Behavioural economics: how to create a business model that retains customers
In a highly competitive marketplace where every business wants to attract and retain customers, behavioural economics is becoming an important tool for creating effective business models.
It examines how people make decisions and what factors influence their behaviour, including their choice of products and services. Understanding these factors helps companies develop strategies that not only attract new users but also retain existing ones.
Today, as companies face greater challenges in customer retention, it is important to consider that consumer behaviour depends not only on rational factors, but also on emotional and psychological aspects. Using insights from behavioural economics, it is possible to build more accurate and effective customer engagement strategies. This article will explore how to apply behavioural economics in building a business model that fosters long-term and productive customer relationships.
Introduction to behavioural economics
Behavioural economics combines psychology and economics to help explain why people make economic decisions, often without following the principles of rationality. For example, when we see an advertising campaign with a limited offer, we tend to decide that we need to act quickly to avoid missing the opportunity. This influence of emotion and subjective judgement leads to decisions that are not always based on logic and long-term benefit.
An example of this approach is the use of gambling as a marketing strategy in various platforms such as foxy gold casino. Users often make decisions based on what special promotions, discounts or bonuses are offered. Behavioural economics helps such companies not only attract new customers but also retain them by creating an emotional attachment to the brand and service.
Key principles of behavioural economics
Understanding customer behaviour, preferences and psychological reactions helps create a business model that meets user expectations and fosters customer loyalty. Let’s look at a few key principles of behavioural economics that have a significant impact on consumer decision-making.
1- Limited rationality
Customers often cannot process all the information needed to make the perfect decision. Bounded rationality is about people choosing the decisions that seem best for them within limited resources of attention and time. This means that companies can use simplified choice processes or offer ‘smart’ solutions that make the choice less complex for the consumer. For example, introducing simple and straightforward loyalty schemes that are easy to understand makes the decision-making process more intuitive.
2. Influence of social factors
People often focus on the opinions of others, which explains the popularity of multiple reviews and recommendations on the internet. Marketing often uses the principle of ‘social proof’ to demonstrate how widely a product or service is used by others. This principle allows for social media-centred models where users recommend products and services to each other, creating mass demand.
3- Emotional decision making
One of the basic tenets of behavioural economics is that emotions play a much more important role in decision making than reason. Using emotional factors in advertising and marketing can create a strong attachment to the brand in the customer. For example, companies should use engagement elements such as personalised offers or success stories to evoke positive emotions in users and create lasting associations with the product.
4. The principle of limited accessibility
Restricting access to products or services can stimulate demand. The use of marketing strategies such as limited offers or exclusive products is based on the principle of ‘scarcity’. Consumers often tend to act more quickly if they feel that an offer is limited in time or quantity.
5- The Anchor Effect
People tend to make choices based on initial information or offers that are provided to them first. This is called the anchor effect. For example, if an initial offer seems favourable, people perceive subsequent offers as less attractive, even if they are also favourable. It is important to utilise this effect correctly when creating pricing strategies, offers and promotions.
How to apply behavioural economics in creating business models?
Now that we have covered the basic principles of behavioural economics, it is important to understand how this knowledge can be put into practice to create business models that promote customer retention.
1. Creating personalised experiences
Personalisation is not only one of the most powerful, but also one of the most relevant tools in modern marketing. With a crowded marketplace and numerous competitors, brands that are able to tailor their offerings to individual customer needs are winning the competition. By understanding what really matters to the consumer, and being able to predict their interests based on previously collected data, customer loyalty and retention rates can be significantly increased.
How does personalisation work?
At the heart of a personalised approach is the idea that every customer is unique and their needs are different from others. Modern technology allows us to collect huge amounts of data about users’ behaviour on the website, their previous purchases, interactions with the brand, as well as information about demographics. All of this data allows for the creation of personalised offers that are much more accurately tailored to the customer’s desires than standard marketing strategies.
With analytics and machine learning algorithms, companies can predict customer preferences and offer them the most relevant products or services. This reduces the likelihood that a customer will leave the site without making a purchase and increases conversion rates. For example, if a customer on your site frequently searches for certain products or considers them but doesn’t buy, you can offer them a discount on those products, or remind them of them with personalised advertising.
Customer segmentation: the key to successful personalisation
Customer segmentation is one of the most important steps to create a personalised experience. This process allows you to divide your customers into different groups based on certain attributes: age, gender, location, interests or website behaviour. This gives you the opportunity to create more accurate and personalised offers for each group.
For example, if your product is aimed at families with children, you can segment your audience according to this criterion and offer specific products that may be of interest to these customers, such as toys, household products or books for children. This will greatly increase the chances that your customer will make a purchase, because the offer will be as relevant to their needs as possible.
Segmentation can be done based on:
Demographic characteristics (age, gender, income).
Website behaviour (frequency of visits, pages he viewed, time spent on the site).
Purchase history (purchases that have been made previously, product categories that the customer selected).
Personalised recommendations and their impact on decision making
Another important personalisation tool is recommendations. This element is actively used on many platforms such as Amazon, Netflix and Spotify, and has shown to be highly effective in increasing sales and user engagement. Recommendations allow a company to direct customers’ attention to products that they may be interested in, thereby increasing the chances of purchase.
Algorithms based on behavioural analysis take into account a user’s actions on a website or app, as well as their past choices and preferences. Thus, if a customer has already bought a certain product category, the system will suggest similar products that may be of interest to them. This process improves the interaction with the brand and makes it more convenient and intuitive, reducing the risk of the customer leaving for a competing platform.
Special offers and bonuses for individual customers
To increase loyalty and encourage repeat purchases, companies often use personalised promotions, bonuses and discounts that target customers’ interests and preferences directly. For example, offering a discount on a product that a customer has looked at several times but not bought, or offering free delivery based on their previous purchases can be a strong incentive to complete a transaction.
Using personalised offers can not only increase purchases, but also keep customers coming back for more. You can offer special bonuses and discounts to those who haven’t made a purchase in a while, thus revitalising their interest in the brand. This can be done through emails, SMS notifications or via a mobile app.
2. Implement loyalty programmes
Loyalty programmes are effective in retaining customers as they create incentives for repeat purchases, more on this term is written in Wikipedia. Elements of the programme such as accumulative bonuses, discounts for repeat purchases or exclusive offers for loyal customers help to increase satisfaction and brand attachment. Such programmes can be adapted to take behavioural factors into account, for example by offering customers small bonuses for participating in certain promotions.
3. Applying the principles of social proof
Using customer testimonials, recommendations, or even bloggers and opinion leaders who popularise a product greatly increases trust in the brand. This helps to build long-term relationships with customers and increase their loyalty. Creating user experience platforms or simply implementing a product review system helps build a positive perception of the company.
4. The psychology of discounts and promotions
Discounts, promotions and special offers always attract the attention of consumers. However, it is important to realise that not every discount works in the same way. Using the concept of scarcity, such as time-limited promotions, can create a sense of urgency in customers, which encourages them to buy quickly.
Time-limited discounts.
‘Secret’ promotions for loyal customers.
Bonuses for first purchase or repeat order.
5. emotional engagement and storytelling
Simple facts and numbers can’t always win the trust of consumers. To make an emotional connection, companies should build their communication with customers through storytelling, more ideas for storytelling can be found in the TED podcasts section . Stories about how a product or service has helped others create a sense of identification with the brand and a desire to be part of its story. Using such strategies can not only increase loyalty, but also make the customer an active supporter of the company.
Conclusion
Behavioural economics is an important tool in developing strategies to retain customers. By applying its principles, companies can not only attract new customers but also strengthen ties with existing ones. It is important to understand that customer behaviour is not always rational, and using emotions, social factors and cognitive distortions in marketing strategies greatly increases the likelihood of successful sales and long-term customer relationships. Implementing these principles into a business model requires careful work with customer data and psychology, which ultimately leads to sustainable growth and development of the company.
