3 Behavioral Economic Principles for Customer Success
“But I did everything right.”
Have you ever bemoaned this common refrain after a customer unexpectedly churns?
You adhered to the best practices.
Your customer said they were happy.
You thought everything was going swimmingly, perhaps even exceptionally well.
Customer engaging? Check. Customer satisfied? Check. Customer seeing results? Check.
But still, when presented with the opportunity to leave, your customer just up and churns on you.
To understand why we, as humans, make decisions and behave in ways that are not strictly rational or expected, we turn to the study of behavioral economics. When applied to Customer Success, these principles help explain why “surprise churn” happens, despite your every endeavor to follow all the best Customer Success playbooks to a T.
This article, which was adapted from one of our most popular Big RYG sessions, “Why Humans Are Irrational: Applying Behavioral Economics to Customer Success,” presented by Dan Rourke, Senior Director of Technical Support at Khoros, outlines how to apply behavioral economic theories to real-world Customer Success scenarios. You’ll learn Dan’s three specific techniques to apply these principles to everyday Customer Success tasks, as well as the “why” behind customer irrationality and how to counteract it.
This cognitive psychology term describes “how people favor information that confirms their previously existing beliefs,” according to Investopedia.
Psychology Today says this subjective view occurs when people are motivated by “wishful thinking” and cherry-pick information that “makes us feel good because they confirm our prejudices.”
Applied to Customer Success, confirmation bias explains why you may believe you have a “perfect customer” when in actuality you’ve skewed your perceptions to fit your preferred narrative – ignoring the warning signs of passivity or discontent. So, you shouldn’t be too surprised if you find that confirmation bias has likely already been built into your Customer Success processes and people.
As Dan explains, this distortion occurs because we tend to ask our customers confirming questions that are prone to confirmation bias, such as:
- Are you satisfied with the product?
- Are you getting value from using it?
- Are you happy with the relationship?
- Would you review us/be a reference?
While these questions aren’t ostensibly harmful, they are prone to elicit lukewarm and fuzzy answers. The words “happy,” “satisfied,” and “value” have been so overused by the industry, they don’t evoke much, if any, emotion when encountered. How can we expect customers to quantify their experience based on one watered-down adjective? They can’t; the parameters are too wide. And so, your customer writes a response that mirrors the enthusiasm and depth of the question they were asked.
To fight confirmation bias, Dan says you need to ask disconfirming questions, such as:
- If your boss said you had to give up 50% of your budget spend (in our category), would we be on the list of must-haves?
- If a competitor came along and offered a 30% cheaper version of us with 80% of the features, would you switch?
- Are there any changes to your environment in the next six months that would make us less valuable?
These disconfirming questions pose hypothetical, descriptive scenarios that uncover a customer’s true intentions and sentiments.
Disconfirming questions often feel uncomfortable, which as Dan notes, is actually a good thing, because comfortable is where confirmation bias sneaks in.
This doesn’t mean you should toss your customer satisfaction surveys (CSAT, NPS, CES) out the door, but you should review your question phrasing, both informal and formal, for hidden bias.
Remember, your answers are only as good as the questions you ask.
Bias in, bias out.
The Influence of Options
The influence of options looks at how customers respond differently to binary questions versus multiple choice.
Often, we frame decisions for customers as yes-no questions.
For example, when a customer comes up for renewal, you may ask, “Would you like to renew early?” which leaves the customer with only two all-or-nothing options: yes or no.
Instead, expand the customer’s options and present mutual compromises:
- Would you like to renew early and get an extra discount, or renew at the time of your contract expiration at your current rate?
As Dan explains, customers are more likely to accept trade-offs. They end up happier because they choose based on their own criteria (receiving a discount versus getting more time to decide) rather than having that trade-off forced upon them.
Here’s another example applied to Executive Busines Reviews (EBRs).
When trying to schedule an EBR with a customer, you may normally ask, “Can you meet for an EBR?” which again solicits a yes-no response.
Instead, pose your request as “I’d like to discuss how we can make you more successful. What’s the best meeting option for you?” and provide multiple choices:
- 60-minute interactive meeting
- Summary report followed by a live 30-minute action planning session
- Summary report only with electronic response to any questions
It’s worth noting, as Dan points out, you must offer your customer legitimate options. Don’t try to pull a fast one by sharing two bad options and one viable option. Your customers will see through your intentions. You must practice high integrity for this approach to be successful.
Lastly, teach your CSMs to always look for multiple options, especially when confronted with difficult situations.
The default effect says that when making a decision, people choose the default option out of proportion to all choices.
As Dan explains, “There’s a certain amount of inertia and effort in making a hard decision and that causes us to fall back into defaults.”
Dan uses an example from his experience at a prior Customer Success organization, which implemented a post-support survey question that asked, “Would you like a manager to contact you because of any problem with the resolution of your issue?”
Occasionally, a customer who gives a perfect score and positive comments would select the option for a manger follow-up. Although it’s likely a false positive, since the option was given to the customer, the team still had to contact the customer to verify if there was an issue.
To fulfill their follow-up obligation to customers without causing undue extra work for the team, Dan’s team implemented a response that defaulted to assuming the customer made an error: “You provided a very positive rating and comments, but also selected the button requesting a manager to follow-up with you regarding a problem with the resolution of your issue. If that was just an error in filling out the survey, no need to respond. However, if you did need to talk to a support manager, just let me know and I can assist you.”
This mutually beneficial approach helps the customer by removing any required action on their part if they made a mistake (which is likely the case) and the Customer Success team by closing open action items that require multiple “nagging” contact points.
Make sure to review default behaviors that are inherent in your Customer Success communications and redesign them to be beneficial to both sides.
Why People Do What They Do
Once you begin to gain an understanding of how and why people make decisions, you can make small yet powerful tweaks based on human (ir)rationality to improve your customer experience and team efficiency.
If you’re interested in learning more about these topics, Dan recommends these reads:
- “Predictably Irrational” by Dan Ariely (focused on theory)
- “Decisive” by Dan and Chip Heath (focused on application)
You can watch Dan’s full Big RYG session, “Why Humans Are Irrational: Applying Behavioral Economics to Customer Success,” which also explores the correlation between customer effort and loyalty.
Customer Success Around the Web
- 4 Steps for Customer Success Leaders During a Merger and Acquisition– Learn how to navigate an M&A and successfully integrate your Customer Success teams.
- Why Customer Retention is So Important– Discover everything you need to know about retention an why it’s important for ROI, loyalty and growth.
- Don’t Manage Customer Churn. Prevent It.– Find out how to overhaul your process to improve the customer experience and mitigate churn.
Fighting Churn is a newsletter of inspiration, ideas and news on customer success, churn, renewal and other stuff and is curated by ChurnZero