If you’re reading this, you are no doubt familiar with nudges. But what about sludges?
Sludge practices are frictions that make it harder for consumers to make the right choices. Sludge practices can be found in almost any consumer interaction, particularly online. For example, many firms make sign-up as easy as possible by minimising the number of clicks needed for access, but cancellation processes remain cumbersome, for example, by requiring consumers to call customer service during restricted business hours.
And sludge doesn’t have to be intentional. How many businesses can honestly say they are confident that their customers actually understand their product or service’s terms and conditions? That they even read them at all? That is very likely sludge.
Or how many of their customers picked a product or service because it was easy to sign up but then never switched out of it because it was too much of a hassle? That’s sludge too.
The effect of sludges in cancellation practices is illustrated in a natural experiment following a 2007 US Federal Trade Commission (FTC) decision to close down a company charging ongoing fees for worthless subscriptions. Customers enrolled for more than six months before the ruling were required to take action (by mailing a form or making a phone call) to cancel their memberships, while more recent customers were told their subscriptions would be cancelled unless they took an action for their subscriptions to continue. Cancellations increased from 63.4% among those required to take action, to 99.8% among those who were required to do nothing.
Regulatory action to combat sludge
The prevalence and impact of sludge practices on consumer welfare have prompted the UK’s Financial Conduct Authority (FCA) to propose a new Consumer Duty, which expects firms to actively recognise and mitigate the impact of sludges. The Consumer Duty would require firms to think carefully about what a customer should expect from the product or service and ensure they are meeting that expectation.
In particular, firms should be fair in describing the benefits and risks of their products and services, and not disguise these through misleading framing or burying key terms in documents they know customers won’t read. To ensure fairness towards the consumer, the duty asks firms to continually test and monitor whether their practices are likely to deliver expected outcomes.
The new consumer duty has the potential to improve firm-customer relationships. It makes it more important than ever that firms understand where sludge may have crept into their processes and what they can do about it.
Measuring sludge: How BIT can help
At BIT we have been partnering with firms in financial services to help them design better, more customer-oriented solutions and test out new ways of interacting with their customers. For example, through our Financial Capability Lab, our multi-year partnership with the Money and Pensions Service, we redesigned web pages that highlighted key information and increased the amount of information absorbed by consumers by 21% (see page 27 of the report).
We’ve also helped companies understand how smarter disclosure can help consumers make better decisions. We compiled a best practice guide on presenting contractual terms and privacy policies based on a series of online experiments, which tested various ways to improve consumer comprehension of (and engagement with) online T&Cs and privacy policies.
We also partnered with the Centre for Data Ethics and Innovation (CDEI) to explore how to encourage users of online platforms to make ‘active’ choices about their privacy and data. We developed prototypes that demonstrate what active choice could look like in three online contexts – smartphone, web browser and social media – and tested the participants’ ability to make informed choices about their privacy and personalisation settings using the new designs (results to be published soon).
In a rapidly evolving online landscape, firms need the right tools to rigorously test whether their products and services are having the intended effect on their customers. Our online experimentation platform Predictiv allows us to test ideas very fast, in a safe and controlled environment. It was designed to provide quantitative evidence on what works and to go beyond self-reported measures – rather than asking whether people think they’ll take action, we measure whether they actually take action. It can also provide robust evidence much faster than alternative solutions, such as field trials, and is a feasible way of testing product changes out with a large sample before they are rolled out to the firm’s customer base.
We built Predictiv to test anything: communication materials (posters, audio, video) presented in isolation or real-world contexts (ie mocked-up text message or as it might appear on social media), app and website prototypes, or new website material or functionality. Combined with our behavioural science expertise, this means we can quickly develop behaviourally informed versions of materials, then rigorously test which versions perform best in a ‘sandbox environment’ – an ideal process for generating insights to inform future product designs that comply with regulatory requirements.
Want to learn more about how we can support your business?
If your firm would benefit from improving its firm-consumer relationship through online experiments or strategic and design advice or you want to hear more about work, please get in touch!