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              Showing posts with label behavioral economics. Show all posts
              Showing posts with label behavioral economics. Show all posts

              Friday, January 31, 2014

              A Design Lesson: Customers Don't Remember Everything They Experience

              My brother is an ophthalmologist in a small town in India. In his private practice, patients have two options to see him: either take an appointment or walk in. Most patients don't take an appointment due to a variety of cultural and logistics reasons and prefer to walk in. These patients invariably have to wait anywhere from 15 minutes to an hour and half on a busy day. I always found these patients to be anxious and unhappy that they had to wait, even if they voluntarily chose to do so. When I asked my brother about a possible negative impact due to unhappiness of his patients (customers) he told me what matters is not whether they are unhappy while they wait but whether they are happy or not when they leave. Once these patients get their turns to see my brother for a consultation, which lasts for a very short period of time compared to how much they waited, my brother will have his full attention to them and he will make sure they are happy when they leave. This erases the unpleasant experience from their minds that they just had it a few minutes back.

              I was always amused at this fact until I got introduced to the concept of experience side versus memory side by my favorite psychologist Daniel Kahneman, explained in his book Thinking, Fast and Slow and in his TED talk (do watch the TED talk, you won't regret it). While the patients waited the unpleasant experience was the experience side which they didn't remember and the quality time they spent in the doctor's office was the memory side that they did remember.


              Airlines, hotels, and other companies in service sectors routinely have to deal with frustrated customers. When customers get upset they won't remember series of past good experiences they had but they would only remember how badly it ended - a cancelled flight, smelly hotel room or production outage resulting in an escalation. Windows users always remember the blue screen of death but when asked they may not necessarily remember anything that went well on a Windows machine prior to a sudden crash resulting into the blue screen of death. The end matters the most and an abrupt and unrecoverable crash is not a good end. If the actual experience matters people will perhaps never go back to a car dealership. However people do remember getting a great deal in the end and forget the misery that the sales rep put them through by all the haggling.

              Proactive responses are far better in crisis management than reactive ones but reactive responses do not necessarily have to result in a bad experience. If companies do treat customers well after a bad experience by being truly apologetic, responsive, and offering them rewards such as free upgrades, miles, partial refund, discounts etc. people do tend to forget bad experiences. This is such a simple yet profound concept but companies tend not to invest into providing superior customer support. Unfortunately most companies see customer support as cost instead of an investment.

              This is an important lesson in software design for designers and product managers. Design your software for graceful failures and help people when they get stuck. They won't tell you how great your tool is but they will remember how it failed and stopped them from completing a task. Keep the actual user experience minimal, almost invisible. People don't remember or necessary care about the actual experiences as long as they have aggregate positive experience without hiccups to get their work done. As I say, the best interface is no interface at all. Design a series of continuous feedback loops at the end of such minimal experiences—such as the green counter in TurboTax to indicate tax refund amount—to reaffirm positive aspects of user interactions; they are on the memory side and people will remember them.

              In enterprise software, some of the best customers could be the ones who had the worst escalations but the vendors ended their experience on a positive note. These customers do forgive vendors. As a vendor, a failed project receives a lot worse publicity than a worst escalation that could have actually cost a customer a lot more than a failed project but it eventually got fixed on a positive note. This is not a get-out-of-jail-free-card to ignore your customers but do pause and think about what customers experience now and what they will remember in future.

              Photo courtesy: Derek 

              Thursday, July 24, 2008

              Exprimental economics helps solve complex business problems

              How do you predict demand from your distributors? Would you try demand simulation, predictive analytics, or a complex mathematical model? Try experimental economics. Wired points us to a story (found via Techdirt) of Kay-Yut Chen who is an experimental economist at HP solving the complex demand forecast problems.

              One of Chen's recent projects involved finding a way for H.P. to more accurately predict demand from its nine distributors, who collectively sell as much as $3 billion worth of H.P.'s products. The problem? Its distributors' forecasts for demand were frequently off by as much as 100 percent, wreaking havoc on H.P.'s production planning.

              Chen's solution to the planning problem, which H.P. intends to test soon with one distributor, was to develop an incentive system that rewarded distributors for sticking to their forecasts by turning those forecasts into purchase commitments. In the lab, the overlap between distributors' forecasts and their actual orders using this system increased to as high as 80 percent. "That's pretty astonishing given that the underlying demand is completely random," Chen says.

              The human beings are terrible at making rational decisions and the complex problems such as demand forecast cannot really be solved by complex modeling algorithms or predictive analytics. Applying the economics of incentives to such problems is likely to yield better results. Freakonomics explains the creative use of economics of incentives in great depth. Dan Ariely writes in Predictably Irrational about people predictably making irrational decisions and how it breaks the rules of traditional economics and free markets that are purely based on demand and supply ignoring the human irrationality.

              There is a lesson for an enterprise software vendor to design human-centric software that supports human beings in complex decision management process. Good news is that I do see the enterprise software converging towards social computing. Topics such as security that have been considered highly technical are being examined with a human behavior lens ranging from cognitive psychology to anthropology of religion.

              I would welcome a range of tools that could help experimental economics gain popularity and dominance in the mainstream business. For instance behavior-based AB testing can be set up in a lab to test out hypothesis based on experimental economics and the results of the experiment could be directly fed to a tool that reconfigures an application or a website in real-time.
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