Paul Laughlin, Managing Director, Laughlin Consultancy

When Customers don’t act rationally

Applying

Behavioural

Economics

© Laughlin Consultancy Ltd, not to be used without permission.

My backgroundCustomer Insight &

Behavioural

Economics

© Laughlin Consultancy Ltd, not to be used without permission.

It’s not fair!

Behavioural Economics (BE)

A quick thought experiment

Would you rather…

A B

Take a 50% chance

of gaining £1,000 and

a 50% chance of

gaining nothing?

OR Gain £500 for certain?

A quick thought experiment

Would you rather…

A B

Take a 50% chance

of losing £1,000 and

a 50% chance of

losing nothing?

OR Lose £500 for certain?

10 irrational biases (FCA)

Present Bias

Reference Dependence and Loss Aversion

Emotional Drivers

Overconfidence

Over-extrapolation

Projection Bias

Framing, Salience & Limited Attention

Mental Accounting & Narrow Framing

Decision Making Rules of Thumb

Persuasion and Social Influence

Why is this relevant to you?

Even when you treat them as individuals & target them

accurately, your digital customers could be vulnerable to

making poor decisions due to these biases.

Do your customers…

1. …find your products complex & boring?

2. …need to make decisions based on assessing risk or uncertainty?

3. …need to make trade-offs between the present and the future?

4. …find these decisions emotional or fearful?

5. …lack opportunities to learn by making these decisions?

Spotting the ‘Dark Side’FCA have stated they will use these as early warnings:

• Rip-offs: Uncompetitively high margins

• Suckers: Concentrated profits in small customer

group

• Bargains: Innovative products that appear very

cheap

• Traps: Contract features that often target BE biases

• Regret: Reported or potential regret

• Folly: Choices out of line with common sense

• Confusion: Observed or likely confusion

Start with customer insight

Customer

Data

Customer

ResearchCustomer

Analysis

Database

Marketing

Feel

Experiences

Test

Hypotheses

Converge

Evidence

© Laughlin Consultancy Ltd, not to be used without permission.

The power of eye tracking research

Generating & testing hypotheses

Research Customer

Need

Bias 3? Bias 2?

Bias 1?Rational Choice

Analyse

Actual

Behaviour

Test

Mitigations

Experimental

Design

Hypothesise

Biases at work

Hypothesise

Biases at work

Can I help you?

customerinsightleader.co

m

laughlinconsultancy.com

@LaughlinPaul

linkedin.com/in/paullaughlin

paul@laughlinconsultancy.co

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+44 (0)7446 958061© Laughlin Consultancy Ltd, not to be used without permission.