In most organizations, HR professionals and reporting managers and supervisors have no idea about the application of behavioral economics in their work. But that is not something to worry about as it can be rectified by making these professionals aware.
All organizations are keen to reduce their costs and time and maximize their profits. However, to accomplish this, organizations need to analyze data and perform market research. It is in these fields that behavioral economics can be a boon for companies. There are several areas of application of behavioral economics that companies can benefit from. Some of these are as follows:
There is a lot of hype about big data, but most organizations realize after taking a few faltering steps that big data may not be as helpful as they believe. Analysis of small data offers more precise and accurate insights. Also, it is much cheaper as well as quicker to analyze small data.
Behavioral economists use tools known as conceptual models. These tools allow companies to reduce costs and time spent analyzing big data as they help find the correct variables that formulate small data. This data segregation occurs quickly and accurately, and companies can easily identify their target consumers and separate them into groups based on their needs.
To separate consumers based on needs requires an understanding of human psychology. Behavioral economists analyze definitive characteristics of target consumers and look at factors like income, gender, education, age, brand loyalty, and usage rate. This helps them understand the buying behavior of consumers.
Presently, organizations analyze just the pre-purchase behavior of their target group. However, suppose they want to ensure brand loyalty and goodwill for the brand. In that case, they should utilize behavioral economics also to analyze consumers after they make their purchase and what motivates them to buy the products.
While the nudge theory is a hotly debated topic among psychologists and economists, it states that gently nudging consumers can alter their behavior, and this behavior change can be predicted.
Behavioral economists often use the nudge theory to understand social norms among consumers. People are influenced by how other members of their social groups think and act. That, in turn, affects their economic decisions. In other words, people do things and act based on what other people believe is right.
This herd mentality and instincts can often dictate the buying habits of consumers. That is why many products become highly sought-after even if many people do not intend to use them.
Behavioral economics allows organizations to understand the concept of social norms and how it affects their target consumers. Then, based on the insights, organizations can create perceptions about their products so that consumers believe buying them is correct. And, when herd instincts set it, the sale of the products will skyrocket.
Behavioral economists often conduct research on decision-making but in theory. Since the insights gleaned cannot be validated through external means, they are often used for academic purposes. However, now that has changed.
Using behavioral economics, organizations can research the real world. While it will be time-consuming and more expensive, it will provide accurate insights into economic decisions and buying.
When companies understand what motivates consumers to buy one product over another, they can take measures to meet those expectations. That way, they will leave their competition behind and improve their sales and performance.
Behavioral economics’s potential is immense and does not have to be a lab-based study or research. Behavioral economics can be used in the real world, and it can help organizations improve their performance, save their resources, and increase sales.