How to use Nudge Theory effectively for your business success.
As you read social media newsfeeds, read newspapers, watch TV news, or drive past billboards as you drive home from work, you probably hear about business growth tactics every day.
Although there’s so much information available, one business growth tactic remains effective above all others: Human behavioural psychology.
You may only need one slight change to create a huge difference in success. That’s where nudge theory comes into play, and let me tell you… it really works!
The point is, we live in a complex world where everyone wants things simpler and faster. Whether it’s diet plans or business strategies, we want solutions that work, and you know that decisions may seem rational, but our brains are not.
This is why Nudge by Richard Thaler and Cass Sunstein became a classic theory back in 2008. They introduced the concept of choice architecture – essentially how context or environment around us affects what we choose, want and ultimately decide to do.
Well, understanding this idea and applying it to your business strategy gives major benefits. And thus Nudge grew into a field of study by itself – called Behavioural Economics.
So, if you’re looking for ways to implement a human behavioural approach to client acquisition and running a business, or as a way to increase sales, understanding and applying nudge theory is a great start.
If the idea of Nudge theory isn’t clear for you yet, let me explain simply what it’s all about:
Being human, we’re often irrational when making decisions. This applies equally to business situations as it does to day-to-day issues (think for a moment about diets).
So, what can be done to trigger better choices?
You may be missing out on huge opportunities if you don’t find ways to nudge your business into areas that work better for you and your customers.
Then you ask: how does nudge theory work in practice?
What you need is a mechanism to bring simplicity and flow into your business life. By implementing effective nudges throughout your business practices, you can positively change someone’s decision without them even realising it—in essence, influencing what they think, how they behave, and what they buy.
Would you like an example?
Imagine this. While you’re in the supermarket, you see your usual vegetable canned soup on sale. It’s dropped from 89c a can to 79c a can, a good saving and so you decide to purchase three cans.
You then see a sign stating “limit of 12 cans per person”. So, what do you do? Since this looks like a deal not to be missed, you then feel it’s probably a good idea to add a few more cans to your trolley.
Of course, you want to take advantage of the lower price!
Anyway, it’s a product you always buy and the expiration date is quite long, and it probably makes good sense… So YOU DO add more to your shopping cart.
This was a nudge used by Campbell’s Soup during a campaign in 1998. The addition of the sign activated the idea of a better deal with more products. It resulted in an increase from 3.3 cans per buyer to 7 cans per buyer – without any extra cost.
So, as you can see, when Campbell’s implemented nudging techniques from behavioural economics, they didn’t remove regular options, they simply made perceived better options more prevalent.
There are lots of tactics out there about ways of nudging people into buying or doing what you want – and they work amazingly well, especially if they’re wrapped up in something that feels personal rather than salesy.
“Nudging” your business with small changes to systems (e.g., reminders, account statements, reviews) can bring substantial improvements in behaviour (e.g. sales, leads) without customers even being aware of what’s changed.
Using concepts such as exclusivity, scarcity, confirmation bias, reciprocity, familiarity and commitment bias allows us to communicate without being pushy.
We simply give people an easy opportunity to take what we have on offer – and this is human nature taking care of itself.
As we’ve seen with nudging strategy from retail giants such as Amazon and the British supermarket chain Sainsbury’s, focusing on improved customer outcomes by learning how to better nudge has shown to be effective at boosting revenue.
Let me give you a couple of examples of nudging customer decisions:
● Start nudging customers towards healthier lifestyles (and making money at the same time) by selling health supplements alongside smoothies and protein shakes at your gym instead of pizza slices.
● An online business that offers monthly and annual subscriptions, where the annual subscription price offers a significant discount to the user.
● Provide customers with the opportunity to save time and money by buying car insurance online instead of spending two hours at the car insurance office at 9 am.
All you have to do is know how to approach clients in order to build the right business opportunity using behavioural finance/science.
I understand there’s a misconception when we talk about nudges. It can sound as if “we’re manipulating people’s behaviour”, but I guarantee you, when doing it in a proper way, a nudge has nothing to do with manipulating.
There’s a difference between nudging a certain behaviour and demanding anyone makes a certain choice.
One might consider a good nudge to be one that encourages a certain choice, but is still:
● Transparent – Make the nudge clear and obvious, not hiding costs / other options.
● Choice is retained – with consumers able to make the final choice.
● Good reason to believe that the nudge is warranted, e.g. strong health costs of smoking/eating too much sugar.
● Identifying and helping to change existing unhelpful influences on people.
Despite this, very few businesses adopt a human behavioural approach to acquiring clients. Not every business should implement nudging; however by adopting human behavioural principles and strategies one can often achieve better outcomes by doing less.
Nudging involves considering what incentives influence consumer decision making. Many businesses are interested in influencing consumer behaviour in ways that boost sales without using a costly advertising campaign, but what is the best incentive? Are both sides winning?
Because it doesn’t alter the status quo.
Nudges don’t limit people’s options.
People still have the last word before selecting an option.
‘That said, the most important reason for why nudges are needed is because we require help in making decisions.’
Nudges should be designed to point us in the right direction, so people are helped to make a better choice and they must be made keeping the collective good of everyone in mind. So always nudge for the better!
As for businesses in today’s world, many of them fail because their owners haven’t considered the human element of what influences conversions.
Consequently, nudge is a technique that supports sales through strategically placed questions, schemes, plans of action and signs (both physical and digital).
However, effective nudge marketing doesn’t happen by accident—and some approaches are have been shown to work better than others.
If you want to get ahead in business, you’re in the right place! I’m here to help you build your business with proven growth strategies based on human behavioural research. I’ll be more than glad to help you fit into the Nudge Environment!
Visit my website for access to many free resources including business management tips and my best-selling books ‘The Little Big Book On Business Success’ & ‘The Art Of Negotiation In Small Business’ – and keep in touch