Your potential customers have to decide thousands of times each day. From choosing the clothes to wear for work to the more impactful decisions like the field of study or career path. Things will get more complicated when your potential customer wants to buy something. Many different options, online or physical shops, which brand, which model which color, with what price, and this list can go on for hours.
Today human is bombarded with almost unlimited options to choose from. It will make the decision-making process difficult for them and also make it harder for you as an e-retailer to convince people to choose you. How you are going to convince your prospects that from all other options, they have to choose you?
Well, it seems that the quality of your product, customer service, or cheap prices are not enough. Especially if you don’t have thousands of euros to spend on your marketing campaigns. You need to find a way to push people to choose you without really forcing them. It seems contradictory, right? Too good to be true? You are RIGHT, but this is the power of Choice Architecture.
How can you control the decisions of your potential customers like the Imperius curse in the Harry Potter movie? You will find your answer in this article.
Choice Architecture Definition
This term coined by Thaler and Sunstein (2008) refers to the practice of influencing choice by “organizing the context in which people make decisions”.
Choice Architecture, as defined by Richard Thaler and Cass Sunstein, involves strategically organizing the context in which individuals make decisions with the aim of increasing the possibility of doing a desired action. It’s like arranging the pieces on a chessboard to influence the moves players make. The goal is to gently guide decisions without restricting freedom, a practice that has significant implications across various fields.
In other words, it refers to the intentional design of the presentation and arrangement of choices to influence decision-making without restricting individual freedom. It involves structuring the environment in a way that nudges people towards certain choices while maintaining their autonomy and allowing them to make their own decisions.
Choice architecture recognizes that the way choices are presented can significantly impact the decisions individuals make. By adjusting the context, framing, and order of choices, choice architects can guide people towards options that are likely to lead to better outcomes, aligning with their goals and well-being.
Nudging And Choice Architecture
“Nudge” is a term often linked to choice architecture, but it represents a specific element within this framework.
A nudge involves making subtle adjustments to how choices are presented, aiming to predictably alter people’s behavior without resorting to outright bans or drastic economic incentives. It’s like a gentle push in a certain direction without closing off alternative paths.
On the other hand, choice architecture refers to the broader practice of organizing the context in which decisions are made. It encompasses various tools and techniques that leverage psychology and behavioral economics to influence choices. One key aspect of choice architecture is nudging, but it also encompasses other strategies.
Choice Architecture Tools
Choice Architecture involves a toolbox of techniques that can be employed to influence decisions. These tools are designed to exploit the quirks and patterns in the human decision-making process. From defaults that capitalize on inertia to the strategic arrangement of options, these tools are the brushes and paints artists use to craft decisions.
It’s important to use Choice Architecture tools ethically and transparently. While they can influence decisions, they should not manipulate or deceive customers.
Here you can find the most complete list of tools and techniques you can use in choice architecture for your online store.
Placement: This refers to how choices are presented to individuals. By changing the way options are framed or organized, you can influence the decisions people make. For example, placing healthier food options at eye level in a cafeteria can nudge people to make healthier eating choices. For an online store or e-commerce, it can be used for the arrangement and placement of different elements like buttons, texts, pictures, sizes, etc. For e-commerce businesses, this concept is heavily connected to the UI/UX in the IT field.
Defaults: Defaults are the pre-set options people receive if they don’t actively make a choice. Changing defaults can lead to significant shifts in behavior. For instance, making organ donation the default option (with an opt-out choice) can increase the number of donors. In the E-commerce industry, the way websites ask permission to use your cookies is usually following the same rules.
Another great example of using this choice architecture tool is the “renewal” clause. Many e-commerce players, especially those who are working with the subscription business model, use the renewal as a default. It means, if you buy one month of a service it will continue to charge you unless you go and cancel your service.
Anchoring: This involves using a reference point (an anchor) to influence decisions. For example, when people are presented with a high-priced option first, they might perceive subsequent options as more affordable, even if those options are still expensive.
Incentives: Introducing rewards or incentives can motivate people to take desired actions. These incentives can be financial or non-financial, and they should align with the behavior you’re trying to encourage.
Affiliate campaigns that motivate customers to introduce your website to others or give discount coupons after buying from a website are some of the ways that E-retailers use incentives to control the behavior of their customers.
Ease and Convenience: Making desired behaviors easy and convenient to perform can significantly impact decisions. For example, placing recycling bins next to trash cans makes it more likely for people to recycle. Optimizing the purchase process. Using bold colors on the main CTAs, and placing the “next” button in the center of attention are some examples of using this Choice Architecture tool in an e-commerce business.
Personalization: Tailoring messages and interventions to an individual’s preferences and characteristics can make them more effective. For instance, personalized health recommendations might resonate more with people than generic advice.
Instagram’s algorithms for feeds and ads provide a great example of personalization in action. It employs sophisticated algorithms that analyze user behaviors and preferences to deliver content that is tailored to each individual user. It uses different variables like user behavior, profile information like place and gender, content relevance, retargeting, etc.
Read more about retargeting in the “Remarketing vs Retargeting: an Ultimate Guide” article.
In order to personalize your online store offers, other than technological knowledge and services, you need to have a deep understanding of your customers. Persona is a great marketing tool that can help you to achieve this goal. Read more about how to create a persona in the “Solving the Mystery of Create Buyer Persona” article.
Commitment Devices: Commitment devices are strategies or tools that individuals use to help themselves stick to their long-term goals and intentions, even when faced with short-term temptations or challenges. They are essentially mechanisms that people set up to “commit” themselves to a certain course of action. These devices are particularly useful for overcoming self-control problems and avoiding procrastination. For example, setting up automatic deductions from your paycheck or bank account to go directly into a savings or investment account is a commitment device.
There are some ways that an online store can use commitment devices strategically like offering subscription options for products that customers use regularly. This commitment can help customers save money and ensure they don’t run out of essential items. For example, a monthly subscription for pet food or household supplies.
Priming: It is a psychological phenomenon where exposure to a certain stimulus or information influences a person’s subsequent thoughts, feelings, or behaviors without conscious awareness.
For instance, showing a blog article about the 5 most expensive shirts on the header of your online store with displaying high prices on the picture, can prime the mind of customers with high prices. Therefore, it is more probable that they perceive your prices as more reasonable and cheaper.
Framing effects: It involves presenting information in different ways to influence how people perceive and make decisions about quantitative information.
Imagine a medical treatment with a success rate. Instead of presenting the information as a success rate, it can be framed in terms of a failure rate. Let’s say the treatment has a success rate of 80%. In a positive framing, you could present it as “The treatment is successful for 80% of patients.” In a negative framing, you could present it as “The treatment fails for 20% of patients.” Even though both statements convey the same information, the positive framing might make the treatment seem more appealing, while the negative framing might emphasize the risk or failure associated with it.
For example for an online store, If you have limited stock of a popular item, you can frame it as a percentage of stock remaining. For example, “Only 10% left in stock” can create a sense of urgency and scarcity. Especially when the total stock is very high, for example, 10% of your stock means you have 200 left. You can go to the next step and show it only when your stock is under 30% and when you are left with less than 10 items, you can put the numbers of items left to imply more scarcity.
Decoy Effect: The decoy effect involves introducing a third, less desirable option alongside two options to steer people toward a particular choice. The less attractive option makes one of the original options seem more appealing by comparison. The introduction of the decoy nudges people toward a particular choice without directly altering the options themselves.
Imagine an online streaming service offering two subscription plans:
Basic Plan: $10/month – Access to standard video quality.
Premium Plan: $15/month – Access to high-definition video quality.
In this scenario, the Premium Plan is the target option the store wants customers to choose. However, customers might hesitate because of the price difference between the Basic and Premium plans.
Now, the online store introduces a third plan as a decoy:
Premium Plus Plan: $25/month – Access to high-definition video quality + 1 exclusive content each month.
In this example, we assumed that 1 exclusive content per month is not a very valuable offer.
The introduction of the Premium Plus Plan, which is more expensive than the Premium Plan and offers very little additional benefit, makes the Premium Plan seem like a better deal. By doing so, most customers will look and compare only the Premium plan and Premium Plus plan, therefore, more people will buy the Premium plan which is a more logical one. Some studies showed that using this technique will improve the conversion rate which leads to more sales.
You can read more about the conversion rate in the “Ecommerce Sales Funnel Essentials: Stages, Metrics” article.
Loss Aversion:
Loss aversion refers to the tendency to feel the pain of loss more strongly than the pleasure of gain. This can be used in decision-making contexts by emphasizing potential losses that might occur if a certain action is not taken.
An online retailer can use this psychological concept. For instance, Presenting certain offers as “one-time only” or “Limited-Time Offers” leverages loss aversion. Customers might feel they’ll miss a special opportunity if they don’t take advantage of it.
Another interesting use of this concept is by showing how many people added a product to their wishlist. More than showing how popular a product is, it can form a sense of fear of losing the opportunity to have it. Especially when the number of products is limited. For example in Vinted application, they used it perfectly. It can get more interesting if you get a notification whenever someone adds the same product to his/her favorite list. Each notification urges you to buy it before others buy it.
Feedback Loops:
Providing regular feedback on progress can help individuals track their behavior and make adjustments. Fitness apps that track steps taken, calories burned, and other metrics are an example of feedback loops in action.
Most royalty programs are designed based on this concept. Implement a loyalty program that rewards customers for making repeated purchases or engaging with the store. Sending notifications about points earned and rewards unlocked creates a positive feedback loop and encourages the customer to interact more with you.
Another good example of using feedback loops is when businesses show customers they prevent how much CO2 emissions by using a specific service or product.
A new idea can be sending monthly reports to customers to tell them how much money they saved during the last month due to purchasing from company X.
Now that you are familiar with the tools you can use for choice architecture, It is time to learn how you should use it for your online business in the real world. Like any other tools, using these tools randomly on your business can have negative consequences.
But worry no more, here we provided you with an easy step-by-step guide that you can follow to make the most of your choice of architecture.
How To Use Choice Architecture For Your Online Store
Choice Architecture isn’t just a theoretical concept – it’s a powerful tool that businesses can wield to shape customer decisions in an online store setting. here’s a step-by-step guide on how to apply Choice Architecture to your online store and optimize the customer decision-making process:
Step 1: Get to Know Your Customers
Start by getting a clear understanding of your customers. Develop personas that capture their online shopping habits, preferred social media platforms, and how comfortable they are with technology. This understanding will form the foundation for crafting a choice architecture that resonates with your target audience.
Step 2: Define Your Goals
Clearly lay out your objectives for using choice architecture. Whether you’re aiming to increase sales, boost social interaction, collect positive feedback, grow your subscriber base, or something else, having well-defined goals will guide your choice architecture strategies.
Step 3: Choose the Right Tools
Selecting the appropriate tools is essential. Consider your customers, goals, and the nature of your services. Different tools may be more suitable depending on the type of your services or products.
A video subscription service and an online bookstore may need different choice architecture tools. You can take advantage of the mentioned tools in the previous section.
Step 4: Test and Compare
Before fully integrating a choice architecture feature, conduct A/B tests. Test the new approach with a subset of your potential customers and compare the results with your existing setup. This method reduces the potential risks associated with changes and ensures that your new strategy aligns with your goals.
Step 5: Monitor and Improve
As you introduce choice architecture elements, keep an eye on the Key Performance Indicators (KPIs) that matter. Make sure you have access to the necessary data for analysis. Check if you are achieving your goals or not.
This is where business intelligence Aka BI, is very effective. You can read more about BI in the “Uncover the Business Intelligence Implementation” article.
While optimizing be careful about causing too many changes in short periods of time. It can reduce your authenticity and trustability. When making significant adjustments, like altering prices, do so carefully to avoid disrupting customer trust and loyalty.
Choosing the right Pricing strategy for your online business is another important subject that you can read in the “Best Ecommerce Pricing Strategy: How to Price a Product in Your Online Store” article.
Choice Architecture Examples
Choice architecture finds its strength in subtly influencing decisions, often through innovative techniques that nudge customers toward desired outcomes. Here are two illustrative choice architecture examples that showcase the power of choice architecture in action:
1. Priming for Perception: The Power of High Prices
Imagine this scenario: You enter an online store, and right at the header, there’s a captivating blog article showcasing the “5 Most Expensive Shirts on The Planet” Each shirt is accompanied by a picture that prominently displays its high price. At first glance, this might seem counterintuitive – after all, wouldn’t high prices deter potential customers?
However, this is a brilliant example of a psychological phenomenon called “priming.” By exposing customers to these high prices upfront, their minds become subtly primed to consider prices in a different light. As a result, the regular prices of other items in the store might now seem more reasonable and even economical in comparison. This strategic use of priming leverages choice architecture to shape customers’ perception of value, potentially leading to increased sales.
2. The Default technique: Free Trial with Credit Card
Subscription-based websites often employ the tried-and-true “free trial” technique to entice potential users. However, some take it a step further by incorporating a default option that can significantly impact customer decisions.
Consider a scenario where a website offers a 30-day free trial for its premium service. To access this free trial, customers are required to input their credit card information. Now, here’s where the choice architecture comes into play. By default, the website sets it up so that at the end of the 30-day trial, the service will automatically charge the customer for the next month unless they actively cancel before the trial ends.
This clever use of defaults is an excellent example of choice architecture in action. Customers who opt for the free trial might not notice or remember the automatic charge at the end of the trial period or they may simply don’t bother to go to their profile and after many clicks, cancel their service. The default option nudges customers towards continuing the service, utilizing their credit card information already on file. It capitalizes on the inertia of not wanting to go through the effort of canceling, making it more likely that the customer will convert to a paying subscriber.
Key Insights
- Choice Architecture involves strategically organizing the decision-making context to subtly guide choices, utilizing tools such as defaults, placement, and personalization for effective influence.
- Nudging, an integral part of Choice Architecture, employs techniques like anchoring to gently shape behavior by altering how options are presented, leading individuals toward desired outcomes.
- Choice Architecture’s toolbox encompasses tools like defaults, placement, anchoring, incentives, ease, personalization, commitment devices, priming, framing effects, decoy effect, loss aversion, and feedback loops.
- Utilizing Choice Architecture effectively involves steps like understanding customers through personas, defining goals, selecting tools tailored to the context, A/B testing, and monitoring KPIs for optimization.
- Data-driven insights, coupled with a customer-centric approach, drive effective implementation and optimization of Choice Architecture, ultimately enhancing decision-making processes.
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