Logically, we know that striving for high retention is a far more beneficial system of growth than chasing acquisitions. For a 50% retention rate, for example, means new acquisitions are first needed to simply replace lost customers before creating any growth.
Regardless of this, many companies still focus far more energy on sales, while only halfheartedly seeking to retain customers. Why is this so? The answer may lie in our decision-making processes and the biases many of us suffer from.
The Science
Psychology teaches us that humans have a tendency to show preference to rewards that arrive sooner rather than later. Repeated psychological studies have shown that when presented with $10 today or $11 in a month, we are more likely to take the lesser amount immediately.
Recently a study by the University of Texas carried out this same dilemma but with a slight twist. Individuals were given 250 questions in which they could win points. Each question presented only two options.
Option 1 – Offered more points immediately than Option 2, but no points in the future.
Option 2 – Offered less points immediately than Option 1, but offered more points than Option 1 at a later stage in the experiment.
The study differed in that it focused on making repeat choices even after learning from past choices. Those that were fully informed that they would be giving up points in the present in order to gain points in the future, still chose the immediate reward option twice as often throughout the questionnaire as those given no information about rewards to be sacrificed.
The study showed that even with knowing “what could have been” and learning from past choices, our brains don’t like losing in the short-term, even if that means we end up worse in the future.
This phenomenon has been continually reaffirmed by many other similar studies, and what it shows is that “now” has particularly more value compared to any time in the future. For when the experiment is changed and both rewards are delayed, say a year and a year and one month, people more often choose the amount that is greater.
Another study carried out in 2004, imaged peoples’ brains whilst conducting the same short vs. long-term problem. In this study researchers were able to show that decisions involving immediate rewards activated more those parts of the brain associated with emotion. Whilst delayed rewards showed greater activation in those brain systems associated with abstract reasoning.
Looking to understand our emotional mind a little deeper, neuroscience teaches us that when we succeed at something our brain releases the chemical dopamine. This chemical plays a strong part within the neural systems associated with emotion and helps to create feelings of satisfaction, joy, pride, motivation and memory. Creating a sense of satisfaction and concentration as we succeed in an act, it inspires us to relive the experience that caused the chemical release in the first place.
Alternatively, failing to achieve our goals drains the brain of dopamine resulting in a lack of motivation. As such our brain preferences choosing short-term goals, as their immediacy appears easier to attain and thus more likely to succeed - in turn providing satisfaction.
The Predicament
It is understandable then why many companies that have not fully embraced customer experience still favour sales.
As many companies orientate themselves around monthly growth targets and quarterly reports, sales with its known rates of success (even if those success rates are low) that produces rewards immediately is far more appealing.
Whilst for these same companies, having not fully implemented customer experience and thus being inexperienced with it, customer experience is viewed as long in scope and having an unknown success rate.
The Last Piece of the Puzzle
Ever wondered why it’s so hard to get a cab on a rainy day, and so easy on sunny days?
[caption id="attachment_14764" align="alignright" width="354"]
New York cab drivers care more about avoiding losses than making gains[/caption]
A study done during the late 90s looked at the working patterns of New York cab drivers. From a labor-market theory point of view a cab driver should rationally work longer on rainy busier days and less on sunny slow days.
However, what was found was that they were doing just the opposite. Instead their decision to finish work was based on setting themselves a daily income target, and upon reaching this target they would stop for day. This meant that drivers would do the opposite of what is considered economically rational – working more hours on sunny slow days and less hours on those rainy busy days, but why was this so?
The answer is that failing to achieve their daily targets created a feeling of loss, which made them put in long hours to avoid it. Hitting that target early in the day though felt like a win, meaning there is less incentive to keep making more money.
What this finding and many more experiments demonstrate is what is now known as “loss aversion.” Which states that people have a tendency to avoid losses rather than acquire gains, as negative feelings coming from a loss are much stronger than the positive feelings coming from a gain.
There is Still Hope: Ways to Avoid Our Short-Term Bias
The brain imaging study used above also showed that whilst psychology shows that we have an affinity for short term rewards, each decision-making process activates both the emotional short-term and the abstract long-term areas of the brain.
Each decision then is actually a highly complex competition between the need to prioritise either now or the future. Knowing this, what is needed is a way of elevating the importance of long-term goals like customer experience as a viable source of growth.
One way of doing this then is making use of our loss averse nature. To convince upper management of customer experience’s growth potential or align everyone within a company around customer experience, it needs to be framed in terms of losses rather than gains.
Speak of how many customers were lost in a month, quarter or year and what that means in terms of lost revenue. Talk about having a lack of information about your customer base, so what they don’t like or do like your not sure of. Don’t talk about how many customers you retained and how much revenue this brought in or what you learnt about your customers in the last year.
Most important is the increasing weight of evidence that such decision-making biases do not rule us completely or are unchangeable. One study in 2007 by Carnegie Mellon University showed that decision-making isn’t solely the result of intelligence. Instead, decision-making skills are something that can be taught, with patterns of bias or poor decision-making able to be diminished through awareness of such biases and training.
