It starts with understanding human behaviour. Specifically, the way that unconscious habitual thought processes shape our decision making.
Once you have a grasp on these principles, you can start applying them to “nudge” your customers’ decisions in the desired direction.
Let's take a look at the small changes you can make to your referral campaigns to drive big results.
So much so that it’s impossible for us to consciously think about every decision we make. Instead, we rely on shortcuts to help us make sense of things without getting too overwhelmed in the process.
These shortcuts have been crucial to our survival as a species (see lion = danger; run away; don’t get eaten; winning).
But in today’s world, our hardwired logic can often mislead us into what behavioural economics calls cognitive biases: an inflated or inaccurate perception of the reality of a situation.
In behavioural economics, these quick-fire mental rules of thumb are dubbed heuristics. They are snap judgements that might not always prove to be accurate or sensible.
There are a number of defined heuristics, but we’re going to start by focusing on one: anchoring.
Anchoring is a renowned heuristic that can both positively and negatively shape decisions. It’s the concept of mentally steering the value of something, based on an initial benchmark (or anchor). Let’s look at a couple of examples to see anchoring in action.
A study asked a group of students two questions: ‘How happy are you?’ and ‘How often are you dating?’. When asked in this order, the correlation between the two questions was low. But, when reversed, the correlation was much higher.
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 their love lives.
Customers’ purchasing decisions 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. And anchoring works in commercial situations too.
Perhaps the most famous marketing example of anchoring in pricing is De Beers’ campaign that suggested spending two months’ salary on an engagement ring.
This marketing myth now seems to be an accepted benchmark – one that’s proved costly for countless romantics ever since.
In Arizona, a set of estate agents were given a tour of a home, along with its information pack. They were all given the same information, apart for one thing. Half were told the list price was $65,900, the other half that it was $83,000.
The agents with the lower list price estimated the value at $67,811, while those given the higher anchor said the property was worth $75,190. An 11% swing among a group of trained professionals, with no emotional attachment to the property.
Once we understand our susceptibility to mental shortcuts and habits, we can start to use them to shape and influence decisions.
This is where we get the term “nudge theory”. The renowned book Nudge by Thaler and Sunstein shot to prominence discussing this subject in 2008. Since then it’s had a huge influence on governments and businesses around the world.
Nudge theory 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.
We prefer to be cajoled, rather than coerced.
The UK government realised that making small tweaks to public-facing communications based on indirect suggestions could have huge positive impacts on people’s behaviour. They set up a Behavioural Insights Team, better known as the “nudge unit”, to put these tweaks into action.
The nudge unit’s tests placed an emphasis on implied instructions rather than explicit orders. The nudges have been used across pensions, unemployment, army recruitment, charity, adult education and much more.
One example saw the unit play on the principle of conformity to forward the payment of £30m a year in income tax. So how did they do it? A simple letter reminded recipients that most of their neighbours had already paid.
“Nine out of ten people with a debt like yours, in your area, pay their tax on time. You are in the minority...”
The letter emphasises that people who don’t pay their taxes are in a minority in their area, nudging them to avoid the embarrassment of not doing “the done thing”. Governments around the world have since been using this tactic to great effect.
There are two types of nudges popularised by Thaler & Sunstein that are particularly relevant to your referral marketing: framing and herd behaviour. Framing Heuristic concept: Contextualising a concept or issue can dramatically influence decision-making.
Example study: A doctor says, “Out of the 100 patients who have this operation, 90 are alive five years later” vs. “Out of the 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 your refer-a-friend programme
There are multiple ways of framing an offer to include some nudges.
Skincare brand Paula’s Choice, for example, A/B tested two call-to-actions inviting customers to refer friends: ‘Give 7.50 off’ versus ‘Share this offer’. Despite the rest of the offer being identical, it found the former increased both the number of customers sharing and the number of these shares converting into new customers.
Try different ways of framing your referral offer, ensuring that its value is communicated in the most compelling way.
Paula's Choice tested different call-to-actions in its referral offer
Heuristic concept: We’re tribal by nature, so we seek out opportunities to conform. We’re easily influenced by what others say and do. This makes social influence one of the most effective ways to nudge behaviour.
Example study: A student is asked to participate in a puzzle alongside five others (who are all secretly collaborators in the study).
When the student decides 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.
Don’t underestimate the power of telling customers how many people have already referred. This reduces feelings of social risk and sets the expectation that introducing a friend is the expected thing to do among peers.
SimpliSafe encourages customers to join the hundreds who have already referred
