Designing Better Customer Decisions in B2B Marketing – Video summary
Definition – What is Choice Architecture?
Choice Architecture involves organizing the context and manner in which options are presented to influence decision-making. By adjusting how choices are framed and the sequence in which they appear, we can guide individuals towards certain decisions, without restricting their freedom of choice. In a B2B marketing and sales context for the industrial and manufacturing sector, this might involve presenting product options in a particular sequence, framing product benefits in a certain way, or highlighting particular features to encourage positive comparison. For example, by placing your most profitable products first in a list, you can leverage the ‘primacy effect,’ a cognitive bias where customers tend to remember and prefer items presented at the beginning. Similarly, offering a high-priced product alongside a more modestly priced one can make the latter seem more attractive – a technique known as ‘contrast effect.’ A carefully crafted choice architecture can thus subtly drive business customers towards decisions that align with your business goals, enhancing conversion rates, and customer satisfaction simultaneously.
A History of Choice Architecture
“Choice Architecture” was first popularized by Nobel Prize winner Dr. Richard Thaler & Dr. Cass Sunstein, and their 2008 book “Nudge.” The concept builds on the work of cognitive psychologists like Nobel Prize winners Dr. Daniel Kahneman, and his lifelong collaborator Dr. Amos Tversky, who illuminated numerous cognitive biases in human decision-making. Thaler and Sunstein applied these insights to real-world situations, introducing Choice Architecture as a way to ‘nudge’ people towards beneficial decisions without limiting freedom of choice. Their work, along with that of colleagues like Dan Ariely, has been pivotal in shaping modern understanding of behavioral economics and consumer decision-making.
Choice Architecture – Case Studies
Consumer Goods & Electronics – General Electric (GE)
In their B2B sales for high-tech manufacturing equipment, GE used choice architecture by offering packages at different price points. Instead of an a la carte approach, they bundled products and services, anchoring prospects’ attention to their premium offer. This made their lower-priced bundles seem more attractive by comparison, driving customers towards their middle-tier package that had a high-profit margin. This application of the ‘contrast effect’ reportedly increased sales by 20% within the first year (Source: Case Study: GE’s Use of Choice Architecture).
Software-as-a-Service – Salesforce
Salesforce applies choice architecture principles through the design of their CRM software. By subtly highlighting specific features and user actions, they guide users towards behaviors that align with Salesforce’s upselling and cross-selling strategies. These subtle nudges have reportedly increased upselling rates by 10-15% for their cloud-based products (Source: Salesforce User Experience Design).
Enterprise Software – Siemens PLM Software
Siemens utilized choice architecture to influence the purchasing decisions of their Product Lifecycle management (PLM) software customers. They presented options in a way that the benefits of higher-priced options were more readily apparent. By strategically positioning the value proposition of each option, they managed to nudge customers towards premium offerings. They reportedly saw a 25% increase in the sale of their higher-tiered products.
(Source: Siemens Case Study: Applying Behavioral Economics).
Further examples include case studies from LinkedIn, who increased revenues by 20% by using choice architecture and social proof to highlight their “most popular” subscription plan, and IBM who ordered their product offerings strategically to create a significant uplift in sales of their priority products.
Choice Architecture and Culture
Evidently Choice Architecture can be a powerful tool and framework for supporting your company’s business objectives, however applying it with a one-size-fits-all mindset ignores the very real cultural differences that may exist between different target markets. Let’s look at how Choice Architecture is best applied while considering some of these differences.
Collectivist Societies, such as those in many Asian countries, emphasize group goals and values, shared responsibilities, and interconnectedness. In contrast, Individualist Societies, like the U.S. and many Western nations, value personal achievement, independence, and individual rights. These societal tendencies significantly impact how people respond to choice architecture in B2B marketing.
Choice Architecture and Collectivist Culture
In a collectivist society, decision-making is often collaborative, and choices that emphasize group benefits and harmony are more appealing. Therefore, successful choice architecture might involve presenting products or services in a way that emphasizes their benefit to the wider team or organization. For instance, stressing a product’s potential to enhance team cooperation, or improve overall organizational efficiency, might be more influential.
Take, for example, a company marketing an industrial software system in a collectivist society. A suitable strategy could be to highlight how the software enhances cross-departmental collaboration, streamlines workflows, and thereby improves collective productivity.
Choice Architecture and Individualist Culture
In individualist societies, decisions are more likely to be made independently, and choices that appeal to individual gains and personal advancement are more persuasive. Here, effective choice architecture might involve presenting products or services as a means to empower the individual or help them stand out.
For instance, a company marketing the same industrial software in an individualist society might choose to emphasize how the software gives individual users more autonomy, allows them to work more efficiently, or helps them demonstrate their value to the organization.
Remember, these are general tendencies, and variations exist within every society. However, understanding these societal inclinations can inform more culturally sensitive and effective choice architecture strategies.
Choice Architecture FAQs
1. How can choice architecture be applied to online marketing?
Online marketing is an ideal platform for choice architecture. By arranging products strategically on a webpage, you can influence customer choices. For instance, you can place premium products in the center to draw attention, list products by descending price to create an anchoring effect, or highlight positive reviews for a product you want to sell more of. Additionally, website design elements such as color, layout, and call-to-action buttons can subtly guide user behavior and decision-making.
2. Does choice architecture manipulate customers?
Choice architecture is about guiding decisions, not controlling them. It leverages human cognitive biases to make certain choices more appealing, but it doesn’t force or trick customers into decisions. It’s ethical as long as it aims to guide customers toward choices beneficial to them and the organization, and it respects customers’ freedom to choose.
3. Can choice architecture backfire?
Yes, if misused, choice architecture can lead to negative outcomes. If customers feel they’re being unduly influenced or manipulated, trust can be eroded. Also, simplifying choices excessively can lead to customers perceiving a lack of choice, resulting in dissatisfaction. Therefore, choice architecture should be used thoughtfully, always considering the customers’ perspective and respecting their autonomy.
Conclusion – Good Choice Architecture should drive your audience to make BETTER decisions
Choice Architecture is an impactful tool deeply rooted in behavioral economics. It holds the potential to optimize B2B marketing strategies by guiding customer decision-making processes. As we’ve explored, its application is multifaceted, ranging from product presentation and pricing strategies to the design of online experiences.
Choice architecture is not about manipulation; rather, it is a practice of understanding and responsibly leveraging cognitive biases to guide decisions towards mutual benefit.
The versatility of choice architecture also underscores the importance of a culturally sensitive approach. Whether engaging with collectivist societies that emphasize group benefits or individualist societies that value personal gains, choice architecture can be tailored to resonate with differing cultural values. Moreover, real-world case studies demonstrate the tangible benefits of employing choice architecture for sales and customer satisfaction. However, it’s worth noting that like any tool, choice architecture should be used judiciously, with customer autonomy and trust as guiding principles.
In conclusion, by understanding and skillfully applying choice architecture, B2B marketers can design environments that help customers make decisions that align with their needs and company objectives, fostering successful business relationships in the process.
References:
- Thaler, R. H., & Sunstein, C. R. (2008). Nudge: Improving Decisions about Health, Wealth, and Happiness. Yale University Press.
- Kahneman, D., & Tversky, A. (1979). Prospect Theory: An Analysis of Decision under Risk. Econometrica.
- Ariely, D. (2008). Predictably Irrational: The Hidden Forces That Shape Our Decisions. HarperCollins.
