Customer Behavior Insights: Using behavioral economics to increase revenue

For independent agents, understanding the decision process of consumers is more important today than it ever has been. The relationship between how they shop for and purchase insurance and where those behaviors intersect is essential to marketing and selling products. Thanks to advances in technology specifically around data, analytics, artificial intelligence and machine learning it is easier to map and act on behavior economics insights. Regardless if you or your agency are technologically savvy, much of this can be applied by making a few simple adjustments to your current workflows, processes and conversations with insureds.

In this article, I will explore what behavioral economics is, why it matters and how its applied (specifically to your business).

Behavioral economics is a method of economic analysis that applies psychological insights into human behavior to explain economic decision-making (Dictionary.com). Buzz words such as data and analytics get thrown around a lot, but how do data science and behavioral science differ? Data science can help identify “what” behaviors need to be changed, while behavioral science focuses on “how” to change them.

Understanding the difference between the two is important because once an agent has identified the behavior (or non-behavior) that needs to be changed, the next step is understanding what is driving it. This requires an analysis of decision-making factors, both internal (mental) and external influences such as incentives and/or environmental factors.

The sales process can significantly benefit from harnessing behavioral economic insights.

According to research cited by McKinsey, organizations that leverage customer behavior data to generate behavioral insights outperform peers by 85 percent in sales growth and more than 25 percent in gross margin.

Customer interactions involving too many options, complex products and convoluted conversations can cause a failure for the customer to complete the buying or decision-making process. Agents can directly improve the customer experience while increasing revenue by using techniques such as simplification, bringing value forward, and reinforcing decision-making.

Simplification

Independent insurance agents should focus on optimizing choices, not presenting a wealth of options. Using customer information in your automation system to identify and present the right set of choices can help prevent consumer confusion and save agents time and an occasional headache or two.

Using the behavioral economic concept of the Bandwagon Effect, insurers and agents can put consumers at ease with a tool that shows “what customers like you” have chosen. This can reinforce that they’re on the right track and encourage them to stick with the process to find the best solution. (Insurance Journal, Behavioral Economics and Insurance by Marik Brockman and Jamie Yoder | July 5, 2010)

In today’s digital world, behavioral data drives personalization which is the foundation of a successful yet simplified customer (centric) experience journey.

Salesforce’s 2017 State of Marketing Report underscores the extent of that customer demand for personalization:

• 52% of consumers are likely to switch brands if a company doesn’t personalize communications
• 65% of business buyers are likely to switch brands if a vendor doesn’t personalize communications to their company

Netflix and Amazon are among the best at creating a customer experience focused on personalization.

Gary DeAsi writes in How to use Customer Behavior Data to Drive Revenue, “Just how effective are these customer behavior-based recommendation engines?

• 75% of Netflix viewer activity is driven by recommendation (Source)
• Netflix’s recommendation system saves the company an estimated $1Billion per year through reduced churn (Source)
• 35% of Amazon’s sales are generated through their recommendation engine (Source)

Of course, the key is to introduce the right offers to the right customers at the right times, not everything to everyone all the time.”

When it comes to up-selling and cross-selling few companies do it better than Amazon.

For its product suggestions, Amazon’s recommendation algorithm (responsible for driving 35% of their revenue) uses customer behavior data such as:

• A user’s purchase history
• Items in their shopping cart
• Items they’ve rated and liked
• What other customers have viewed and purchased

This concept of simplification by recommendation/call-to-action can easily be adopted by independent insurance agents to increase their upsell and cross sell opportunities. I know many agencies include options that compliment what they are quoting such as additional lines of coverage, higher limits, etc. But the question is do you do it in a manner that harnesses behavioral economic insights to create a visually appealing, simplified, and highly personalized proposal?   

If so, congratulations. You aren’t? Don’t worry. The IIAW can help you with this.

There are a variety of behavioral data points and sources that agents can leverage to provide a similar, yet personalized customer experience. Most of these data points are accessible in your agency management system. Agents need to make sure they are collecting, inputting and sourcing the proper data. Look for trends within your customer segments. When clients reach a certain life milestone, you can proactively engage with them on their evolving insurance needs. Monitor the social media accounts of your clients and pay attention to and record trends and behaviors of certain customer segments.

For example, perhaps you are monitoring a business owner’s Facebook page and this business owner shares a post about a large corporation experiencing a data breach and they are concerned about their personal information falling in the wrong hands. Agents could use this insight to proactively reach out to their insured to discuss the risks of not having a data breach policy on their business. If they do have one, this could be an opportunity to upsell higher limits.  This provides the perfect opportunity to cross sell and/or up sell.

Patterns in behavioral data emerge to explain why and how those successes and failures happened in the purchasing process, and why certain outcomes were reached for some and not for others. Over time, you can map customer trends and create customer segments thus leading to a better understanding of the customer journey/path to purchase.  

Armed with these valuable insights, agencies can:

• Optimize the path to purchase through personalization. 
• Clone your sales and engagement process for high value customers.
• Boost customer acquisition.
• Increase retention. 
• Grow revenue.
• Improve Customer Experience. 
• Maximize Customer Lifetime Value. 
• Increase Marketing ROI.
• Make smarter bets with your acquisition budget. 
• Proactively engage customers and prospects

Bringing Value Forward

In his book Thinking Fast and Slow, Nobel prize winner Daniel Kahneman asserts that we typically fear loss twice as much as we relish success. This means price decrease has a bigger impact than price increase. 

According to Professor George Loewenstein from Carnegie Mellon, curiosity creates an information gap. Whenever we perceive a gap between what we know and what we want to know, we can’t help but seek to close the gap. This is an important point that agencies should consider in their sales and marketing process.

Great companies across time have made use of stories to draw people’s attention and bring their point across. Stories work so well because, unlike blatant sales messages, it provides the impetus to continue reading/watching. The ups and downs experienced by the protagonist in the story create an information gap that we can’t help but follow. (Ted Chong, Boost Sales with Behavioral Economics)

Perhaps you see a lot of people harnessing the power of video on Facebook, LinkedIn, or in marketing materials or proposals to clients. More and more insurance agents are turning to storytelling to differentiate themselves from the competition. Storytelling, using behavioral economic insights, can be a powerful tool to ensure your message resonates with your audience. 

Ted Chong goes on to say, “As a web content auditor, the most common problem I have seen in clients’ website copy is the excessive use of the word “we” instead of “you.” Businesses boast about their achievements and life stories, forgetting that people are primarily interested only in themselves. Seek to understand the needs of your audience and convince them based on their need, not yours.”

Savvy insurance agents can harness these principles. Sometimes it’s as easy as changing the way you present information, a quote, policy features, or exclusions. If done in the proper manner, a modified narrative to your value proposition may be just what you need to close the sale.

Reinforcing Decision-Making

According to an article title, Behavioral Economics and Insurance published by the Insurance Journal, “Consumers in a non-stimulated (cold) state make different decisions than those in an emotionally stimulated (hot) state.” Agents should consider casually conversing with their clients during the intake process to identify unique behavioral data/insights that can be used to help the agent tailor their conversation and sales technique.

In his timeless classic How to Win Friends and Influence People, Dale Carnegie said, "You can make more friends in two months by becoming interested in other people than you can in two years by trying to get other people interested in you." Ancient philosophers concur, with Plato and Socrates arguing for psychological egoism, the idea that humans are always motivated by self-interest. (Ted Chong, Boost Sales with Behavioral Economics)

Understanding the consumer mentality and the irrationality (or rationality) of the human decision-making process is key to developing winning value propositions and product features.

In the Behavioral Economics and Insurance article it went on to note that, “Respondents in a survey were asked to choose between a pair of insurance options, with varying combinations of price, coverage level, agent relationship, and claims service. About half of respondents were first asked (primed) about their beliefs in having adequate protection. Lower price was less of a decision factor for respondents first asked about adequate protection: 42 percent of those primed vs. 51 percent of those not primed chose the lower price.

When key information is presented can also affect outcomes. Lower price was less of a decision factor for respondents shown price first (vs. last): 43 percent who saw price first, vs. 51 percent who saw it last chose the lower price.”

The power of this kind of relative positioning explains why insurance agents sometimes benefit from offering a few clearly inferior options. Even if they don’t sell, they may increase sales of slightly better products. For example, many restaurants find that the second-most-expensive bottle of wine is very popular—and so is the second cheapest. Customers who buy the former feel they are getting something special but not going over the top. Those who buy the latter feel they are getting a bargain but not being cheap. Agents should consider deploying these tactics.

It is important for independent agents to understand how, when and where people make decisions and use behavioral economic insights to personalize and simplify the purchasing process. Agents should explore new technology innovations to harness the power of data and analytics.

As Steve Jobs once said, “a lot of times, people don’t know what they want until you show it to them.”

Matt’s Mixology

SPARKLING APPLE PUNCH

A smoked honey syrup and spicy bitters lend subtle heat to this tequila-based party punch that serves eight to ten people and is sure to be a hit at the Thanksgiving Table.

INGREDIENTS

1 l Patrón Silver

11 1?4 oz Lemon juice

16 1?2 oz Smoked honey*

22 1?2 oz Grapefruit juice

Bitters (to taste)

1 bottle Sparkling wine

HOW TO MAKE THE SPARKLING APPLE PUNCH COCKTAIL

Combine all ingredients except sparkling wine in a punch bowl with two cups of ice.

Stir to combine and chill.

Top with sparkling wine and apple slices for garnish.

Add large chunks of punch ice to the bowl to keep it cold while minimizing dilution.

*Smoked honey syrup

• 8 oz Lapsang tea
• 2 cups Honey

Steep the tea until a prominent flavor has developed. While the tea is still hot, stir in honey until dissolved. Refrigerate the syrup until cool.