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As I browse through my LinkedIn profile, I see a range of innovations and technologies adopted by various companies round the world. The purpose is same, to derive maximum return on their investment, to secure the maximum possible customer range. As more and more companies enter into the race for serving the maximum number of customers, the stakes are also getting higher and higher. Companies continue to find out ways to gain that competitive edge. However, the answer has been here all along. A simple tool, in my opinion, for a better Customer Relationship Management strategy, is understanding the principles of Behavioral Economics (BE).
Behavioral Economics in simple terms, may be defined as “a method of economic analysis that applies psychological insights into human behavior to explain economic decision-making”. The answer is simple. To maximize their ROI/Profitability, companies would have to take a deep dive into human behavior (read: Behavioral Economics).
Every aspect of marketing tactics and strategy—from advertising, branding, messaging, promotions, and placement to pricing, product features, distribution, packaging, and distribution— ultimately is aimed at influencing the purchase behavior of consumers based on behavioral economics. I doubt very much that Adam Smith would disagree.
In real world, we can see numerous instances where a theory of BE affects customer decision making.
Does it make sense to buy new, unproven technology products or cars with no track record; to shop in expensive stores for products which are available for less elsewhere; to buy early in the season rather than wait for sales; to pay more for a specific brand instead of buying unbranded stuff? It all comes down to the individual consumers' set of values: If they are an early adopter technophile or a "car person"; prefer the status/service/whatever of more expensive stores; want to enjoy something now rather than wait; or appreciate being identified with a particular brand. All of these decisions are perfectly rational reflections of the trade-offs between economic maximizing and other values that consumers have.
It is thus clear that for a better CRM strategy, companies have to look for ways to a better understanding of human behavior. But how will this be possible? Companies have to indulge in deep research using various methodologies which would help them not only in analyzing the trends and patterns in consumer behavior but also in learning from the previous mistakes of other companies. This is the reason there is a huge need for Market Researchers in this space. The three step strategy for profit maximization would then be:
The examples discussed above prove that more often than not, what a company might consider as a fool-proof strategy for profit maximization, may not turn out to be one. They have to consider the possibility of customer decisions that are based on certain values and are not, in recognized terms ‘rational’. The failure to do so, may lead to failures of even those products, which you thought were your ‘Brahmastras’. Examples are many: Apple’s Newton and Lisa, Motorola’s smartphones, HP’s Touch-pad. The time has arrived when all the companies should sit back and try to find answers to one simple question: What do customers really want?
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