This economic theory is used to influence customer behavior and decision-making.

Buy one get one free. One cup of coffee sells for $2, a cup of coffee and a pastry sells for $2.50, and two cups of coffee and two pastries sell for $3.50. Meanwhile, the pastry alone is a dollar. What are you buying? Hmmm!

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In such a scenario, you’re being compelled to choose the best possible outcome that not only benefits you but the seller as well. This is nudge theory at play: a crucial part of behavioral economics that’s often used by stakeholders, corporations, governments, and retail service providers to help their customers choose their products and services. Have you ever been nudged, huh? In this article, let’s learn about the nudge theory, how it works, and whether it’s even ethical to implement it for customer satisfaction.

Related media: Behavioral Economics: Crash Course Economics #27

What’s Nudge Theory?

Nudge theory is a concept in behavioral economics, behavioral sciences, and even political theory that proposes indirect suggestions for positive reinforcement as ways to influence behavior and decision-making in individuals or groups. Quite wordy, let’s break it down!

In other words, it is a way of offering subtle clues that support decision-making. It is a technique that’s cleverly used to change someone’s behavior in a very easy and low-cost way, without any harm to the individual or the person enforcing this theory.

It is not about exploiting people financially or limiting their freedom if they won’t act in a certain way. Instead, it is about making it easier for them to make a certain decision when they have so many options available to choose from. We often describe this as “non-enforced compliance.”

The scenario in our introduction is a typical example of nudge theory (maybe you’ve experienced it before). When you buy a burger, you’re more likely to purchase fries and soft drinks in addition. This is when they offer different variations of your “intended” options as a suggestion. The fast food industry tries it a lot of times.

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Also, when there’s an additional cost for plastic bags at stores, you’re less likely to purchase one, thereby reducing plastic consumption. It feels like they’re forcing you to choose what they want but you realize it saves you money and the stress of making up your mind.

Whence Cometh Nudge?

This theory was developed in 2008 by two economists, Richard Thaler, and Cass Sunstein, and popularized in their book ‘Nudge: Improving Decisions About Health, Wealth, And Happiness.’ This was to show how easy it was (and it seems) to influence human decisions with our subconscious feelings.

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According to the authors, a nudge is “any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives.”

Their goal was to show how governments and corporations requiring decisions, such as retail stores, insurance, taxes, and retirement savings, can help their customers be more successful while still allowing them to have full decision-making power.

Thaler reasons that the concept of “nudging” helps people have more self-control to make decisions — especially about their financial options. To count as a mere nudge, the intervention must be easy and cheap to avoid.

Is It Ethical To Apply Nudge Theory?

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Recent research has found the nudge theory to be very effective in inducing a behavioral change in the sphere of healthy eating habits. For instance, a review found that school children were less likely to pick up (unhealthy) foods placed at a higher level at the cafeteria than those (healthier alternatives) that were placed at an even level relative to their height.

The findings from the review estimated that health-related nudges were responsible for a 15.3 percent increase in healthier diet and nutritional choices. Nudging preserves the freedom of choice of the individual who already has a motive, willing and capable of exercising that freedom.

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With all that said, we believe that the nudge theory improves customer service and experience. Nudges are ethical when transparent and beneficial to the public or individual’s interest. For instance, offering your customers guides, articles, blogs, tooltips, support channels, and analytics isn’t enough to call your services customer-centric.

To truly be customer-centric you need to direct the customer to success by using all of those things. This involves recognizing patterns to learn more about how your customers operate and interact with your products and services and how they can achieve their desired satisfaction.

 Or, identify their failures so you can set up predictive analytics models for your customers’ behavior. By applying these patterns, you can help guide your customers to make the right decisions that not only benefit you but would be in their own interest, after all.

And finally, you might have noticed that the title of this article might’ve nudged you into reading the dang thing. Gotcha!

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Written by: Nana Kwadwo, Wed, Jan 19, 2022.

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