Why you must address customer irrationality

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At British Telecom (BT),  we were buying a CRM system. I was leading the project and we had 15 people around the table to make this choice. It was a significant decision for a lot of money.

So, as it was a business decision, you would think we were logical about it. However, we weren’t. We were irrational about it.

Your customers are irrational, too. They are irrational in business-to-consumer (B2C) transactions and they are irrational in business-to-business (B2B) interactions also. We discussed their irrationality in our podcast this week.  

Today we will take a closer look at what irrationality means in a Customer Experience and how it applies to customers’ decision making. Moreover, and perhaps most importantly, we will address what you can do about customer irrationality in your Customer Experience design.  

Customers Do Not Intend to be Irrational

With the CRM decision in BT, we did not set out to be irrational about it. Quite the opposite. We had pre-meetings about how we were going to choose. We drew up a long decision matrix.  We had people in to train us all on how to make this decision using this matrix, which was what to look for in a CRM system and how to “score” the presentation for the data we collected on it.

After the presentations and the scoring, the matrix told us to go with Company A’s CRM.  However, everything in my gut told me it was not the right decision.

So, we didn’t. We went with Company B’s CRM. Not only was it not the one the matrix told us to choose, but it was more expensive. The finance guys at BT loved that, by the way.  

For those of you that have implemented new systems, you know it can be a challenge. Thankfully, the CRM we chose was fantastic—and maybe because we had more of a vested interest in this CRM being fantastic. However, it was also because we got on with the Company B team  better. We trusted them.

The new program was, in fact, so successful that I left British Telecom and began Beyond Philosophy. But that’s another story…the point is, we had every intention of undertaking a logical approach to our decision making and made an emotional one anyway.

Your customers are doing the same thing. They often approach an important decision with every intention of being rational about it. However, the irrational side kicks in and mucks it all up.

What Is Irrationality?

When it comes to customer irrationality, it is surprising how often people have a different idea of what it means. We use the word irrational to define how we behave when we are motivated by emotions rather than logic.

Rationality is, of course, the opposite. When people respond to incentives, it is considered rational behavior in academic circles. However, in my layman's terms, I often use the word logical interchangeably with rational.

At BT, the CRM purchase was set up to be a logical decision.

  • How much?
  • When will it arrive?
  • What features does it have?
  • When can we have it up and running?

And so on.

In B2B, we think we make logical (rational) decisions. We pride ourselves on our business savvy and being “left-brained” in our decision making. However, there is a lot more happening here than logic.

From a practical perspective, human behavior is not strictly logical. If you have any chance of predicting what your customers are going to experience, you have to have a model of human behavior in your head.  Is it a rational model or an irrational model or is it something kind of in between?

The problem is many companies might say “rational model,” and call it a day. It’s the default. Many companies still think that consumers are logical when they make buying decisions. Something like, “If we sell it at $X, we will sell Y more.”

To be fair, more organizations are embracing the idea that emotions are part of their experience, even if they don’t know it. My example just now was about an organization that thinks business is rational who then adjusts their pricing. Pricing is very much part of the subconscious and psychological parts of an experience, otherwise known as the realm of behavioral economics.  

For example, if you price your product at $500, a customer perceives it as $500. But if you price it at $499, only $1 less, customers perceive the price as $400-something.   The $499 “feels” like a better deal. Also, a gym membership that is $365 a year sounds way more expensive than when it is positioned as “just $1 a day.”

Our perception of the price isn’t logical; it’s irrational. These irrational perceptions influence our buying decisions all the time.

However, embracing that customers are illogical (irrational) isn’t enough. Customers can be irrational in all kinds of different ways. Understanding irrationality is the beginning of the journey, not the end.

For some organizations, the idea that there is no cut-and-dried way to manage irrationality in a Customer Experience is overwhelming. So instead, they choose to ignore it and stick to what they can control, i.e. the rational part of an experience.

Moreover, this idea of emotional decision-making driving your Customer Experience is not limited to B2C experiences. I spent most of my life working in the B2B arena. Business people don’t get up in the morning and put on their logical hat for work. They are still emotional and the make decisions irrationally, the same way they do when they are signing up for a gym membership. Their “gut” tells them things at work, just like it does everywhere else in their lives.

The BT example I shared was deliberate. Anyone who has made a purchase for a business could tell that story because it happens over and over again. Sometimes it is the leader who makes an emotional decision, as it was in my case. Sometimes one of the team members says something like, “I don’t feel right about this.” Sometimes it is your boss who takes a look at all your painstaking research and says, “I think we’ll go with this one instead.”

A lot of B2B decision making is emotional because people make the decisions (not robots…yet) and people are emotional. There’s this old saying from the 70s, “Nobody ever got fired for buying IBM.” It’s an interesting phrase because that’s a B2B purchase. A lot of IBM purchases at that time may have been driven by risk aversion, an emotional response to go with the conservative choice.

So, What Do You Do?

As Customer Experience professionals, you can’t afford to make this judgement that “customer behavior is rational” as the default option.  You need to look at the decision occurring in your Customer Experience as if you were a customer yourself. You need to discover what making that decision is like and how you choose between your options.

You need a mental model of human decision making. Some of these models are normative and some are descriptive.  We can study decision making in both ways.

Normative models of decision-making describe what people should do. Most rational models, or logical models,  describe how people should make decisions if they were to make optimal choices without any bias. That is the mode that a lot of us default to when we're trying to anticipate other people because it is the easiest for us to imagine.

Descriptive models of decision-making show what people do. These models get very messy and specific and are difficult to create. However, descriptive models are more useful because they are based on reality instead of theory about how people should operate.

When you are developing your theory of how your customers make decision, you need that mental model to function. In our global Customer Experience Consultancy, we recommend a model that describes what people actually do.

Changing the World Comes Down to You (No Pressure)

We're still in the infancy of educating people about customer behavior. Behavioral economics is diving into the psychological influences.

So, the good news is you, dear reader, are leading the way on these concepts. You can include these ideas in your Customer Experience design and educate your friends and colleagues on why you do it that way.  

Then, your sphere of influence will realize the value inherent in the rich vein of customer data regarding behavioral understanding and do the same. Little by little, your pioneering work in understanding customer behavior will help  change the world.

Customers are irrational whether they are acting on their own behalf or for their employer. Designing a Customer Experience strategy that works with their illogical nature will help you provide and experience that leaves them feeling happy and pleased.

In other words, it all starts with you. We’re depending on you to take action. So, go out and change the world.

To hear more about customer irrationality and what to do about it in more detail, listen to the complete podcast here.

If you want to benchmark your organization’s performance in the new world of behavioral economics against other companies, take our short questionnaire.  Once you submit, we compare your answers against what we know about the market and send you a free personalized report about where your organization is today.

Colin Shaw is the founder and CEO of Beyond Philosophy, one of the world’s leading Customer experience consultancy & training organizations. Colin is an international author of six bestselling books and an engaging keynote speaker.

Follow Colin Shaw on Twitter @ColinShaw_CX

About Colin Shaw

Colin Shaw

 Colin Shaw is founder & CEO of Beyond Philosophy, one of worlds first organizations devoted to customer experience. Colin is an international author of six best-selling books. Beyond Philosophy has a proven track record. They provide consulting, specialised research & training from Sarasota, Florida and London, England. Follow Colin Shaw on Twitter @ColinShaw_CX

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