What you should know about behavioral economics

The future of the agency business is here, and it’s called behavioral economics. So believe many practitioners of our craft, most notably in the U.K. Rory Sutherland, President of the IPA in London, is of the opinion that behavioral economics may well be the thing that helps agencies regain their status in corporate board rooms.

Many agency professionals have already read one of the many popular books on this topic, such as Switch by Chip Heath and Dan Heath, Nudge by Richard Thaler, or Predictably Irrational by Dan Ariely. If agencies really are marketing problem solvers (not a bad definition of what good agencies do) then we must learn a lot more about how people make decisions, not just how they respond to advertising messages. This is the business of what could be called “choice architecture.”

Says Rory Sutherland in the recent IPA publication, “We're All Choice Architects Now!”:

“If I were asked to sum up Behavioral Economics in a sentence, it is this: That, in making decisions, conscious or unconscious, big or small, about our lives and what we buy and do, the context, framework, interface, medium and pathways through which we reach decisions may have a greater influence on the decisions we take than the long-term consequences of the decision.” Choice Architecture deals with a subset of this – in particular, the disproportionate influence on our preferences which is brought to bear by our comparative set, and by implicit assumptions and norms. Advertising can of course affect this, but there are many other interventions we can employ to enhance advertising to make our overall activities more effective.”

Behavioral economist Nick Southgate offers an even more simple explanation of the role of behavioral economics: “The notion of Choice Architecture is impressively simple. The way a choice is presented influences how it is made. Given this, choices can be designed. Designing choices based on this knowledge is the role of the Choice Architect.”

Southgate goes on to say:

“The impossibility of presenting a neutral choice makes us all Choice Architects. We follow this instinctively in our personal lives when we try to influence our children, make arrangements with friends and family, or discuss and negotiate with colleagues. Being more conscious that this is what we are doing will likely make us better at it and ensure the outcomes we intend."

“Those of us who work in advertising and brand communications are also Choice Architects by profession even if we have not spoken of it previously in these terms. We have been using our research and planning skills to understand the sociology of markets, the myriad customer journeys within them and the attitudes that influence them. But we haven’t spent much time at all trying to re-design the journeys themselves and use Choice Architecture and ‘nudges’ to encourage people to take the turning towards our brand.”

Some progressive agencies have already started to embrace this way of thinking. DraftFCB now has an “Institute of Decision Making.” BBDO employs behavioral strategists working in their new strategic consultancy, Batten & Company.

Does the answer to a marketing problem always have to be a message?

If agencies embrace their role as choice architects, they soon begin to realize that the most effective solutions to marketing challenges may be helping the client construct better choices rather than just better messages.

Marketing or Business Problem	Possible Marketing Communications Solution	Possible Choice Architecture Solution
Persuade residents of drought-plagued cities to save water	Mount an aggressive water conservation campaign in multiple channels	On individual water bills, print the water consumption of everyone on the street (this worked successfully in Australia)
Reduce the number of cars coming into the city in order to reduce both pollution and congestion	Based on insights into commuter behavior, execute a campaign designed to educate commuters on the benefits of using public transportation	Institute a small tax on all cars entering the most heavily trafficked areas of the city (this worked successfully in Sweden)
Reduce the number of fatalities on a winding coastal highway	Put up bigger and better billboards and signage urging drivers to slow down	Remove the dividing lines on the highway, which has the effect of making drivers more careful (this worked successfully in Scotland)
Sell more chicken soup	Heavy up advertising to mothers during the cold and flu season	Display chicken soup next to the cold remedies in the grocery store (this worked successfully for Campbell’s).
Get young people to donate more to charity	Make an appeal in the social media networks most used by this demographic	Recommend to the client to accept donations via text (this worked successfully for the Red Cross during the Haiti earthquake relief effort).

The point is that we need to become experts in brand interactions, not just brand messages. The truth is, often advertising and communications is the least effective way to solve a marketing problem, but that doesn’t stop hundreds of agencies (and their clients) from using it anyway.

Behavioral economists teach that there is now a body of well-understood principles of human behavior and decision making that can guide many business and marketing decisions. Here are some of them:

People will work harder to avoid losing something than they will to gain it.
People don’t know what they want in the absolute – they need to see it in context.
People tend to take the path of least resistance – to keep doing what they’ve been doing.
People value what is scarce and devalue what is plentiful.
People tend to overweigh immediate costs and benefits relative to those in the future.
Products with multiple benefits are less convincing than those that appear to do only one thing.
The price that is demanded for something makes us value it more.
People are more likely to change if they are given a powerful emotional jolt.
People generally appreciate being given a set of steps to follow.
People respond more positively if they are given a helpful environment in which to make choices.

At every key point in the customer journey, the prospect for a brand makes a decision. Knowing how to help guide these decisions in a way that is beneficial both to the brand as well as to the consumer is the new core skill set needed by “agencies” moving forward.