Behavioral Economics in Consumer Research

Innovation Atelier’s journey in Behavioral Economics started in 2011, as we got a pretty intriguing experience in the course of a consumer research. We were handling field-work in duty free retail environment combining observation and quantitative data collection. I was taking care of observation while our interviewer was getting questionnaires filled. One morning, my attention was caught by a shopper who looked rather excited about the communication material we were studying.

He observed the promotional display, almost pointing at it, and expressed the type of “Wow” some marketers wish for over their entire career. I had no doubt this shopper would have some interesting feedback to share, so I followed him to listen to his answers to the quantitative questionnaire; I thought I could even ask him a few extra qualitative questions if he had time.

But then I heard what he was answering to the interviewer; had he noticed anything special today? No. Had he noticed any of the communication material we were investigating? No. And a categorical one. He couldn’t remember anything about the special display, neither spontaneously nor probed.

I was baffled. What did this mean? How is that possible to go from such an extreme display of emotion in a store to complete memory loss two minutes later? I didn’t even know what to do with the quantitative questionnaire…

At this very specific point in time, I realized I was not equipped to find an explanation for this apparent outlier. There weren’t a lot of theories around to help grasp such fundamental contradictions.

But I absolutely wanted to get to the bottom of this; there was something big behind it. We needed a new framework, something that would better capture human complexity and paradoxes, the differences between emotion, expression and behavior; this is when we discovered Behavioral Economics.

Behavioral economics studies the effects of social, cognitive and emotional factors on the economic decisions of individuals. It is aimed at explaining and predicting human behavior in front of choice, encompassing both its rational and irrational side. Behavioral Economics is in fact a combination of sciences; feeding itself from the latest discoveries in Cognitive Psychology, Social Psychology and Neuroscience, amongst others.

Going back to our puzzling experience with these concepts, it all made sense… our shopper was an infrequent traveller and the airport environment had increased his arousal, making him more disposed to over-react to his environment (and move to the next thing). In these conditions, the display had caught his attention due to its original execution (a 3D hologram) which was both salient and unexpected. Yet, he could not fully process what he had seen because he was in a controlling mode with one clear objective in mind over-shadowing all the rest; he had to go find his gate.

After a few months of digging into academic publications and field literature, discussing with other market research practitioners and consultants, we had a good idea how we could use Behavioral Economics in consumer research, and its potential impact on prospects’ businesses.

Yet, we didn’t know whether this would ever make sense to marketing and market research executives. So we set up a research. We selected a group of 59 experts and thought leaders from marketing, marketing research, general management and academics, and asked them a few questions (July 2012). This straightforward approach enabled us to paint a comprehensive picture of Behavioral Economics in the context of consumer research.

Behavioral Economics is a new science in the world of marketing research, and only about 50% of practitioners have heard about it. These is better than biometrics (33%), prediction markets (29%) or text analytics (20%), but lower than hotter methodologies in the world of research like mobile surveys (67%), online communities (65%) or neuro-marketing (59%).

Overall, ever-usage of behavioral economics in consumer research is low (8%) compared to online communities (22%), social media analytics (18%) or mobile surveys (14%) to name a few.

Our research shows that the level of knowledge about behavioral economics is low; more than 70% of marketing professionals aware of behavioral economics “do not know well” or “not well at all” what it is. This is not surprisingly the number one barrier to trial. Most recurrent comments are of the type: “I don’t know how it differs from traditional research, so for me standard methodologies are sufficient”, “I didn’t realise it was a specific type of tool to understand how people make choices” …etc.

Now, considering that only half the practitioners have heard about behavioral economics, and that the majority of them do not fully understand what it is, trial for BE-based consumer research is actually not bad; from the available base (ca. 13% of all practitioners), the conversion rate reaches a striking 60%.

Key drivers of adoption are a deeper level of understanding of consumer unconscious behaviors, a better grasp of reality as it is, and a better control over context and research biases. The methodology enables them to “get to the bottom of what people really do versus what they say they do”, to get “closer to reality vs. declarative studies” and gain a “mix of insights on system 1 & 2” (insights on intuitive/unconscious behaviors vs. rational/conscious ones).

In addition, when marketing research professionals who don’t know BE-based research are given a short description of what it is, 65% of them express interest in trying the approach in the near future (i.e. within less than a year). This confirms the high appeal of the methodology, and in turn its high potential in the industry.

The need for behavioral economics in consumer research is here. According to a report published by Forrester research in 2013, “behavioral data bridges the gap between what people say they do (as captured in surveys) and what they actually do (captured in transactional data)”.

Transactional data may not all need to come from consumer panel, loyalty card or online tracking; secondary research based on observation and experimental design are also effective at measuring consumer behavior. From there it is a question of using the right framework to capitalize on this data, carefully looking at the dimensions that shape this behavior.

A model that was originally developed by Samson & Wood and later adapted by Innovation Atelier offers 3 vectors of investigation. Firstly, personal factors capture the person’s background, motivations and cognition. Environmental factors include space, time, context and choice architecture. Finally, social factors encompass social norms, imitation and peer pressure, amongst others.

This model offers the benefit of being applicable to a wide range of industries and fields of research; it has already proved very effective at generating insights on consumers’ choice of store, choice of brand in the store, price comparison, brand perception and product usage in different categories for our clients. These are just a few examples, considering the flexibility of the approach.

So, by now we know that using Behavioral Economics in consumer research drives interest and provides results. The approach is just emerging, with a low but building level of awareness and still poor comprehension among its prospects. Even GreenBook don’t include it (yet) in their list of emerging research techniques (http://www.greenbookblog.org/grit). Behavioral Economics now needs more visibility and simpler explanations to reach the people it can serve.

From a client perspective, it is hard to get a hold of Behavioral Economics as the applications are multiple and its descriptions often linked to public policies (it revealed fantastic insights to promote organs donation and 401(k) retirement savings  in the US), over-shadowing what it can concretely do for marketing researchers. Business examples are scarce because BE research providers like us tend to not publicly share their business cases for the sake of confidentiality. Finally, it is not easy to move away from standard research typically well accepted and easy to communicate in organizations despite a low yield on insights.

Net, it may be a big step even for the most advanced companies and savviest managers, but as Goethe pointed out a few years back: “The dangers of life are infinite, and among them is safety.”

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