Nudging Nudge Theory: The importance of customer segmentation using predictive data

There is a lot of talk about Nudge theory these days. Nudging someone is smart, works and the concept should be utilized by all organizations to better serve customers and itself.

Created by Richard Thaler, Nudge Theory proposes the idea that you can influence people towards a specific desired direction by using positive reinforcement and indirect suggestions, a tactic often referred to as ‘nudging’. Nudge Theory is used widely in business within marketing. It often manifests as a way to subtly convince a customer one way or another that a product will benefit them personally – not just the company they’re giving their money to when they make a purchase.

“By knowing how people think, we can make it easier for them to choose what is best for them, their families and society.” – Richard Thaler and Cass Sunstein.

The problem with Nudge theory is how to utilize it. People are complex individuals. There are 16 personality types alone according to the Myers-Briggs classification. If we look into why people make decisions while using only ‘data of the past’, we quickly run into problems. I have personally found 2 theories that have not changed in a few years across a variety of customer CRMs:

  1. Only 2 to 4 personality types are profitable for any given product sold.
  2. There is a 20x difference in conversion between the best and least performing personality.

Having a theory of your customers’ next moves based on their traits and personalities is a prerequisite to Nudge Theory performing well. If you apply a Nudge to your high performing personalities (customers or just prospects), Nudge works well. Having some understanding of what a customer might do is better than having no data at all. If we average all customers or even our best performing customers into one bucket, we should only expect average results.

We are living in a time where segmenting customer types are now possible at scale. We see it work very well for multi-national brands that have localized products, such as Ford, McDonald’s, Burger King, Starbucks and the like. eCommerce technologies are more than capable of deploying the same.

Combining ‘data of the past’, sales data and action histories with theories of people is a clear way to scale organizations. Ultimately, using Nudge after you create these theories of your customers will create a roadmap to success and differentiation in a world of unclear averaged messaging and promotion.

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