27 June 2013

Cut Costs with Paper & Ink - Behavioral Intervention Case Study

At company White a decision is made to cut down costs. One area that will be subject to cost cutting is office supplies. The office manager, Mrs. Boer, is not particularly happy with this decision, but agrees to implement it. She identifies two types of expenses that can be cut down, namely ink / toner for the printers and photocopying machines and printing paper.  

Mrs. Boer thinks of ways in which to convince her colleagues to save ink and paper. She considers writing a memo to the entire staff, telling them that in order to avoid difficulties the firm has to decrease the costs. In order to achieve this goal everyone has to make a small effort and do the following:

When printing or photocopying documents people should print in black and white since colored ink is more expensive than black one. They should also save paper by printing on both sides.

Mrs. Boer realizes that there is a good chance that her colleagues will not comply to the new requirements. She goes to the personnel management department and discusses the possibility of applying penalties for not conforming to these instructions. Finally it is agreed that some small penalties can be applied for repeated misbehavior, namely not printing in black and white and printing both sides.

Before sending the memo and making the changes to the internal code of conduct, Mrs. Boer hears about behavioral and decision sciences. She is a bit reluctant, but decides to get the advice of a specialist in these fields. Mrs. Boer contacts a behavioral specialist. She wants to get a second opinion. Naturally she wouldn’t mind if the outside view would match her approach.

The Brief Analysis from the Behavioral Perspective  

The behavioral and decision sciences specialist looks at the problem at hand and considers the following.

First, most of the times when people are printing or photocopying documents they are under time pressure or simply have other things on their minds. Making photocopies or printing is an auxiliary activity and usually it is done on auto-pilot. This implies that there is a good chance that people will simply not consider to push some extra buttons to make the printing be on both sides and in black and white.

Second, although the reason for applying these new rules on printing, namely cutting costs, is perfectly legitimate, it is not necessarily a goal that many people would be happy to strive for, accepting in the process some minor inconveniences in their work activity.

Third, trying to make people more attentive, to pay more attention when printing or making photocopies is not necessarily a good idea because this would take a piece of their brain power. It is without doubt that brain power should be preserved for the tasks that are truly important for their job performance.

The Behavioral Solution

The specialist in behavioral and decision sciences comes up with the following recommendations.

First, the goal of decreasing the consumption of paper and ink (toner) should be framed as a The White Company Going Green endeavor. Many people are more willing to pursue such a goal than they would be willing to join an effort to cut costs.

Second and most important, instead of asking people to be careful with the use of ink or toner and paper, a better solution would be to simply change the default settings of all printers and photocopying machines to print in black and white and to print on both sides. This approach is better suited to the state of mind which people have when printing and making photocopies, namely auto-pilot. Moreover, the burden of changing the setting of a printer or of a copying machine each time she or he makes uses them is eliminated.

Third, a memo will be sent by e-mail announcing the eco-friendly endeavor of saving paper and ink. In the same memo should be announced that if someone actually, really needs to print on one side or in color can still do so, by temporary changing the settings of the printers and copying machines.

The Behavioral Solution is Better

The behavioral solution has the following advantages:

First, the behavioral solution is non-intrusive since it does not add to the mental burden employees have already in a day’s work. This is advantageous because it allows people to use their cognitive resources for the truly relevant tasks a person has to solve each day.  

Second, the behavioral solution achieves the desired results with minimal costs and minimal inconveniences. The costs of applying the behavioral solution are very low. Changing the default settings of printers and photocopying machines can be done by an employee of the company, while writing and sending an electronic memo involve very little effort. Moreover, the inconvenience and discomfort of making new rules, establishing and enforcing penalties are avoided completely.

Third, the behavioral approach reframes the cost cutting endeavor into an environmental one, thus giving people a noble purpose and making the change more acceptable.

Can it be so simple?

The answer is simply: Yes! By making a minor change – resetting the default settings of the machines – can have a huge influence on human behavior. By reframing a very pragmatic goal – cutting costs – into a nobler or at least more socially acceptable one, people are more willing to accept changes and, if it is the case, minor inconveniences. Moreover, the behavioral solution still allows for free-choice, thus who really needs to print in color or on only one side can do so.

Do not apply this solution in companies or departments that actually need to print in color such as graphical design or advertising.  :)

NOTE: This case study is entirely fictional, though many companies and organizations would benefit by applying its propositions.

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6 June 2013

The Shortcomings of Using Reciprocity in Marketing

In the past ten years there has been growing interest in using the so called weapons of influence. This term was coined by psychologist Robert Cialdini who has made a good name for himself outside academia amid the publication of his book Influence the Psychology of Persuasion.  In a nutshell, Professor Cialdini states that six major categories of means can influence behavior. These means received the name of weapons of influence and they are: (1) Reciprocity, (2) Commitment and consistency, (3) Social proof, (4) Liking, (5) Authority and (6) Scarcity.

Many pseudo-scientists who were directly interested started preaching that these means are the solution for all marketing related problems. Without denying the validity of the fact that each and every of these so called weapons of influence has an influence on decision making and on behavior, I am a skeptical when it comes to the claim that it is a must to use them in marketing. Most of my skepticism concerns the issue of which, if any, of these tools to use in a given context. Professor Cialdini has gathered a lot of knowledge on the so called weapons of influence and his book is rich in examples of using these techniques of influence, but there are no clear rules of how to apply the knowledge. I assume that the author didn’t intend to create a guide book on this, thus my critique is directed towards those who recommend head on using any or all or simply randomly picking one technique.  

A large dose of skepticism, from my part, surrounds the use of reciprocity in marketing, mainly in commercial marketing. One view is that offering free stuff, including samples and even actual products, to the actual or potential clients should trigger the mechanism of reciprocity, namely that people will buy more of the company’s products. Personally I believe that this view is deeply flawed and my critique three folded.

First, reciprocity by its very nature is a phenomenon that falls under social norms, whereas purchasing is most often a relationship that falls under market norms. You have probably heard about the study conducted by Professor Regan in which people reciprocated to the favor of receiving a coke by buying raffle tickets. This is an example that might lead to an erroneous belief that offering a gift will automatically trigger purchasing. When looking a bit more in detail, we see that the people who received a coke were asked to buy raffle tickets as a favor for the person who sells them and who is the person who offered the drink. In this case the returned favor is the act of buying and it is directed towards the person who sells tickets and not to the organizer of the raffle, in this case a high-school.

This very nature or reciprocity limits the possibilities for using it in commercial marketing. Imagine that a mail-order company sends you a package in which you find their catalog and a so called gift, say a computer mouse. There is a letter in which the company says that they hope you enjoy their gift and invite you to see if there is anything you want in their catalog.

Do you feel any sense of obligation towards the company? Do you feel that you should return the favor?

My guess is that most people don’t feel that reciprocating is appropriate. After all mail-order companies send packages to make people buy their products. It is hard to believe that sending you a computer mouse or any other so called gift is a favor that should be returned.  

What is very possible to happen is that the mere fact of receiving something would make you like more the company or might simply make you feel good. Subsequently it is possible that you would buy something from this company that you would have otherwise wouldn’t. However this is not reciprocity. You are not returning the favor of receiving a so called gift by purchasing something from this company; rather you feel good about receiving the item and subsequently order something. This is an illustration of the mood and affect heuristics influencing behavior and not a case of reciprocity. In a nutshell, if there is a purchase generated by receiving an item, it is not triggered by the reciprocity mechanism of returning a favor, but by the fact that you simply felt good that your received something.

An advocate of using reciprocity in marketing would give the example of charitable organizations that along with the letter that asks people to donate money for a good cause also send a small so called gift. Moreover, the advocate will point out that this works. The counterargument is two folded. First, it is not clear that there is anything different from the example above. People might simply feel good about receiving something, subsequently donating more money. Second and most important, the act of donating money to charities is not necessarily a commercial one. In other words, donating to a good cause is an action that falls under social norms and not market norms.

The second side of the skepticism of using reciprocity in commercial marketing is focused on the act of offering free samples or even free products. The rationale behind the practice of offering free samples is that people would try the product, like it and subsequently buy it. This, however, has nothing to do with reciprocity. Again, reciprocity is the returning of a favor and giving free samples is not a favor. There is no sense of obligation to return a favor because there was no initial favor.

The practice of offering free products has the rationale that people would buy more of the product after they have received the free one. Like in the case of free sample, this has nothing to do with reciprocity because there is no initial favor to return.

Most importantly, the practices of offering free samples or products come with a very large risk, namely the devaluation of the product. To better understand this, let’s go back to market and social norms. People are social creatures and social norms are very important and prevalent in our lives. However, people make a distinction between social and commercial relationships. If you go to a supermarket to buy groceries, there is no social element in the transaction. It is simply money in exchange for groceries. If a product is given for free, then it means that its price is zero. Subsequently any price the seller will ask later is huge. If you offer, say a magazine, for free and subsequently expect someone to pay even fifty cents for it, this will not happen. Something received for free has the price of zero and even if the seller asks only a few cents that amount is huge compared to the initial price of zero.

The third side of my skepticism on using reciprocity in commercial marketing is that it gives the possibility of free riding. With the risk of repeating, commercial transactions such as purchases in shops fall under market norms. This means that the social rules are not applicable and this includes that the fundamental norm of reciprocity, namely returning a favor, does not apply. Regardless of what is offered for free, may it be a sample, a product or even something completely unrelated such as small and usually useless gifts, it will be taken for free without anything being offered in return. Although people are not the cold thinking rational agents that Economics worships, humans are not stupid. If something can be taken for free, it will be taken. This is more the case if the part that offers something for free is not an individual, but an abstract organization or entity.

For example, in the largest supermarket network in The Netherlands – Albert Heijn – there is free coffee available for clients. The Dutch drink a lot of coffee and caffeine based drinks, so the idea is not bad. However, most of the people I have seen taking coffee for free fit the prototype of people who don’t buy too much simply because they can’t. It may very well be that for the corporation who owns these supermarkets the cost of giving free coffee is very low and any return in the form of increased purchases is covering the expense. However, my humble opinion is that this is only an opportunity for free riding.  

Let’s take a look at the up-side of using reciprocity or reciprocity-like mechanisms in commercial marketing. As you have learned up to now in both free riding and reciprocity a key role is played by the degree to which one can identify the source of the initial favor. Most people would not free ride if the free item was offered by a person who is self-employed or owns a small shop of coffee place. For example, people who go to the Bistro Chez Jacque will not take advantage of his free cookies and eat all of Jacque’s stock. However, the same people would have no problem in going to an Albert Heijn supermarket and drink all the free coffee they can without buying anything.

In a similar line of thought, if Jacque would give a drink on the house every once in a while the clients might reciprocate by leaving a larger tip. If the keeper of a small cheese shop offers his clients the possibility to taste the cheese it is likely that some of them might perceive it as a favor and reciprocate by buying a piece of cheese.   
The main idea is that reciprocity is a social act and in order for it to function the side that makes the initial favor must be a person and not an organization. People are going to buy an extra piece of cheese if the shop keeper offers them a free sample; this is even more likely if the shop keeper cuts the piece of cheese (the sample) in front of the customers, making it seem like he is doing it especially for them, like it is a favor. However, this is not true when the piece of cheese lies on a tray in an impersonal 5000 square-meters supermarket. Sales of cheese in supermarkets might increase by offering free samples, but people don’t buy it because they want to reciprocate. Rather they buy cheese because they were reminded that cheese should be bought or simply because buying cheese makes sense.

More impersonal entities such as web-sites or corporations can use reciprocity-like mechanisms, but these have to be in the form of clear trade-offs. One very good example comes from the Albert Heijn supermarket network. Each week some products are on sale and usually the discounts are considerable. This is nothing special since all supermarkets have weekly sales. The interesting thing about the Albert Heijn supermarkets is that the discount is given only if the client scans a barcode that is printed on the Bonus Card. This card is offered for free and usually without any long forms to be filled. This is an illustration of a clear exchange between the impersonal entity, namely the retail corporation, and the individual, namely the client. In this manner, the corporation gets what it needs, namely data to analyze and optimize their sales and the customer gets what she wants, namely the discount.

This type of clear relationship is not necessarily typical for social norms; if anything it is closer to market norms. It resembles reciprocity in the sense that it is a favor in exchange of a favor, but it is not exactly reciprocity.