Why Nudging Your Customers Can Backfire

This blog has been really quiet on behavioral economics/nudging for a while. It was once the favorite topic and quite a few posts were written on it. Perhaps, have not stumbled on something interesting in the space.

Prof Utpal Dholakia (Professor of Marketing at Rice University) has a post on how nudging could backfire.

Over a decade of behavioral economics research shows that such nudges are effective in influencing consumer behaviors. Many nudges have virtuous effects, encouraging consumers to donate their organs, reduce their consumption of energy, and save more money.

However, not everything about nudge marketing is rosy. In their enthusiasm, marketers have overlooked some fundamental concerns about using nudges. A company that doesn’t understand these minefields could adversely affect its marketing. Nudges that are poorly thought out could be ticking time bombs waiting to explode and damage the company’s reputation and credibility among its loyal customers. While there are lots of reasons for this, here are the three big ones:

  1. Nudges can be condescending. First, nudge marketing relies on a one-dimensional mental model of consumer behavior.

By their very definition, nudges use mental models that give inferior status to consumers’ motivations and abilities. Anytime a nudge is designed to promote a behavior, in effect the marketer is saying to the consumer, “You are too weak-minded and you don’t have enough self-control. You need help. Unless I nudge you, you will not do the right thing.” The supermarket’s aforementioned nudge signals that without green arrows herding them, people won’t buy enough fruits and vegetables…..

2. Even when they “work,” they may not achieve the ultimate goal. Nudges can be too narrowly focused on promoting specific behaviors. So they are not suited to achieve the ultimate purpose, which is usually broader.

Even in its most benign forms, nudges steer people into performing specific actions. The green arrows may divert shoppers toward the produce aisle and lead them to buy more fruits and vegetables, but what happens after they take the produce home? Will it be eaten or will it just sit in the refrigerator until it spoils and is thrown away? Will this nudge help consumers cut down on sugar in their diet or exercise regularly? Obviously, the answer to these questions is that beyond the sale of produce, the nudge does nothing to promote the consumer’s healthy behavior…..

3. They’re really, really hard to get “just right.” Despite numerous examples of successful nudges that are discussed in the academic behavioral economics journals, the truth is that, much like Goldilocks’ porridge, nudges have to be just right.

If they are too weak, they won’t produce any measurable influence on consumers. The marketer simply notes that the nudge attempt failed; there is no published record. (After all, no academic journal will publish a failed attempt to nudge consumers). Even when they work, weak nudges may not produce sufficient impetus to achieve successful outcomes. Today, many companies automatically enroll employees in retirement savings plans, but they use default savings rates of 2% or 3%. While this is better than nothing, it is still far too low; individuals need to save at a much higher rate to have adequate savings when they retire.

Hmm…

The problem in economics and marketing where nudges are used is to see it as “the solution”. Whereas, the whole thing is to think it as one of the alternatives. More than anything the real problem with nudging is the third point. How to get it right along with who should nudge is a real issue.

In sum:

When using nudging to influence customer behaviors, marketers must fully understand its limitations. The benefits of nudges are likely to be amplified significantly, and their dangers neutralized, when nudges are used in tandem with effective motivational psychology tools, such as forming implementation plans.

The essence of a relational marketing strategy is a tacit understanding that marketers and consumers are on equal footing. Anytime marketers employ a nudge to influence consumers, they are rejecting this status quo and claiming an informational or motivational superiority over their customers. Motivational psychologists have shown that such an imbalance is unnecessary. The same purpose can be achieved by treating customers as equals and empowering them. Marketers need to add motivational tools to their arsenal and use them along with well-designed nudges.

Balance is important. Nudges alone may or may not work..

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