Big Data Is Nudging You

>>Big Data Is Nudging You

By Alain Samson

 

Disclosure

When I was a college student, I was pretty good at buying lemons. And I’m not referring to the citric variety. Today, I attribute my past mistakes to a lack of expertise and having been easily influenced by people with used car salesman persuasion skills. I’ve become very sensitive to sales tactics as a result of these and other experiences. My work in the domain of consumer behavior made me understand sales and marketing better from an academic point of view, but didn’t attenuate my sometimes cynical attitude as a consumer. So I’d like to apologize in advance if this shows (too much) in the remainder of this post.

BigDataIsNudgingYou

The Setup

The other day I was shopping for a sofa for my office. I found one that I liked online, offered by a reputable retailer of furniture that I would consider good value for money. I put the sofa into my virtual shopping basket, started to fill in the usual fields (name, address, phone number, etc.), but stopped short of providing debit card details and submitting the first page of the form. I must admit that I’m the kind of person who isn’t very good at clicking on the ‘purchase’ button. There’s always an element of doubt lingering in my mind: Am I spending too much? Should I wait a bit longer? I had one of those moments, so I deferred the purchase.

Big Brother Is Watching You

Ten minutes later, my phone rang. The person on the other end introduced himself as a representative of the retailer in question at a nearby branch. He noticed that I added a sofa to my shopping basket, but hadn’t gone through with the purchase.

Whoa! It’s one thing for a retailer to respond to an online wishlist or watchlist (which usually occurs electronically), but quite another to act on my apparent purchase intention by phone within a few minutes. I hadn’t even submitted my personal information online yet and wasn’t logged into a customer account.

Big Brother Is Nudging You

The call continued. The store representative wanted to let me know that there were only two of the sofas I was interested in left in stock. He wanted to make sure I’m not disappointed if the item is no longer available when I actually decide to make the purchase.

I had mixed feelings. Part of me appreciated the good customer service (if that’s what it really was). The other—somewhat larger—part of me felt like my online privacy had been violated. It all felt a bit creepy.

The “only limited stock – buy now to avoid disappointment” spiel is of course one of the oldest nudges in the book. Scarcity appeals, whether they are about limited time offers or limited quantities, work quite well on consumers. They are a particularly effective tool to counteract procrastination, such as purchase deferral.

One of the reasons why consumers act on scarcity appeals is to avoid the regret that may be felt as a result of missing an opportunity. The store representative employed another classic way of reducing regret aversion: an offer to return the sofa, free of charge, if I am not satisfied.

Big Data Is Nudging You

The information collected online from consumers is part of what is often referred to as ‘big data’. With the growth of new technologies, especially the internet, the amount of data collected about consumers is becoming increasingly vast. Naturally, businesses are interested in harnessing this information for marketing purposes.

Customer data is already being used for the purpose of personalization, including product recommendations based on your past buying pattern. Marketing can also be personalized by using customer data to create segments that may respond favorably to different behavioral marketing nudges. I had stumbled upon one potential application in my sofa buying episode: how to target purchase deferrers. If companies had a bit more information about why the customer defers a purchase, they could use their nudges even more effectively:

  1. If the deferral is mainly the result of simple procrastination or inertia, use scarcity appeals, such as limited time offers.
  2. If it’s about fear of making the wrong choice (regret aversion), offer a guarantee.
  3. If the deferral is due to confusion or choice overload, help customers by simplifying their decision making.

The purchase deferral example is just one of many ways in which insights into consumers’ online behavior might be used by allocating marketing resources more efficiently and effectively.

 

So what about my sofa buying episode? The product was still in stock a few days later and I did end up ordering it. Annoyingly, the retailer announced a 20% off sale just two days later, coinciding with my sofa’s delivery date. Major regret! (there have been studies on what it means to miss a sale, too, such as this one). I ended up using my return guarantee as a bargaining chip to get the 20% discount. It paid off.

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By | 2018-02-09T11:39:55+00:00 August 30th, 2016|

3 Comments

  1. Michael Seo September 28, 2016 at 5:44 pm - Reply

    Great article. I have 2 questions based upon my reading. First, what is your opinion on false or manipulated nudging? You mentioned that the “limited stock” is an old nudge tactic, and I think although it can tap into the behavioral psychology of the customer and nudge him to make the purchase, there is a risk of losing the customer’s trust and creating a bad reputation if it is discovered to be a lie. On top of that, there is an unethical component of false or manipulated nudging. Therefore, would you say most people do not consider the rational economics of nudging and rather are short-sighted to use nudging to see an immediate positive result? Second, what is your thought on firms using big data in an unobtrusive manner to avoid making the customer feel that his privacy is being invaded? For example, do you think it was a good behavioral economic decision for Target to send an ad regarding pregnancy and other irrelevant information to a customer it predicted as pregnant only to include the irrelevant information so as to make the customer not feel her privacy was invaded?

    • Alain Samson October 12, 2016 at 3:30 pm - Reply

      Good questions, Michael, thanks. I agree, making up information that’s used in nudges, such as limited stock, is a very bad idea from both ethical and business perspectives. This problem frequently comes up for social norms related messages, such as the percentage of people engaging in a certain (usually desirable) behavior. Some would argue that nudging is inherently more short-sighted than other approaches to behavior change. It really depends on the context. As far as Target is concerned, I am aware that the pregnancy example has been used as an illustration of (creepy) behavioral targeting. I suppose offering baby products along with irrelevant information may divert attention from the targeting practice somewhat, but I’m not sure just how successfully. Is it a good behavioral decision to mix targeted and irrelevant information? Probably one of the best options they had to influence customers’ perceptions about being targeted.

  2. Links 20161012 | Eric Webb October 12, 2016 at 2:51 pm - Reply

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