How We Weigh Risk In Buying Decisions, The Answer Is Counter-Intuitive. Master Class Part 6: Unlocking the Psychology of Customer Experience

This episode is the sixth in an eight-part series on Unlocking the Psychology of Customer Experience. Here, we explore the psychology we have regarding how human beings deal with predicting unpredictable outcomes. The discussion focuses on biases that influence how people perceive and assess probability and risk, impacting their judgment and decision-making processes.   We begin with a common bias in these situations, the Gambler's Fallacy. In this scenario,  individuals predict future random outcomes based on past results. It feels logical but isn’t and often results in poor decision-making.    For example, casinos will often put the results of the past few Roulette rolls to give patrons a history of what has happened with the wheel. Some gamblers might use this history to predict what is likely to happen next.    However, the marble doesn’t have a memory of what just happened or any control over what happens next. The next roll will be as random as the last roll. The history of the Roulette wheel is meaningless; it only serves the casino by exploiting patrons' inability to realize the random nature of the spin and taking their money.  Another bias we discuss is the Hot Hand Fallacy, which influences people to believe that a streak of success in sports or other areas is sustainable despite statistical evidence.    The Gambler’s Fallacy and the Hot Hand Fallacy are not any more logical or rational than one another. The Hot Hand Fallacy differs because, at least, an athlete’s performance or a business outcome isn’t random. However, it isn’t any more likely to be right.    We also examine the Overconfidence Bias, which reveals how individuals tend to be overly confident in predicting outcomes, leading to misguided decisions. The Dunning-Kruger effect, a related phenomenon, highlights how individuals with limited knowledge of a topic may underestimate their competence.    Colin is guilty of this regarding his ability and drive to learn about his SLR camera’s more nuanced settings. He opts for the automatic settings instead.   Moreover, the Endowment Effect is discussed, illustrating how people overvalue items they perceive as their own, influencing their willingness to part with them. The Hindsight Bias is also explored, revealing how people tend to believe that past events were more predictable than they were.   In this episode, you will also learn the following:   The importance of ongoing learning and adaptation in navigating the complexities of human decision-making. The implications of these biases for customer experience design and decision-making in business. Strategies for mitigating the impact of cognitive biases on judgment and decision-making. Real-world examples of how these biases manifest in various contexts, such as investing, sports, and customer interactions. The role of awareness and education in addressing biases and improving decision-making processes. Practical steps for incorporating insights from behavioral economics into experience design and business strategy.  

Regarding Customer Experiences and the behavioral sciences, there is seldom only one thing happening at a time. There are usually a lot of things happening at once. This masterclass episode, the fifth in a series of eight, explores economic biases and how they create flaws in our decision-making logic.    For example, one key bias discussed is the Sunken Cost Fallacy, where people need help to walk away from investments, leading to subsequent mistakes. Loss Aversion is another bias explored, highlighting how we feel losses more acutely than gains. This bias influences behaviors like resisting salary reductions and preferring to face a potential layoff (where one would lose all their salary) because we can’t imagine losing any part of our present income.   The Endowment Effect, stemming from Loss Aversion, emphasizes how we overvalue items we perceive as our own, leading to decisions like overpricing sentimental possessions. It’s why grad students can’t bear to part with their gift in exchange for a gift of equal value. It’s also why economist Richard Thaler, University of Chicago, can now add “Nobel-prize-winning economist” in his bio. Ultimately, these economic biases reveal that people aren't always logical, and irrational factors often influence our decision-making processes. In this episode, we discuss why and what you can do about it in your experience design.    In this episode, you will also learn the following:   Strategies for recognizing and navigating economic biases in customer experience management. Examples of how these biases manifest in everyday situations, such as purchasing decisions and salary negotiations. The importance of understanding irrational decision-making in designing effective customer experiences. Practical steps for leveraging insights from economic biases to enhance customer interactions and outcomes.  

Surge pricing, a form of dynamic pricing, involves raising prices during spikes in demand to balance supply and demand. It is a rational economic solution to manage demand effectively, but it can generate negative emotions among consumers who feel they're being unfairly charged. Surge pricing is a specific flavor of dynamic pricing or, depending on your perspective, price discrimination.   Surge Pricing is commonly seen in ride-sharing services or airlines, where prices increase during peak times to encourage more drivers to hit the road. Examples of surge pricing include Uber's increased fares during rainy weather and airlines charging higher prices for last-minute bookings or peak travel times.   In addition to ride-sharing and airline industries, surge pricing can be observed in other sectors, such as bars offering happy hour discounts to attract customers during off-peak hours. However, it doesn’t work in every situation and can damage your customer relationships.    Surge pricing has its good points. It can increase revenue and manage demand effectively. However, to do so, this dynamic pricing strategy must be balanced with customer-centric considerations and strategic communication to avoid negative perceptions.    In this episode, we explore the particulars of surge pricing and explain how effective communication is crucial when implementing dynamic pricing strategies. Customer communication can ensure customers understand the rationale behind the pricing changes and feel they're receiving fair value.    In this episode, you will also learn the following:   Examples of surge pricing in various industries, including hospitality and energy. The role of strategic purpose in dynamic pricing implementation. Why effective communication helps stave off disaster when implementing dynamic pricing strategies. How framing dynamic pricing changes can influence consumer perceptions. Balancing the benefits to the customer with revenue optimization goals. There is a need for flexibility and supply management to support dynamic pricing strategies.  

Various motivational biases and emotions shape customer experiences, emphasizing the need for a holistic approach to designing experiences. For example, the customer’s mood significantly impacts the customer’s decision-making processes.   Today's discussion highlights why understanding the customer’s mood and managing customer emotions helps you achieve your desired experience outcomes. It also identifies twenty emotions driving or undermining value, stressing the necessity of specificity in emotional goals.    We also cover the Affect Heuristic and Mood Management Theory, two prominent theories in psychology that are particularly relevant to our discussion on the role of emotion in decision-making. Here’s why:   The Affect Heuristic suggests that our intuitive choices are often guided by emotional responses, with a preference for positive experiences. This has practical implications for businesses in terms of designing customer experiences that evoke positive emotions.    Mood Management Theory posits that our decisions are often driven by the desire to regulate our mood, seeking pleasure or alleviating discomfort. This theory helps us understand the role of mood in decision-making and its potential impact on customer experiences.   Context, culture, and age also influence mood and emotional responses. We discuss how cultural predispositions and life stages shape emotional goals and needs (which also explains why Colin’s Smiley Face Buttons on Etsy won’t sell like hotcakes in England).  In this episode, we underscore the importance of recognizing and understanding the impact of mood on decisions. We also explore the power of positive thinking in shaping perceptions and responses to reality while acknowledging its limitations in influencing external outcomes. Additionally, we advocate for a diagnostic approach to customer emotions and behavior and capitalizing on positive or managing negative moods.   Here are a few key points we make in the podcast:   Mood significantly influences decision-making processes, so understanding and managing customer emotions, which we covered in another episode recently, are crucial for designing effective experiences. Specific emotional goals are essential for achieving desired outcomes, so if you don’t have them, you should make them now. Context, culture, and age also influence mood and emotional responses. Why Colin and Ryan represent both the best and the worst culture has to offer regarding positive or negative outlooks on life.  Positive thinking can shape perceptions and responses to reality but can’t change reality; so think positive but work hard—and don’t walk barefoot over a field of hot lava because you “think you can.”  

This has been created in partnership with NICE. AI is a significant development in experience management, but many organizations need help with its implementation. While experimenting with AI, like ChatGPT, offers a glimpse of its potential, it's challenging to understand how AI fits into the broader tech stack and business systems.   In today’s episode, Elizabeth Tobey, Head of Marketing for Digital and AI for NICE ) NICE, an AI platform, shares insights on effectively using AI to enhance experiences.    This video summarizes what I see happening in many organizations regarding implementing AI.   Tobey says that many organizations have told her they don’t know where to start. She emphasizes the importance of beginning with impactful AI use cases and setting clear KPIs to measure success post-deployment. NICE's suite of solutions helps identify pain points within a company, enabling targeted AI implementations, such as Enlighten XO, which stands for experience optimization.   However, implementing AI requires overcoming siloed approaches and investing in third-party solutions due to resource limitations and expertise within organizations. Customizing AI models for specific customer experiences is crucial, as different experiences require different approaches.    In other words, you don’t want the same experience buying a luxury car as returning running shoes. One must feel posh and comprehensive, while the other should be quick and easy. (We’ll let you guess which is which.)   Tobey advises that to sell AI within an organization, one should focus on solving business problems rather than promoting AI. Managing expectations about AI capabilities is essential, as AI alone cannot solve all problems. Instead, AI should complement existing technology, culture, and business objectives.   Tobey suggests clearly understanding success criteria and providing data to potential partners to demonstrate realistic outcomes. Building relationships with partners invested in success ensures alignment with business needs and fosters growth opportunities.   In this episode, we will also discuss:   The importance of understanding AI nuances and use cases across different organizational roles. How AI solutions should align with existing technology and business objectives. The role of partnerships in AI implementation and success. Managing expectations and avoiding overreliance on AI. The evolution of AI technology and its potential impact on businesses. Customizing AI solutions to address specific business challenges. Leveraging AI to enhance customer experiences and drive business growth.  

A Master Class Part 3: Unlocking the Psychology of Customer Experience In the third episode of our Master Class series on the Psychology of Customer Experience, we delve into how other people influence our behavior. Understanding these theoretical dynamics is practical, empowering you to design effective Customer Experiences. Robert Cialdini's research on influence is a cornerstone of understanding social dynamics and persuasion techniques. In this episode, we rely heavily on his groundbreaking work. First, let’s consider Social Proof. Social Proof is a concept that describes how the actions and preferences of others influence people. Two examples that demonstrate how this works are the idea of trending, or the tendency to like something if others do, and the fear of missing out (FOMO), which drives people to join in activities or trends. Reciprocity influences behavior, too. Reciprocity is the idea that people respond positively to kindness and favors. Many times, people who have been on the receiving end of kindness will return that behavior.. However, acts of kindness that inspire reciprocity must be genuine. If they come with the expectation of something in return, they will not produce the same results. Scarcity is a persuasive tactic that capitalizes on the limited availability of a product or service to create a sense of urgency and desirability. It can be seen in online shopping carts indicating low stock or limited time offers presented during a cruise. In this episode, we provide an overview of many of these social dynamics that influence customer behavior in your experience. Understanding social dynamics and influence can inform strategic decisions in customer experience design, including marketing campaigns, sales techniques, and product positioning. Best of all, Colin uses his serious “Master-Class” voice, which tells you that he really knows what he is talking about.   In this episode, you will also discover: The concept of Social Proof and how it influences consumer behavior. The power of Reciprocity and how acts of kindness can drive customer loyalty. How Scarcity tactics can create a sense of urgency and increase demand for products or services. Examples of these influence techniques in real-world scenarios, like online shopping cart messages and to-good-to-be-true cruise line offers. The importance of considering social influences throughout the customer journey. Strategies for leveraging social dynamics to enhance customer experiences and drive sales.

Quality assurance is crucial in Customer Experience Management, and assessing call center operations provides valuable insights into an organization's customer-centricity. The subject of today’s episode is the result of our None of Use is Clever as All of Us feature. One of our listeners, Jamie Scott of Evaluagent shared his thoughts on Quality Assurance and the problems organizations have regarding this area. Observations and conversations with call center agents reveal operational inefficiencies and training gaps that impact the overall customer experience. Scott highlights key issues with traditional quality assurance practices and offers insights into leveraging AI for enhanced customer service.  Scott emphasizes the importance of viewing AI as a tool rather than a replacement for human agents and advocates for analyzing all customer interactions to gain comprehensive insights. He underscores the need to focus on the emotional aspects of customer interactions and suggests using AI to predict and diagnose customer sentiments across various channels.  However, challenges such as siloed AI implementations and focusing on rational data in quality assurance metrics hinder progress in this area.  In this episode, we explore Scott's topic and how it can help you with your Quality Assurance efforts. Despite these challenges, there are actionable strategies for customer service and quality management professionals.   In this episode, you will also discover: The significance of assessing call center operations for understanding an organization's customer-centricity. Insights from Jamie Scott on leveraging AI and overcoming challenges in quality assurance practices. The importance of viewing AI as a tool to enhance human decision-making rather than a replacement for human agents. Strategies for analyzing all customer interactions to gain comprehensive insights and identify areas of improvement. The need to focus on emotional aspects of customer interactions and incorporate emotional metrics into quality assurance practices. Practical tips for implementing a top-down approach to delivering the desired customer experience and measuring targeted emotions across all customer touchpoints.

A Master Class Part 2: Unlocking the Psychology of Customer Experience In this episode, we continue exploring the psychology behind Customer Experience, focusing on the role of memory. Customer loyalty hinges on how memories are formed and retained. Therefore, understanding memory formation is crucial for designing impactful experiences. Memory formation begins with encoding, where new information is processed and stored in the mind. Encoding involves several effects, including the Primacy Effect, which prioritizes remembering initial experiences, and the Recency Effect, which emphasizes recollecting recent events. Additionally, the Frequency Effect highlights the importance of repeated actions in memory retention. Retrieval effects determine how stored memories are recalled. Professor Daniel Kahneman's Peak-End Rule suggests that people remember the most intense emotion experienced during an event and its conclusion. This rule applies to evaluative memory, shaping overall perceptions of past experiences. Memory also has structure. Memory structure resembles a fishing net, with individual memories as knots connected to form a net, which represents the larger memory network. Retrieving one memory often triggers the recall of associated memories, along with the emotions and experiences linked to them. It’s helpful to picture the fishing net at the bottom of a shallow pool and imagine pulling it by one of the knots to the surface. You get the knot you grabbed, but all the connected knots come along, too. Strategically managing memory formation involves planning for encoding, recall, and structure. Tactics such as leveraging primacy and recency, incorporating humor or emotional connections, and providing follow-up reminders can enhance memory retention. It's crucial to prioritize memorable aspects of the experience and reinforce positive memories over time. Considering the interconnected nature of memory concepts, such as the relationship between encoding and recall, helps design experiences that leave a lasting impression. For instance, understanding how customers perceive value allows you, as a professional, to highlight key features that resonate with your target audience, instilling confidence in your ability to create memorable customer experiences. In this episode, we discuss how memory plays a significant role in driving customer loyalty, making it essential to proactively shape how customers remember their experiences. By being deliberate about memory formation, businesses can create meaningful connections and foster enduring relationships with their customers.   In this episode, you will also learn: The importance of encoding and retrieval in memory formation. Strategies for enhancing memory retention, such as leveraging Primacy and Recency effects. The role of emotional connections in shaping memorable experiences. The significance of follow-up communication in reinforcing positive memories. How memory structure influences the recall of associated experiences. The interconnected nature of memory concepts and their implications for experience design.

A Master Class: Unlocking The Psychology of  Customer Experience With this episode, we begin an eight-part series exploring customer behavior and the psychology that drives it. Each part will delve into the various psychological aspects of Customer Experiences, offering practical advice on understanding and influencing them. Our focus today is on why customers make quick decisions and how you can sway those decisions in your favor. Understanding customer behavior is complex and influenced by multiple factors, a concept known in academic circles as high causal density. There's no one-size-fits-all solution for a perfect Customer Experience transformation; it requires a combination of approaches. Human nature often seeks shortcuts for cognitive tasks, leading to heuristic processes. Heuristics, or mental shortcuts, simplify decision-making. We discuss four common heuristics: Anchoring and Adjustment: People use familiar examples to estimate values quickly, which can lead to biases, especially in pricing strategies. Focusing Effect: When faced with information overload, individuals focus on crucial details to aid decision-making. Recognizing what customers prioritize can influence their choices. Availability Heuristic: Our brains estimate likelihood based on easily accessible examples. Understanding what information customers readily recall helps shape perceptions. Representativeness: People often categorize based on stereotypes or representative traits. Recognizing customer expectations can guide your design approach. Considering these heuristics, we emphasize the importance of first impressions, understanding customer values, managing expectations, and aligning your design with customer decision-making shortcuts. Recognizing the diversity in customer decision-making preferences is crucial, and segmentation plays a vital role in tailoring experiences. This episode explores various influences and group psychological concepts tied to customer decisions. Our goal is to provide a holistic understanding of experience psychology, making you more agile in grasping customer behavior and creating plans for compelling experiences that encourage return visits.   In this episode, you will also learn: The significance of first impressions and their impact on customer anchors. How to identify valuable areas for customers and use them for effective comparisons. The role of customer expectations and how to align your design with their anticipated experiences. The importance of providing information shortcuts to simplify decision-making. Strategies for segmentation to cater to diverse customer decision-making preferences. The overarching theme of simplification as a design approach offers customers shortcuts to decision-making and potential sales.

In this episode, Colin and Ryan tackle a listener's question about the psychology of customer loyalty, delving into its emotional and relational aspects.    Loyalty, they explain, goes beyond mere repetition of behavior; it is rooted in deep emotional attachment and often requires sacrifice. Drawing parallels to personal experiences, such as loyalty to sports teams (Lutown Town Football Club, recently reinstated in the Premiership) and brands like Apple (naturally), they highlight the importance of trustworthiness and the willingness to go the extra mile in fostering loyalty. They emphasize the significance of loyalty in defining one's identity and sense of belonging, likening it to tribalism. Even in non-tribal contexts, individuals exhibit loyalty to specific brands or products, creating a sense of community. Through personal anecdotes and examples, Colin and Ryan illustrate how businesses can earn loyalty by prioritizing customer needs and making sacrifices for their benefit, ultimately fostering long-term relationships.   Moving beyond misconceptions about loyalty in business, Colin and Ryan encourage organizations to define loyalty in terms of sacrifices made by both the customer and the organization, fostering a two-way relationship. They offer practical strategies for fostering customer loyalty, including recognizing the emotional connection between the organization and the customer, defining loyalty for the organization, and being loyal to customers by delivering on promises and treating them with respect.   In this episode you will also learn: Loyalty is rooted in deep emotional attachment and often requires sacrifice. Loyalty plays a crucial role in defining one's identity and sense of belonging. Businesses can earn loyalty by prioritizing customer needs and making sacrifices for their benefit. Defining loyalty involves considering sacrifices made by both the customer and the organization. Practical strategies for fostering customer loyalty include recognizing the emotional connection, defining loyalty for the organization, and being loyal to customers by delivering on promises.