Sadly, the Internet has become an inhospitable place full of cookies and irrelevant advertising. Long gone are the days when marketing was considered one of the real differentiators of an organization. Back in the 1990s, with the 4 Ps of marketing – product, price, place, promotion - well established, marketing was the only real business differentiator. According to Peter Drucker, “the business enterprise has two, and only two, basic functions: marketing and innovation. Consumer insight was at the heart of it all, and a message architecture and media infrastructure were put around THE message.

But then something unexpected has happened. The journey is not working, and consumer archetypes are misleading. The upper funnel focusing on macro-marketing is largely distorted. The milking cow technique – stay on course, milk it, and revise the product every few years if necessary – does not work anymore. Marketing has begun to fall apart as a strategic function, and marketing people became advertising, content, events, or communication executives. Marketing is no longer a value stream. On the contrary, the concept is used as a synonym of a specific mix of marketing activities.

At the core of the change are human beings. Rather than “homo rationalis”, it turns out that we are “homo irrationalis”. And while the marketing journey was working in a linear, logical, and rational way, we make our decisions in an inconsistent, emotional, and quite often impulsive way, even when we know, it’s counter-intuitive and goes against all logic. All the technological innovation is only accentuating and stimulating the irrational power of the human mind.

We have “assumed” that there are well-established persona types, that all of us fall into prototypes, and that we all behave in similar ways while walking the journey as designed. All this has contributed to the fall of marketing to purely tactical function. We do not want to be treated as consumers, as one of the crowd. We want to be unique and special. And we expect enterprises to treat us as such. It is all about us, our needs, desires, and expectations. And we need help in making the right decisions on an increasingly overwhelming Internet with irrelevant advertising. At times, we need to be persuaded.

Behavioral Science

Behavioral Economics allows us to understand the irrational part of our decisions and challenge some of the cognitive biases that prevent us from deciding correctly. Sometimes the crowd drags us and makes us accept or defend misconceptions. This is what we call the “Social Norm” bias. The so-called “Confirmation-Bias”  induces us to not see the simplest solutions or more convenient products by focusing on the obsessive confirmation of our initial hypotheses, trying to endorse and support our first hypothesis, which prevents us from thinking outside of the box and proposing more radical or creative alternatives. Another well-known bias that affects our decisions is the Ikea-effect that makes us prefer those products that we build ourselves. When we invest ourselves in something, we like it better. A behavioral approach is useful in all aspects of life where we have to make a choice (In this article by Álvaro Gaviño, BE specialist at BBVA, you can find a nice example of how a runner nudged himself to finish the New York marathon using behavioral economics ).

Combining Behavioral Science and Machine Learning

Behavioral modeling is achieved by developing neural networks capable of predicting our response to marketing communications and nudges. How many of us will potentially see a campaign? What will be the conversion rate? What relationship does it have to a particular message with conscious or unconscious biases in our business communication?

We need algorithms because the amount of data that we must assess to understand consumer behavior is brutal, including consumer context where people find themselves, such as timing, channel, and personal characteristics. Besides, to anticipate customer behavior and response to a persuasive campaign, we need to resort to Natural Language Processing (NLP) to correctly evaluate the positive and negative biases that the language itself introduces in our marketing messages. And finally, we need to apply generative algorithms to produce and test a myriad of non-biased marketing alternatives.

A Behavioral Economics model, as explained by Chris Risdon in Scaling Nudges with Machine Learning, “is the best guess that this particular person will respond to this particular persuasion technique in this particular channel at this particular time. When it gets new outcomes, it can fine-tune its own parameters to increase the accuracy of its predictions”. We look for person-specific and situation-specific patterns.

This sort of studies, although manageable by manual methods, are arduous, difficult, and expensive. We can invest millions in focus groups and A/B testing of our campaigns by traditional methods. But it will be impossible to reach the 1-1 treatment that treats humans as unique beings. Without Machine Learning, it is impossible to scale from the unique to the many.

Defining a Strategy

Some financial institutions, such as BBVA or Capital One, stand out in their attempts to incorporate Behavioral Economics into interactions with their client. Chris Risdon, head of Behavioral at Capital One Bank, explains their strategy like this:

“We need to scale our ability to influence them not just through marketing and acquisition, but through the entire product or service lifecycle, based on a value proposition of behavior change. It’s a two-part challenge: first, augment the person’s rational self by providing a decision engine that, using machine learning, finds insightful patterns in their life and prescribes the next step. Then, control a person’s irrational self: identify and target their unique combination of biases and heuristics they use to make decisions, and protect them from those biases.”

Yes, I know, the idea that companies build on our behavior in addition to our clicks and navigation history to analyze the irrational part of our decisions may appear to be out of Orwell´s fictional world, the quintessence of Big Brother, and the opposite of a trusted  and healthy relationship with the brand.

On the contrary, utilizing Behavioral Marketing would be much better than continuing on the path of irrelevance and waste characteristic of the current approaches. The transition is inevitable. The progress in AI and ML can´t be stopped, and it is for the best. At times, we want to be persuaded to make a decision in the midst of the information storm.

To help you succeed in designing the right strategy, let me share a few important insights from my experience:

  • Dig into the data
  • Invest in selecting the right model of the relevant behavioral bias for your concrete business model
  • Be sure to rely on non-biased data
  • Apply reinforcement learning to train your algorithm while giving feedback to the machine
  • Use a platform and open approach to integrate with the marketing ecosystem (DMPs , AdWords…)
  • Embrace Behavioral Marketing now. This is the rational decision Today for you and your customers.

Feel free to reach out if you would like to discuss.