Behavioral Economic Research: "The Next Big Thing", or just "Old wine in new wine skins"?

Behavioral Economic Research: "The Next Big Thing", or just "Old wine in new wine skins"?

Let me say one thing first: The goal of any market research is to make more successful decisions based on knowledge about the market or the customer..

Since finding out in a survey among company-side market researchers and marketers in 2010 that this goal is frequently missed, we've been working hard to increase our "effectiveness".

We've introduced implicit measurements, implemented design thinking elements into the research process, systematically used psychological and sociological models as a basis for our work, and optimized online dashboards and reporting with story telling.

Many of these things have taken us a step forward. But a real eye opener, if not a quantum leap, has been the implementation of Behavioral Economics in our work.

Thanks to BE, we can conduct more valid research and provide more tangible and targeted recommendations for action, so that the usual transfer between market research recommendations into decision options and measures "disappears" as it becomes part of the process.

But how does it happen? How is it implemented in practice? 

The implementation of BE in market research specifically starts with the following points:
  • Focus on behavior change: don't focus on the "Why?" or "What do my customers need, why is that? - but on the "How can I...?", e.g. "What can I do to change customer behavior in such a way that my sales, margin and other KPIs (e.g. customer satisfaction or referral rate) increase?"
  • Thinking from the end: What customer behavior do I want to achieve? Which nudges are potentially helpful? What barriers and drivers for desirable behavior are there? Only then is it necessary to consider what needs to be measured to validate these theses.
  • Inclusion of the worldwide available knowledge about typical human behavior (Cognitive Biases / Effects and Nudges summarized in the BE toolbox): Besides Kahneman, Thaler or Ariely, a large number of renowned researchers are discovering and validating new behavioral effects every day. Making this knowledge the basis of all research significantly improves the quality of analysis. At the same time, naming the relevant effects makes irrational customer behavior comprehensible and manageable for organizations. All effects have names that are easy to remember and therefore easy to discuss.
  • Research designs that measure customer behavior and influencing factors and not just ask for opinions: Instead of: "What do you like? What is important to you? What do you need? Would you buy...?", we measure the effect of alternative measures to change behavior. So how does the customer behave in a certain situation? What effect do our measures have? What are the triggers of their behavior that we can use to achieve a change?
  • Behavioral prognoses based on the typical behavior patterns of customers, as well as the drivers & barriers of this key behavior, instead of mere expressions of interest and a notoriously unreliable prognosis of the respondents' own behavior. In this way, forecasts are obtained which are still meaningful, even if, for example, the competitive situation changes because a competitor launches a similar product on the market.
  • Measurements which take into account the test's known behavioral effects or survey situation to avoid mismeasurements or misinterpretations. This means not directly asking what we want to know, but observing the behavior and customers' decisions. But preferably by also measuring the effect of these measures taken, instead of asking them what they like better, and certainly not asking them directly what's important to them specifically; it's more important to draw conclusions about relevance based on their behavior and attitudes.
  • Eyes open for new things! The fundamental basic effects and biases that determine human behavior are well known. But what effect they have in specific contexts is still something fairly unknown territory. The same goes for triggers being applied for positive behavior, the so-called Nudges.

 

In our daily work this basically has two directions:

An explorative approach, which we use, for example, when we need to identify approaches for new products, map the purchase decision process, or concretize the drivers of loyalty for a company.

However, most projects focus on the validating approach. We proceed with the following steps: 

  1. Briefing on the basic client objectives, based on which we prepare a proposal and study concept.

  2. Expert behavioural economic analysis:
    What effects play a role on behavior in this context? What barriers and behavioral drivers could occur? Which nudges come into question within this setting?

  3. Kick-off Workshop:
    Detailed briefing and presentation of the expert analysis - development of alternative nudges to change customer behavior. This means developing a picture of the target customer behavior. Concretizing the stimuli for the test.
  4. Implementation in test design and execution of the experiments in the field.
  5. Data preparation and preliminary analysis.
  6. Analysis session (internal):
    This means comparing the results with the theses (e.g. regarding effects, barriers/drivers and nudges), development of recommendations for action, story development and report definition. But we also question our own recommendations, to avoid any misjudgements (the researcher's own confirmation bias).
  7. Implementation of the results in report or presentation - documentation and linking up with relevant behavioral effects.
  8. Insight into Action Workshop:
    Presentation & reflection of the results - working out the final solution with the client team (or solutions for the next iteration in agile projects).

Knowledge about the dynamics (process, drivers & barriers) of key behavioral, e.g. the customers' purchase decision behavior, forms the crucial basis for goal-oriented work. This must be initially analyzed when such a project is conducted for the first time, as it forms the foundations for future projects.

To return to the question asked at the beginning: Behavioral Economic Research is certainly not "old wine in new bottles" - for us researchers it's already "The Next Big Thing". The response we receive to our client projects, the public discussion of the topic, or the Nobel Prizes awarded to Kahneman & Thaler show that BE is becoming increasingly important. We are very confident that in a few years' time Behavioral Economics will become a standard in companies.

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