We’ve written about behavioral science many times already. It forms the core basis of all our customer engagement programs for utilities across the globe. Behavioral science came about in an attempt to better understand what drives peoples’ choices. Marketing professionals wasted no time in tapping into behavioral science concepts to better understand consumer behavior and market their products more effectively. Now utilities are waking up to the fact that people aren’t simply motivated by saving money and if they’re going to be successful in getting their customers to reduce their consumption and their bills, then their marketing must have more layers and nuances.
The Behavioral Science Nudge theories first came to the world’s attention in 2008. The theory suggests that we often allow our autonomous nervous system to make decisions on our behalf, bypassing the conscious thinking process. The solution involves guiding or ‘nudging’ people in the right direction – towards the more beneficial option.
It’s proven to work and that’s because as humans we tend to cruise along on autopilot. 95% of our decisions are made with little or no thought. If we are not persuaded or nudged to make a certain decision, or as is often the case, if we are presented with too much choice, we default to decision-making shortcuts. Whilst making decisions on auto pilot makes life a lot easier for us as humans, it makes the job of a marketer much harder. And that’s why nudging is so powerful. It taps into how our brains are really wired.
Behavioral scientists have identified hundreds of principles that impact what people do and the decisions they make. We’re going to take a look at three concepts that can, and have been, applied to marketing strategies and explain how they are applied in our customer engagement programs.
The anchoring effect draws on people’s innate cognitive bias. So, if you are asked to value something, the number you give it will be influenced by a pre-defined set of ‘anchors’ that are already in your mind. For example, if you are asked how much a bottle of wine costs, but are immediately told that the bottle next to it is worth £50, according to behavioral science, the value you give the bottle would be higher than if you had been told the bottle next to it costs £10. Knowing the value of the other bottle will influence your answer and that’s down to the common tendency to rely heavily on the first piece of information we’re offered.
The anchoring effect is certainly a concept that utilities can capitalize on. According to Water UK, the majority of Brits vastly underestimate the amount of water they use per day. Research reveals that 46% think they use under 20 liters a day – whereas in reality, the average person uses 142 liters. Our customer engagement programs nudge people into reducing their consumption, whether that’s water or energy, by telling them their real consumption figures, and putting even more power into the punch by comparing their consumption to similar households in the neighborhood.
We mentioned earlier that too much choice can be overwhelming. If we are presented with too much choice, we will often panic and default to auto pilot decision making – making the same decision as before, or not making any decision at all.
There is a classic case study in this area where a jam experiment was carried out in 2000 by Lyengar and Lepper. During the experiment one group of shoppers were presented with a choice of six jams, whilst another group were presented with a choice of twenty-four different types of jam. Thirty percent of the shoppers that were offered the smaller sample of jams went on to make a purchase, whereas only three percent of group that were presented with the larger selection made a purchase. The result revealed that more options led to fewer actions.
That’s where applying customer segmentation comes in. We apply advanced customer segmentation techniques to help utilities target market the right customers with the right information and the most appropriate product promotions to help them save energy or water. Read more about how we support utilities production promotion efforts.
The concept of social proofing defines the human tendency to make decisions based on what others around us are doing. In another classical behavioral economics experiment published by the Washington Post the effects of this theory are clearly demonstrated and are very insightful for utility marketers.
In the experiment four signs were shown to different groups of people to try and persuade them to save energy. The first informed them that they could save £40 a month on their utility bill. The second sign stated that they could prevent the release of 262 pounds of greenhouse gases every month. The third argued that it was socially responsible for customers to save energy. And the last sign told them that 77 percent of their neighbors were already actively saving energy by using fans. Which do you think was the most effective sign? Number four was the unanimous winner – even claiming victory over the financial incentive option!
And that is exactly what are customer engagement programs for utilities are based on. We tap into people’s intrinsic motivators with neighbor consumption comparisons and personalized energy and water saving advice to nudge customers into reducing their consumption. And it works!
But don’t just take our word for it. Talk to us today to discover how much water and energy we can help your customers save.