For water and energy utilities across the globe, persuading customers to save energy and save water is high on the agenda, especially with the rise of the Coronavirus pandemic. Helping residential households become better, more efficient consumers has long been heralded as an effective way to tackle global challenges like climate change. Historically programs and campaigns introduced by utilities have focused on economics – demonstrating to consumers that they’ll save money if they reduce their energy and water consumption. However, it’s been proven by studies around the world that the motivation to be more virtuous than one’s neighbor may be an even greater incentive than the prospect of lower bills. And that’s the power of nudges – the behavioral science theory that sits behind our own customer engagement programs.
The power of the nudge
The nudge behavioral science theory first came to the world’s attention in 2008, when Richard Thaler and Cass Sunstein’s book, ‘Nudge’, proposed a new theory that people are often unable to make good decisions when they lack experience, context, knowledge, or are overcome with inertia. For instance, if we’ve forgotten to put our seatbelt on, we’re more likely to if we hear the alarm. The theory suggests that we often allow our autonomous nervous system to make decisions on our behalf, bypassing the conscious thinking process. The solution often involves guiding people in the right direction – towards the more beneficial option.
Over a decade of behavioral economics, research has revealed that ‘nudges’ are effective in influencing consumer behaviors. Recommendations from the book and other related publications from Thaler and Sunstein have been adopted by numerous organisations and government agencies around the world. As a result, in 2017 Richard Thaler won the Nobel economics prize for his contributions to behavioral economics.
A growing volume of research reveals that energy and water consumption behavior is not always rational and can benefit from nudges designed to encourage households to reduce consumption. That’s certainly our experience too. Advizzo’s customer engagement programs are based on behavioral science techniques, and are deployed by utilities around the world, to motivate customers to change their behavior in order to save energy and to save water.
The 6 key principles of nudging according to Thaler and Sunstein1
Defaults: As a direct result of laziness, fear and/or distraction, many people take the option that requires the least effort. For instance, customers are more likely to stay in a loyalty program if they are automatically included in one. Or, when installing a new app, they’ll adopt the standard settings rather than taking a fully customized approach.
According to ‘Nudge’ this behavioral tendency towards doing nothing will be further reinforced if the default option comes with some implicit or explicit suggestion that it represents the normal or even the recommended course of action. For energy and water companies, that means keeping engagement programs simple and easy to understand/adopt – and to demonstrate that the suggested behavior, such as accepting a smart meter, is the ‘norm’.
Expect errors: The Nudge theory recognizes that humans make mistakes. The principle forms the basis of many useful systems designed to make our life easier – such as ensuring we don’t put diesel in a petrol car by making the diesel hose nozzles incompatible with petrol cars – and vice versa. Another example is the way ATMs are designed to spit out our debit cards before the cash, so that we don’t leave the card in the machine.
When it comes to utilities, many customers could reduce their consumption with an increased awareness of ways to do so, or suggestions on how to reduce leaks. Email notifications with insights into their consumption or reminders that their bill is due, can also help customers combat likely errors.
Give feedback: The third principle of the nudge theory is based on the fact that the best way to help humans improve their performance is to provide feedback. Sending utility customers bills that tell them how much energy they are using compared to neighbors, is one such proven technique. Giving customers an opportunity to provide their own feedback through surveys, to ensure their bills, status and consumption data is accurate, is also a proven customer engagement technique.
Understand mapping: Some choices are easy to make, whilst others are far more complex. Where decisions need to be made, it’s important to make the information about the options available more comprehensive (and relatable) so people can improve their ability to map the consequences and make their choice.
For utility companies, that might mean transforming kilowatt-hours used into pounds and pence. For water companies it might be informing customers on their water consumption in terms of number of showers or baths, as opposed to litres used. It helps customers relate to the consequences of their decisions.
Structure complex choices – Social science research reveals that as choices become more numerous, people are more likely to adopt simplifying strategies – where a minimum standard is decided and choices that fall outside of that standard are immediately discounted. For utilities the structure of engagement must be consistent and simple, to encourage better consumption behavior. Knowing your consumption for the month is great, but understanding how your consumption has changed over a period of months or years is far more useful and engaging – making it easier for customers to make better decisions in the long run.
Incentives: According to ‘Nudge’ the person who creates the customer engagement system (the choice architect) must put the right incentives in front of the right people. This should go beyond monetary and material incentives to include other psychological benefits – for example, peace of mind. That’s where using meter data to gain a better understanding of individual customers and subgroups of customers could come in. It can make target marketing of promotions, complementary or additional services far more successful.
A nudge towards Advizzo
For a sector like utilities, where small changes in customer behavior can lead to significant changes in consumption, nudging customers by using behavioral science based customer engagement strategies are becoming increasingly popular. Take our on-going work with Anglian Water for example. In a 12 month trial engagement, Advizzo tested ‘nudging’ on a subsection of Anglian Water’s customers. Using a unique water consumption portal, residential customers received ‘nudges’ informing them how they were doing in terms of water consumption, and rating their use against similar households in the area.
We provided these insights by analyzing the residential meter data and educating customers through behavioral science techniques, such as social norm messages and incentives. The result – an 8% water consumption reduction in the 12 months. That’s 12,500 litres of water saved per day. That’s the same as 156 baths or 166 showers saved every day! You can read more about the project here.
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Isn’t it time your company took a new approach to customer engagement and made use of these powerful behavioral science techniques to help customers make more sustainable decisions around their water and energy consumption? Get in touch today to find out how we can help you!