Nudging Your Way to Success; Part 3 in our Psychology of Referral Series
The key to marketing success is to influence a customer’s behaviour via the subtle yet powerful art of suggestion. Our first two posts on the psychology of referral have taught us that brands that achieve success with referral campaigns realise this.
In this final installment, we’re going to explore why this subtle art and science of influence is the most reliable referral conversion strategy there is.
It comes down to understanding human behaviour. Specifically, the way that unconscious, habitual thought-processes shape our decision-making; and how leveraging our understanding of this can allow us to “nudge” decisions into the desired direction for both our company and our customers.
Understanding heuristics and cognitive bias
We live in an incredibly complex world. We’re forced to rely on shortcuts to help us make sense of things and not get too overwhelmed in the process. Whilst these shortcuts have been crucial to our survival as a species (sight of a lion equals danger; move away from it; avoid getting eaten), in today’s world, they can often mislead us into what behavioural economics calls cognitive biases: an inflated or inaccurate perception of the reality of a situation.
Experts in behavioural economics coin these quick-fire mental rules of thumb, heuristics -snap judgements that might not always prove to be accurate or sensible. Many types of heuristics have been defined and labelled. But to mention just one, “anchoring” is a renowned heuristic that can both positively and negatively shape decisions.
Anchoring is the concept of mentally steering the value of something, based on an initial benchmark (or anchor).
One example study of anchoring in action was when a group of students were asked two questions in random order: ‘How happy are you?’ and ‘How often are you dating?’. When asked in the above order, the correlation between the two was low. But when reversed the correlation was much higher.
Conclusion: even though all participants were asked the same two questions, those who were asked about their dating activity first anchored their assessment of happiness in relation to that first question.
Another example of anchoring in relation to sales and marketing is pricing. It’s been proven that a customer’s purchasing decision can be heavily influenced by how the price has been “anchored” within a set of choices. For example, people are far more likely to make a higher charitable donation if the options presented on a web page range from £100 up to £5,000 than if the options range from £50 up to £150.
Once we become aware of and understand these mental shortcuts and habits, we can actually begin to use them to shape and influence decisions.
Nudge by Thaler and Sunstein, a renowned book came to widespread prominence on this very subject in 2008. It has had a huge influence on governments and businesses around the world.
Let’s examine nudge theory a little further.
Nudging people in the right direction
Taking a look at a simple definition of the word “nudge” is a good starting point for understanding what it’s all about:
To push slightly or gently… to get someone’s attention, prod someone into action etc.
Nudge theory, as the name suggestions, argues that positive reinforcement and indirect suggestions can influence a person’s motives, incentives and decision making more effectively than direct instruction, legislation, or enforcement.
Informed by Thaler and Sunstein’s thinking, the UK government realised that making small tweaks to public-facing communications based on indirect suggestions (or “nudges”), could have huge positive impacts on people’s behaviour.
Taking the example of getting people to pay various forms of tax owed, the UK government carried out tests that experimented with “nudges”, placing an emphasis on implied instructions rather than explicit orders. A few examples:
Emphasising that those who do not pay their taxes are in a minority in a local area; using the “conforming” nudge heuristic to encourage people to avoid the embarrassment of not doing “the done thing”.
Telling professionals that unpaid taxes in the past would be treated as an oversight but from now on would now be seen as an active choice; using the “mindlessness” nudge heuristic. Removing the excuse of negligence or misunderstanding as a reason for not paying.
Asking people to state that they are still eligible for council tax discounts. Using the “priming” nudge heuristic to prepare people for an upcoming required action based on a prior declaration or piece of information.
The results? The government found that their “nudge” letters caused positive response rate and engagement to increase by up to 15%. Other governments around the world have also been using this to great effect.
Now let’s look at how nudge theory be applied to referral marketing.
Nudge theory applied to referral marketing
If you’ve read my earlier psychology of referral posts, you’ll realise by now that a great referral campaign needs to communicate nuanced messaging and cues that that subtly bring a prospective customer around to the idea of agreeing to refer.
In other words, in order to get people to take a desired course of action we need to use a carrot, rather than a stick to nudge people into realising the positive outcomes of that decision.
There are two specific types of nudges popularised by Thaler and Sunstein that are particularly relevant to referral marketing: framing and herd behaviour. Let’s consider each in turn...
Heuristic concept: Contextualising a concept or issue can dramatically influence decision-making.
Example study: A doctor says, “Of 100 patients who have this operation, 90 are alive five years later” vs. “of 100 patients who have this operation, 10 are dead five years later”. Even though the odds are exactly the same, the number of patients agreeing to have the operation in each scenario are radically different. The framing makes all the difference.
Key takeaway for referral marketing: There are multiple ways of framing the same offer, with each variation potentially “nudging” a prospective customer. For example, we recently ran an AB test with a client from the gifting sector measuring the conversion rate of the same offer articulated in two different ways: “£5 off for your first order” vs. “send a gift for as little as £10”. The minimum order value in both cases was £15. In this AB test the second variation performed much better. Experiment with different ways of framing your referral offer, ensuring that its value is communicated in the clearest and most compelling way.
Heuristic concept: We are tribal by nature and therefore seek out opportunities to conform. We are easily influenced by what others say and do and so social influence is one of the most effective ways to nudge behaviour.
Example study: A student is asked to participate in a puzzle, along with five others (who are all secretly collaborators in the study). Having decided on the correct answer, the other five participants purposely declare the wrong answer; making the real respondent doubt their own response. In numerous tests, the real respondents conformed with the others, knowingly agreeing to the wrong answer between 20-40% of the time.
Key takeaway for referral marketing: Don’t underestimate the power of simply letting a prospective referrer know how many others have participated in the offer. Including messages such as the below example reduces feelings of social risk and sets the expectation that introducing a friend is the expected thing to do among peers.
The above examples offer a little flavour of the power of psychological nudging to increase your referral performance.
If you are creating a referral campaign for your businesses, I would recommend reading Nudge in full for a wealth of interesting insights guaranteed to get you thinking about how to improve your referral offers.
I hope that this post, combined with my previous two has given you plenty of food for thought. For even more useful insights and tips on how to make your referral campaigns a success, check out our complete Guide to Launching a Successful Referral Marketing Programme.
This article was originally published on Mention-Me.com