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Strategy

by Vaishali Veldurthy

How is marketing based on nudge theory different from classic marketing principles?

Behavioral economics studies the idea of choice and consumer decisions and integrates concepts from psychology, neuroscience, and marketing principles. Nudge theory, popularized by the book Nudge, written by Richard Thaler and Cass Sunstein, has brought nudges to prominence in behavioral economics and in marketing.

Nudge theory is a concept in behavioral science that proposes indirect suggestions in the form of “choice architecture” as ways to influence behavior and decision-making of groups or individuals. As outlined in Thaler and Sunstein’s book, nudges are about designing choices. A nudge is a predictable way to alter people’s behavior without forbidding any options or significantly changing their economic incentives. For example: arranging healthy food options such as fruits and vegetables at eye level in a cafeteria counts as a nudge but banning all junk food and beverages does not.

In his analysis of Thaler and Sunstein’s theory, Hal Conick of the American Marketing Association talks about how nudges have increasingly gained acceptance because of their relevance even outside of marketing¾they are common and fundamental to human psychology. People frequently leverage nudges to gain attention, to motivate, and to change behavior. As Conick notes, headlines of stories, attractive packaging on snacks, and push notifications on your phone from the news app may all be considered nudges. How then do Thaler and Sunstein outline nudges that are intended to influence behavior? The answer lies in their interpretation and explanation of the choice architecture. The rationale for choice architecture comes with the fact that when people are provided with options for decision-making, they are invariably provided these options in some order. In other words, there is always a context or a general frame to the choices that people are presented with. By tweaking the choice architecture, people can be motivated to make the decision that is desired.

Well, how do we know this? The biases that stem from human psychology, to a large extent, can drive the actions of people facing these choices. Based on the studies of Daniel Kahneman and Amos Tversky, among others, we now know that there are 2 systems of thought that compete with each other¾ one that is slow and guided by rational thinking and the other that is fast and steered by emotions. When combined with the knowledge of heuristics or mental shortcuts that people adopt in order to overcome the difficulty of decision-making, one can effectively design the choices so as to not limit or eliminate any of them but nudge toward the desired one. The question then, is not whether to go about engaging in a choice architecture, but how to design the choice to encourage “the best” possible decision.

As the authors note in the book Nudge:

People entering the cafeteria face making the decision on what to eat for lunch. The fact of the matter is, when visiting the place at mealtime, individuals will choose to eat something, and in the quantity they desire. The options presented to them, however, do influence what they ultimately eat. Placing fruits and vegetables earlier in the line at a buffet; displaying healthy eating options such as whole grain at eye level, as opposed to processed/high-salt, high-sugar foods; and providing smaller plates to limit portion size all amount to the choice architecture tactics within the cafeteria.

The benefit that the authors emphasize is that leveraging the choice architecture to influence behavior is not coercive or limiting because “it does not prohibit people from exercising their free will.”

What are the pitfalls?

Nudge theory faces resistance from staunch supporters of the “rational choice theory” that proposes people weigh their choices and options rationally and make logical decisions that are determined to provide the greatest benefit and satisfaction. They view the role of a nudge to be an additional piece of information that aids objective decision-making.

Nudge theory has also faced criticism as being heavily focused on narrow outcomes. In an article discussing the potential drawbacks of nudges, the author Utpal M. Dholakia uses the example of nudging people to buy more fruits and vegetables while they are at the supermarket by using green arrow markings on the floor to direct shoppers specifically through an enticing display of produce. The purchase of healthy food, Dholakia argues, may be a small win. The larger focus needs to be on the motivation of people to make goals and sustain a behavior to achieve them.

In the article mentioned above, Dholakia presents a case for nudges to be leveraged alongside learnings from motivational psychology. He identifies the dangers of over-indexing on nudges without understanding their shortcomings. The first concern with nudges is their patronizing nature that assumes moral and intellectual superiority of the marketer and therefore may be construed as deceptive or demeaning by the consumer. The second concern is the failure of measurable outcomes that are currently coveted by proponents of the nudge theory to acknowledge other hurdles to overcome besides choice architecture, in order to achieve the consistent and sustained behavior change needed.       

Nudges are definitely not the only ways to change behavior. Even the co-author of the book Nudge and the recipient of the 2017 Nobel Prize in Economics for his contributions to behavioral economics, Richard Thaler, mentioned in a recent interview that nudges are a tiny part of behavioral sciences. He said, “We should be using AI, big data, design thinking, and all the other social sciences, including tools like ethnography. [The] ‘make it easy’ mantra is not specific to any one set of tools or research approaches.” For further insight into Thaler’s views, see this short interview discussing how nudges have changed in the 10 years since publication.

Going beyond nudges

As marketers realize that nudges need to be combined with other theories or methods of motivation and behavior change, there has been a call to go beyond the nudge theory. Mark Bell makes an interesting case for understanding the needs and behaviors of the core audience we are trying to influence behavior change in, and employing machine learning and predictive analytics to influence choices in the future. Technological companies are employing the services of behavioral scientists in order to “build comprehensive models of human behavior and position themselves as the ultimate authority on customer experience.”

With an increasing number of marketers interacting with consumers on digital interfaces, designing choices for online environments is an equally important effort. Digital nudging has been defined “as the use of user-interface design elements to guide people’s behavior in digital choice environments”. Online nudges are also blessed with the advantage of rapid feedback from real-time tracking of customer engagement to allow for near instant modification of content and visualization that are an integral part of the choice architecture. With careful observation and analysis, learnings from designing choices in the analog world can inform presentation of choices in the digital world.

Knowledge of your core audience and of the mental shortcuts they depend on to ease the process of decision-making is key to knowing what to leverage and counter. Making a behavior change easy by simplifying the presentation of choices is necessary to avoid status quo and overcome the decision paralysis that consumers face at the point of sale. According to Thaler and Sunstein, nudges work best in situations where it is hard for people to understand the experiences promised by the choices they are facing. Designers of choice architecture must have a deep understanding of their audience’s current behavior, heuristics, and deep-rooted beliefs they need to overcome. At the same time, it is also imperative to understand the limitations of nudges one desires to deploy and how they must be supported by motivational psychology, design thinking, and data.

Written by Vaishali Veldurthy, PhD

Senior Strategic Planner

We are a full-service, independent, healthcare advertising agency that provides end-to-end, sound strategic thinking and creative, multichannel solutions to pharmaceutical and medical device clients.

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