Peter Drucker, the arguable founder of modern business management, once said, “the purpose of business is to create and keep a customer.”
I love this quote. It has always resonated with me. But I’d like to put forward an adjusted version: The purpose of business is behavioral change.
This behavioral change can take one of two forms:
- A person switches from using an existing solution to using your product or services, to achieve their desired outcome.
- A person becomes a long-term customer, continuing to use your product or services, to achieve their desired outcome.
How a business achieves this behavioral change has evolved over the years. Over the past half-century, we have moved from trying to create value based on the unique capabilities of the business, to working to create value based on a deep understanding of customer needs and their desired outcomes.
The adoption of design thinking is at the center of this transition.
Design thinking, as described by design and consulting firm IDEO, “is a process for creative problem solving”. IDEO’s approach to design thinking focuses on:
A. Using empathy to understanding the needs of those for whom you are designing.
B. Generating many ideas through a process of ideation.
C. Testing those ideas through prototyping.
This structured approach enables organizations to focus on the people they’re creating for, improving their ability to create better products, services, and internal processes.
However, while “design thinking” encourages organizations to empathize with their customers, generates numerous ideas for solutions, and provides a method to prototype these ideas, research shows that more than 75% of new products fail in the market.
Of course, there are many factors that could result in the failure of any one product and, ultimately, in such a high overall failure rate. As Dilip Soman describes “perhaps, if the product is sophisticated, it might have some features that are difficult to use and that consumers just don’t understand. Or, it could be that the marketing communication was problematic. Perhaps the advertising wasn’t done well, or the consumer wasn’t aware of the product, or didn’t understand what the product did.”
All of these are possible causes of failure. But in many cases, the problem is psychological. In many cases, the people designing and marketing a new product (i.e. all of us) have forgotten about the last mile — about the effort required to get humans to adopt and use the product.
Winning in the last mile is about tapping into the underlying psychology of human behavior. Businesses often invest heavily in understanding customer needs and designing products for those needs—both of which are necessary. But they fumble the execution: They fail to account for how humans change their behavior and adopt or continue to use these products.
But there is good news. Understanding human behavior is not an art limited to a select few geniuses. Decades of research from various fields, including psychology, neuroscience, behavioral economics, and marketing have provided a rigorous scientific approach to understanding the nuances behind human behavior.
This is the practice of behavioral science, which provides a set of principles for understanding human behavior. The principles recognize that:
- Behavior is a function of both a person and their environment.
- Behavior tends to follow the status quo unless promoting pressures i.e. “fuel” are applied to encourage a behavior, or inhibiting pressures i.e. “friction” are removed that discourage a behavior.
- There are tradeoffs for every decision and these tradeoffs can be influenced by predictable biases which can lead to errors in judgment.
Applying behavioral science to business means implementing a process for problem-solving that accounts how humans think. This approach focuses on:
- Generating behavioral insights around customer needs and desired outcomes using data from quantitative, qualitative, and existing academic literature.
- Applying the principles of behavioral design to build solutions that flow with, not against, the psychology of decision making and behavior.
- Using rigorous experimentation to validate whether these solutions are helping customers achieve their desired outcomes and to create feedback loops for further behavioral insights.
Applied behavioral science provides a rigorous, scientific approach to solving the problem of the last mile.
And there’s even better news: Businesses that are able to solve for the last mile are heavily rewarded.
If you look closely at the most disruptive products and services of the last decade, you will find a powerful, underlying behavioral insight.
Amazon Prime, for example, removed the pain of paying for shipping.
Snapchat leveraged ephemeral design to enable secret short-term private and very personal communication.
Uber reduced wait times for rides, made it less expensive to get from point A to point B, and made paying for a ride easier and more secure.
In each of these cases, understanding key behavioral insights allowed these businesses to design and solve for the last mile.
In the coming months, I’ll be writing more about how to apply behavioral science to business. Today, however, I’d like to leave you with a final note.
Behavioral science is a powerful tool. As such, there is opportunity to apply it for good and, unfortunately, for evil. Evil behavioral science results in win-lose situations, where a business undermines customer intention for its own benefit. In comparison, good behavioral science results in a win-win situation, where a business helps its customers achieve their goals using its products or services.
For the ethical business, applied behavioral science is the next wave of value creation. When used correctly, it forces you to step into your customer’s shoes, balance short and long-term perspectives, and focus on building emotional connections. It becomes the ultimate key to both creating and keeping customers.
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