Behavioral insights to reduce cost of billing
We all have to deal with paying the bills - we regularly dole out our cash for gas and electricity we consume, our mobile phone, internet access, TV, some sort of local taxes (council tax in the UK), rent or mortgage, credit card debts and more (alas). While we obviously experience pain - on the other side, receiving our money corporations are not just happy. In fact making us pay, and dealing with questions can be quite costly. Moreover, the costs are varying greatly with the behaviour of customers – and fall in 4 buckets: informing, getting payment, dealing with complaints, dealing with late payments / debt.
In the first bucket there are costs to inform us that we need to pay (all those paper bills which have to be printed and delivered) – which can be reduced to zero with bills by email. Getting payment can be costly if done by a debit card over the phone, by cash at a branch / payment terminal / state bank (as typical in Russia and many other emerging markets) – to zero cost if paid by direct debit or equivalent schemes. A lot of calls arise when people have questions about their bills or disagreement with the amount (usually the company is still right- but explaining it tends to take a lot of the time of call centre agents, and can really harm customers). Finally going after non-payers is costly as requires sending reminders, making calls and potentially even sending debt collectors. All in all, customer care is worth billon of dollars, and also is one of the main factors of customer satisfaction in service industries.
Let’s explore in more details the first 2 aspects. The essence is that there is a preferred low-cost option, like e-bills and direct debit – and customer behaviour need to be altered so that they use this option (if such options are not available, for example in some emerging markets, one need to develop them to be behaviour-friendly – but this is another story). The main tools can be the power of default, loss aversion, and probabilistic reward.
There is some research which can be helpfully applied here. First of all, we know that putting an option as default can lead to dramatic differences in outcomes, as was shown for organ donation rates by Johnson and Goldstein (Johnson, E., & Goldstein, D. (2003). Do defaults save lives? Science, 302(5649), 1338-1339.). . Prospect theory, developed by Kahneman and Tversky and confirmed by a number of experiments, tells us that people will prefer avoiding losses of $100 to making a gain of $100. (Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011). Closely related to it is the endowment effect – in an experiment by Dan Ariely students who got their tickets to an important Duke Basketball game (though a painful process requiring camping by the booth and a lottery) were ready to sell it for app. $2000, while potential buyers (who went through the same painful camping, but were not successful in the lottery) were ready to pay only a few hundred (Dan Ariely, Predictably Irrational).
Direct debit and e-billing should be a strongly suggested default. It should be default for all new customers, getting in through all channels. Companies should also consider automatic enrolment at least for e-billing, like in Save More Tomorrow Program – for the customers they know email addresses of. Finally, at each touch point the customer should be given the choice to become an e-care customer, with default that they would switch. For example, when a customer calls in to pay his bill by credit card the agent should say – “we are switching you to a direct debit customer – please provide you direct debit details, instead of your bank card”.
An extra boost this method can get if loss aversion is employed. A utility company should inform customers that they have already got a £50 pounds discount / voucher to a grocery store / gift - and to claim it they need to switch to direct debit and e-billing. Alternatively, saying that price will go up, unless customers switch will also trigger loss aversion.
Finally, using probabilistic rewards can be a great way to entice people to switch. Giving people a chance to get a non-trivial amount of money (or a valuable prize, like and iPad) will make the issue salient and keep it salient long enough to make the switch. In fact this what tried for council tax in a few London boroughs, with great success (investments paid back within 3 months). (UK Government Behavioral Insights Team. Applying behavioural insights to reduce fraud, error and debt.)
And of couse the link on improving confidence. Fake it! It actually works ;)
References
Johnson, E., & Goldstein, D. (2003). Do defaults save lives?
Science, 302(5649), 1338-1339
Ariely, Dan, Predictably Irrational, HarperCollins, 2008.
Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and
Giroux, 2011
UK Government Behavioral Insights Team. Applying behavioural insights
to reduce fraud, error and debt. Available at
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/60539/BIT_FraudErrorDebt_accessible.pdf
