This bit of insight is central to behavioral economics: Given the choice between doing what is easy now or what is better later, people can be counted on to choose the former, regardless of the expected outcome.

Let that sink in. People will choose easy no matter how high the cost. You can see that in the fact that people will generally fail to save for retirement unless they are enrolled in a retirement savings plan by default. The difference between people in developed countries and people in the developing world is that developed companies have better institutions. Companies provide clean water nearly by default. You set it up once and you’re good to go until you move.

The researchers raised adoption rates by mimicking developed world institutions. Specifically, they made treating the water easier to do and harder to forget about. They made treating the water easier by providing concentrated liquid chlorine, making it free, and making it easier to add the right amount. They also made the water treatment setup hard-to-miss and put it where people collected their water. Not only did this make it more convenient to purify water, but it made it harder to forget to do it, as people were reminded to purify every time they got water.

Finally, employed community members to act as local clean water promoters to remind people about and raise awareness of the importance of clean water.

These behavioral science interventions increased chlorine use by 53% for a cost of about $20 per year of life saved.

Convincing people that they need to do something isn’t enough to get them to do it. A person can fully know a behavior a good idea and that the cost of failing to perform that action is dear, and still not do it. The key to behavior change, whether it’s signing up for a newsletter or making a purchase, lies less in convincing and more in making it as easy as possible. If you want to influence behavior, spend less time making arguments and more time removing friction and other barriers.

2. Give it away

A central insight in behavioral science is that removing barriers can influence behavior more than even the very real threat of death. Another insight, less jarring, but still surprising, is that gifts can be more effective incentives than quid-pro-quo offers. You’d think people would value something more if they gave something up to get it. But often that’s not the case.

McKinsey experimented with this behavioral economic insight, working with an Italian telecom company trying to increase its customer retention after it raised customer rates.  

Customers were calling to cancel, and the customer retention agents needed a way to change their minds. Originally, agents at the call center offered a simple exchange. Customers would get 100 free calls if they would agree to not cancel.

But then the company asked their agents to instead tell the customer they were already entitled to the 100 free calls. “We have already credited your account with 100 calls—how could you use those?” they said.  

It turns out customers felt more perturbed by the idea of giving up the free talk time they thought already owned than they felt excited to earn free calls by accepting the rate increase.

“When we’re ‘given’ something by default, it becomes more valued than it would have been otherwise—and we are more unwilling to part with it,” McKinsey analyst Ned Welch wrote. This tendency is called loss aversion. People would rather avoid a small loss than experience a larger gain.

The next time you want to offer customers something in exchange for doing something you want them to do, try appealing to this quirk instead. The best way to do this is to combine this insight with insight number one. Instead of offering an incentive, give away the incentive contingent on inaction. That is, create a scenario where if the customer does nothing, they get to keep the asset they just learned they had. This appeals to both their tendency toward inaction and their aversion to loss.

3. Gamify the drudgery

Medication nonadherence is a multi-billion dollar problem with devastating health consequences. In developed countries, only half of people with chronic illnesses take their medications as prescribed, according to the World Health Organization. The New England Health Institute estimates this failure creates $290 billion in avoidable medical spending each year in the U.S. alone.

You’d think being sicker, longer would be incentive enough to take your medication on time and in the right dose. But that’s not the case. People have trouble valuing long-term benefit over short-term convenience.

Tom Kottler, CEO and co-founder of HealthPrize, created a website to help give patients a short-term benefit to taking their meds. Already the website is seeing success. Kottler said patients enrolled in his program log in an average of 4.6 times per week, spending more than 38 minutes per month on the website.

HealthPrize incentivizes medication adherence by gamifying doing the right thing. Participating patients log in to the mobile-optimized website to collect points for taking their meds on time and refilling their prescriptions. Patients can also get points by completing quizzes about their health conditions and medications. Players can compete with each other (anonymously). And Walgreens then allows participating patients to cash their points in for discounts on Walgreens merchandise.

This month, the Chicago Tribune reported that HealthPrize will begin working with Walgreens to allow patients taking certain drugs to sign up for the free program through the Walgreens website.

It’s easy to see how this relates to customer retention and loyalty. A long-term reward or the satisfaction of doing the right thing isn’t enough to incentivize your customers to leave a review, recommend you to a friend, or repeat a purchase. You need to find ways to gamify the drudgery of being a good customer to give them a reward, however small, right now for doing what you want them to do.

Other tips

You find people consistently making irrational decisions everywhere you look. For example, when speaking to someone aloud, they will generally decide what you mean based mostly on your body language and vocal tone. The actual words you’re saying make up just 7% of the meaning.

Which means that when you’re training agents, you need to place about 7% of your emphasis on scripts and words and the rest on tone and body language. Even on the phone, body language influences how you sound. It’s even harder to convey emotion via text. Fast Company suggests you “use concrete emotional words in an email (e.g. ‘I’m happy to say…’), or to clarify someone’s tone (‘when you said that, I took it to mean…’), or if you must, to dispatch emoticons.”


Don’t think like a regular economist when planning customer interactions. Instead, think like a behavioral economist. Keep in mind that people don’t behave rationally, or make the choices that will benefit them most long-term. Replace processes and structures that fight against human nature with those that take advantage of the way people actually act.

For more tips from the academy, check out 5 CX Improvement Tips Gleaned from Academic Research.

Looking for Customer Experience software? Check out Capterra's list of the best Customer Experience software solutions.

Share This Article

About the Author


Cathy Reisenwitz

Cathy Reisenwitz is a former Capterra analyst.


No comments yet. Be the first!

Comment on this article:

Comment Guidelines:
All comments are moderated before publication and must meet our guidelines. Comments must be substantive, professional, and avoid self promotion. Moderators use discretion when approving comments.

For example, comments may not:
• Contain personal information like phone numbers or email addresses
• Be self-promotional or link to other websites
• Contain hateful or disparaging language
• Use fake names or spam content

Your privacy is important to us. Check out our Privacy Policy.