We conducted several live online video casts on the application of behavioural science for YPO next generation. YPO is an association of 24000 CEOs across 130 countries. We consulted clients from New York, Chicago, San Francisco, Los Angeles, Vancouver, Toronto, Amsterdam, Brussels, Zurich, London, Johannesburg, Delhi, Mumbai, Singapore and Melbourne.
Here are few examples of Behavioural Design nudges, based behavioural science principles, that were recommended to clients in the area of increasing sales in retail, improving employee performance, building good personal habits, breaking bad habits, crafting pricing strategies amongst many other applications in consumer, employee and personal behaviour change areas.
In an experiment, behavioural scientists Wansink, Kent & Hoch placed three variations of signs on the shelves of cans of Campbell's soup in a supermarket. One said "No limit per person". Second one said "Limit of 4 per person" and the third "Limit of 12 per person".
"No limit per person" generated average sales of 3.3 cans
"Limit of 4 per person" generated average sales of 3.5 cans
"Limit of 12 per person" generated average sales of 7 cans
People got anchored by the number 12 and adjusted their choice of the number of cans they would like to buy from that high number. The limit also implied that the cans of soup are popular and in demand. It's the same reason why reference pricing works, even when the item is not on sale. Reference price is the price of the item you see striked out, replaced with the current price of the item. Behavioural scientist Lichtenstein has found that even when the reference price is as much as 2.86 times the 'usual market value', anchoring works.
Sources: 1. B. Wansink, R. J. Kent & S. J. Hoch - An anchoring and adjustment model of purchase quantity decisions - Journal of Marketing Research 35(1): 71-81 (1998)
2. Donald R. Lichtenstein - Price perceptions, merchant incentives and consumer welfare - Journal of Product and Brand Management 14: 357-61 (2005)J. E. Urbany, W. O.
3. Bearden and D. C. Weilbaker - The effect of plausible and exaggerated reference price on consumer perceptions and price search - Journal of Consumer Research 13: 250-56 (1988)
In many companies, the yearly appraisals include assessing both how the employee performed and how the employee could improve. But employees' focus tends to be on how to get the best possible ratings and increment, and ignore areas of development. Focus is on earning and learning shuts down.
The pursuit of mastery is a powerful intrinsic motivator, but traditional appraisal systems kill that motivation. On the other hand, dozens of experiments by behavioural scientists Edward Deci, Richard Ryan and others have shown that intrinsic motivation drives not just performance but also better personal outcomes in terms of greater vitality, self-esteem and well-being.
So our Behavioural Design recommendation was to treat increments and development as distinctly separate exercises done at different points in time. One focused on assessment and pay, other focused on development, so that learning gets a chance.
Sources: 1. Edward L. Deci - Effects of externally mediated rewards on intrinsic motivation - Journal of Personality and Social Psychology 18, no. 1: 105115 (1971)
2. Edward L. Deci and Richard M. Ryan - Intrinsic motivation and self-determination in human behavior (New York, Plenum, 1985)
3. Edward L. Deci, R. Koestner and Richard M. Ryan - A meta-analytic review of experiments examining the effects of extrinsic rewards on intrinsic motivation - Psychological Bulletin 125, no. 6: 627-668 (1999)
4. Richard M. Ryan and Edward L. Deci - Self-determination theory and the facilitation of intrinsic motivation, social development and well-being - American Psychologist 55, no .1: 68-78 (2000)
Habits are auto-pilot behaviour. Habits require three things to come together - trigger, action and reward.
When the loop gets completed, the habit sets into place. Wake up - brush teeth - feel fresh. To create good habits, initially conscious effort is required. And because we humans are lazy, the lesser the effort to get the habit started, the better. Eg. We forget to drink water during the day. So if there's a trigger like a beep from the bottle, we're likely to drink water. The reward of being hydrated is not immediate, nevertheless it helps with regulating mood and attention. So over time the act can become mindless i.e. become a habit. To break a bad habit, the trigger again plays an important role. Eg. To break drivers honking a red button that beeps and flashes every time the horn is pressed, makes drivers conscious of their habit and reduces honking. Likewise, we recommended several Behavioural Design nudges to make and break personal habits in areas of fitness, sleep, diet, savings, spending and productivity at work.
In their paper Choice in Context, two popular behavioural scientists Simonson Itamar and Amos Tversky, explain the relationship between pricing and behaviour and two powerful pricing strategies to increase sales.
Williams-Sonoma, the chain known for quality kitchenware, used to offer a fancy breadmaker for $279. Later they added a bigger model of the breadmaker for $429. The bigger model didn't sell much. But the sales of the $279 breadmaker nearly doubled, because of the trade-off contrast. Before the $429 model came, there was nothing for people to directly compare it to. But after the $429 model was launched, the $279 model was no longer seen as an extravagance. People rationalized that the $279 model could do everything the $429 model did, at a reasonable price. In 1992, Williams-Sonoma hadn't planned this, but now our clients could create such a choice architecture.
In experiments Simonson and Tversky showed that when consumers are uncertain, they shy away from the most expensive item offered or the least expensive; the highest quality or the lowest quality; the biggest or the smallest. Most favor something in the middle. That's why very few top-end Rolls Royce sell or few bottom-end Tata Nanos. The principle of extreme aversion applies in almost every product category - whiskies, cameras, television sets, mobiles, tyres and so on. If there were only two choices in a category at different price brackets, the lower one will sell more due to trade-off contrast. But the minute a third choice added, the middle one tends to do better.
Sources: 1. Simonson Itamar and Amos Tversky - Choice in context: Trade-off contrast and extreme aversion - Journal of Marketing Research 29:281-95 (1992)
2. Eldar Shafir, Simonson Itamar and Amos Tversky - Reason-based choice - Cognition 49:11-36 (1993)
YPO has given us a 5 / 5 star rating for our consulting sessions on the application of behavioural science for consumer and employee behaviour change.
Here's what YPO client, Therese Sillars, Program Manager, had to say "Anand is a highly accomplished business professional chosen to lead our Resource-in-Residence member program. Spanning a global cast, a variety of small group discussions and one-on-one sessions, members had the opportunity to connect with Anand to ask about his entrepreneurial journey, learn more about the science of behaviour and how to change it while gaining valuable personal and career advice. His expertise was particularly interesting to our young adult membership about to embark on their next career and life stages. Inspiring, thought provoking and relevant. It was a pleasure to have Anand as our guest presenter and would be delighted to have him to lead further sessions for us."